Money Habits & Money Mistakes With Lámidé Elizabeth

Upbringing & Influences

At the age of 18, I became committed to understanding money. It was during this time that I first picked up "Rich Dad Poor Dad." I took a gap year and worked at an insurance company, saving diligently since most of my friends had gone to university, leaving me without many social distractions. Earning my first significant paycheck, around $1,000 a month, I was determined not to repeat the money mistakes I had seen in my family.

Reading "Rich Dad Poor Dad" was a pivotal moment. Looking back, I wouldn't change anything about my approach at that age. I was proactive and switched-on regarding finances at the right time. For anyone at a similar stage, it's crucial to recognize that your money journey starts early.

The habits you develop and the mindset you adopt about money are like muscles that need regular exercise. People often ask how I'm so good at saving, and the truth is, it began with small amounts. As I earned more, my savings muscle grew stronger. Starting early with these good habits has made a significant difference in my financial well-being.

Mistakes and Mindset

Let's start with mistakes. A significant one that comes to mind is allowing our past traumas to dictate our financial decisions. Often, we make purchases not to impress others, but to impress our younger selves. For instance, when I first started making money in investment banking, I bought a lot of designer items. The motivation wasn't to flaunt my wealth to others, but to fulfill a promise to my younger self.

As a child, I would walk into designer stores, look at the price tags, and put the items back, thinking, "One day, I'll be able to buy anything I want here." When I finally started earning a good salary, I bought designer goods to prove to my younger self that I had made it. Many people fall into this trap, continuing to prove a point to their past selves or to those they grew up with.

Lifestyle inflation is another common issue. Instead of building and preserving wealth, some people feel the need to display it. This is especially true for those who grew up with less. They want to show that they've achieved success, often beyond their actual financial means. In cities like London, driving luxury cars is a way people demonstrate their financial status, sometimes more than their income justifies.

One critical mistake is not addressing the financial traumas from our past. By not dealing with these issues, we continue to make decisions based on a need to prove something, either to ourselves or others, rather than making sound financial choices.

Lifestyle Inflation: A Wealth Killer

Lifestyle inflation is a major obstacle on the path to wealth. If you don't increase the gap between how much you earn and how much you save, your financial situation won't improve.

When I started working in banking, I assumed that the high earners there were financially secure. During my internship, we had various corporate socials meant to entice interns to stay. As the night wore on and people became more relaxed, I overheard senior staff—VPs and executive directors—talking about their finances. Despite their high salaries, they were still complaining about money, discussing how they struggled to afford certain expenses like school fees.

It was a revelation. These executives were earning far more than anyone I knew growing up, yet they had the same financial concerns. This was a clear example of lifestyle inflation: despite significantly higher earnings, their spending had increased to match, leaving them with the same financial worries. This highlighted for me that without controlling lifestyle inflation, higher earnings alone won't lead to financial security.

Achieving Financial Balance and Avoiding Lifestyle Inflation

When discussing balance, many people focus solely on work-life balance. However, we often overlook the crucial role that money plays in the life we want to live. It's essential to evaluate our relationship with money and create a system to manage it effectively.

To avoid falling into the trap of lifestyle inflation, recognize that some increases in expenses are natural, such as when moving to a new city and living independently for the first time. In these cases, your cost of living will naturally rise as you take on new responsibilities like paying rent.

A key strategy is to practice value-based spending. It's perfectly fine to spend money on things that truly matter to you, but you should always question the intention behind your purchases. For example, ask yourself if you really need to upgrade from an iPhone 13 to an iPhone 15 and what difference it will make in your life.

Additionally, having clear financial goals and a plan is crucial. If you decide that saving isn't important to you and you prefer to spend all your earnings, that's your choice. However, if you have financial goals and don't want to be financially dependent forever, you need to save and invest. Your money can't work for you if it's all going towards expenses.

Most of us are still in the phase of working for our money but consider how long you want to continue doing that. At some point, you may want your money to start working for you. I've seen many people reach retirement age without sufficient savings, unable to retire because they've spent all their money.

If you aim to build wealth, your money needs to work for you, which means saving and investing. The more you can increase the gap between your earnings and savings, the faster you can accelerate your path to wealth. This balance is essential for achieving long-term financial security and freedom.

The above is from a conversation on The Balance Theory Podcast.

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