Why You Will Never Become Rich

Getting rich, after religion, is one of the most selling concept in human history. You can see it everywhere. In articles like How to become wealthy: It’s simpler than most ‘experts’ say, in books like How to Become a Millionaire, and also in seminars such as Get Rich Steady Seminars.

You can even see this in business of education. One of the prime focus of studying is to get rich, not to build competencies -it comes as a side effect, if it comes at all. Isn’t it why you have a stack of degrees attached to your name -B. Tech, CFA, CA, MBA Degree, a second MBA degree. You get the point.

However, still, you will never become rich.

Oxford defines rich as

“Having a great deal of money or assets; wealthy”

 

what they don’t define is

“that getting rich is also a psychological construct, a state of mind”

 

Evidently, the guy who wrote that definition never read psychology. There are two reasons why I say that you won’t be getting rich.

First, You will sample it all wrong. Let me illustrate

You work hard. Get into an ivy league B School. Land a high paying job. Marry to the girl of your dream (or your parent’s). And you will have kids. Then you want best for your family and yourself. Don’t you? So, you will stretch, more than your means. You will search for a rich locality to live in. The one just above your comfort. You will take loan, loads of it. And buy yourself into a rich neighbourhood.

And what will you get.

Your vicinity will be inhabited by extremely successful corporates executives, Investment Bankers, high flying entrepreneurs. The social circle would comprise of corporate raiders with their trophy wives, their children studying in schools that will put competition to 3 star hotels.

Day in and day out, subconsciously, you will compare yourself against them. Forget the fact that you are better than 99% of the rest of country’s population. You will set yourself against them -your house against theirs’ villa, your car against theirs’ BMW, your watch against theirs’ Rolex, your tie against their Hermes

You will concentrate only on the winners, survivorship bias, instead of the losers. Losers are just not visible to you. You are surrounded by high achievers

Nassim says in Fooled by Randomness of a fictional couple Marc and Janet living in New York:

This case provides a very common illustration of the emotional effect ofsurvivorship bias. Janet feels that her husband is a failure, by comparison, but she is miscomputing the probabilities in a gross manner -she is using the wrong, distribution to derive a rank. As compared the the general U.S. population, Marc has done very well, better than 99.5% of his compatriots. As compared to high school friends, he did extremely well…… But as compared to his neighbours, he is at the bottom! Why? Because he chose to live among the people who have been successful.

It is a wrong sampling. You know this. You should not sample the size that exudes failure. You have studied this in your MBA -Sample size should be representative. But there are no failures in your sample. You will fail to apply this simple learning in your life and chose to stay poor.

Apart from the wrong sampling and the resulting misperception of one’s performance, there is a social treadmill effect:

“Aside from the misperception of one’s performance, there is a social treadmill effect: You get rich, move to rich neighbourhoods, then become poor again. To that add the psychological treadmill effect; you get used to wealth and revert to a set point of satisfaction. This problem of some people never really getting to feel satisfied by wealth (beyond a given point) has been the subject of technical discussions on happiness.”

Now I can advise you to build a statistical perspective. You are “poor” not because you are “POOR”. You are poor because you are sampling it all wrong. I can advise you to get cognizant of your biases and get over the social treadmill effect. But being rational is not normal to human beings. Its difficult to put reasoning in the midst of emotional chaos that such biases create in our mind.

However you may try, it’s very difficult to get down the stairs, take out your hatchback out of car parking and not steal a glance to the Mercedes parked on the left.

PS: Even though the article says you can’t get rich, it also says, between the lines, what you can do to become rich 🙂

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