How I Help My Clients Achieve Financial Freedom by Avoiding the Perils of Perceived Wealth

As a CERTIFIED FINANCIAL PLANNER and Coach at The Richness Academy, my mission is to empower individuals to achieve the financial freedom they truly deserve. My clients come from diverse backgrounds—senior professionals, entrepreneurs, young couples, retirees, single mothers, and divorced women—all united by a desire to lead rich and fulfilling lives.

One crucial aspect I often coach them on is managing their spending habits, particularly when faced with the phenomenon of “increased perceived wealth.” This psychological trap often leads people to spend more as their assets appear to grow, but without a corresponding increase in real, long-term financial security. Let’s delve into how to break free from this cycle, preserve wealth, and truly enjoy financial freedom.

Understanding the Illusion of Perceived Wealth

Imagine this scenario: You discover that your property has doubled in value over the years. Naturally, you feel richer. However, unless you sell and realize that gain, this wealth exists only on paper. Despite this, many people start spending more, indulging in luxury purchases or unnecessary upgrades, often neglecting to factor in future financial responsibilities.

This is where perceived wealth syndrome sets in—a psychological phenomenon that can derail even the most disciplined financial plans. My role as a financial coach is to help clients resist this urge and redirect their newfound confidence toward meaningful financial goals.

Why Perceived Wealth Can Be Dangerous

Perceived wealth doesn’t equate to actual, usable wealth. Here are some reasons why:

      1.  It Creates a False Sense of Security: People tend to overestimate their ability to spend because they feel richer, even when their income remains constant.

      2.  It Diverts Focus from Long-Term Goals: Short-term gratification often takes precedence over building a stable financial future.

      3.  It Leads to Financial Instability: Spending based on perceived wealth can drain resources that should be invested or saved for emergencies and future needs.

How to Break Free from the Trap of Perceived Wealth

Here are actionable strategies I recommend to my clients to avoid falling into this trap:

Also read: What You Need to Know About India’s 12 Crucial Microeconomic Indicators and Their Impact on Your Investments

1. Adopt a Cooling-Off Period for Big Purchases

Whenever you’re tempted to make a significant purchase, pause. Reflect on whether this aligns with your long-term financial goals. For instance, I advised a client in Gurgaon, a senior professional, to delay purchasing a new luxury car. After evaluating his retirement goals, he decided to invest that money in a diversified portfolio instead.

Action Plan: Implement a 30-day rule for any unplanned expense over a certain threshold. Use this time to assess if it’s a necessity or a passing desire.

2. Focus on Real Wealth: Freedom, Not Possessions

True wealth is not about owning expensive items but about the freedom to live life on your terms. For example, a young couple I mentored in Delhi NCR wanted to splurge on a high-end gadget. After a session, they chose to redirect that money toward their children’s education fund.

Action Plan: Define what financial independence means to you—whether it’s early retirement, funding your children’s education, or achieving debt-free living.

3. Celebrate Upgrades That Add Real Value

Upgrading your lifestyle isn’t inherently wrong, but it should be intentional and productive. For instance, consider investing in health, education, or your home’s energy efficiency rather than splurging on depreciating assets like luxury electronics.

Action Plan: Identify areas where spending can enhance your quality of life meaningfully, such as improving your health or learning a new skill.

4. Prioritize Savings and Investments

One of the best ways to counter perceived wealth is by making your money work for you. I often advise clients in Gurgaon and beyond to automate their savings, ensuring a fixed percentage of their income goes toward investments.

Action Plan: Set up a recurring deposit or SIP (Systematic Investment Plan) to channel perceived surplus into wealth-generating instruments.

5. Avoid Mental Accounting Traps

Mental accounting leads people to treat different sums of money differently based on their source. For example, many treat a bonus as “free money” and spend it frivolously. Instead, I encourage clients to integrate such windfalls into their financial plans.

Action Plan: Treat all income as part of a unified financial strategy. Allocate windfalls toward debt repayment, investments, or emergency funds.

6. Create a Vision Fund for Meaningful Goals

Whether it’s starting a business, traveling, or pursuing a passion, channel perceived wealth into achieving life goals. A retired client I coached in Gurgaon redirected his property gains toward creating a legacy for his grandchildren’s education.

Action Plan: Set aside a dedicated fund for long-term aspirations and monitor its growth periodically.

7. Educate and Empower Your Loved Ones

Wealth is not just about accumulation; it’s about sharing and empowering those around you. Consider gifting experiences or sponsoring education for a family member rather than spending on material goods.

Action Plan: Use financial gains to create lasting impacts within your family or community, ensuring that your wealth serves a greater purpose.

Final Thoughts: Building a Richer Life

The perceived wealth trap is easy to fall into but equally easy to escape with the right mindset. As a financial planner and coach, I’ve seen how intentional strategies can transform lives. Whether you’re planning for retirement in Gurgaon or navigating personal finance challenges as a single mother, the key is to focus on long-term goals over short-term indulgences.