To achieve financial independence, you must be comfortable with yourself and not be concerned with others. You must be focused on your financial situation, and your goals. Forget about keeping up with the Jones.
A Wealthy Display
I was in high school when I began noticing a few trends with regard to wealth. Have you ever noticed that the wealthiest among us wears the most basic of shoes, clothing, and drives an average car. In high school, the students with the regular but quality shoe happened to be from wealthy households. Here, I am using regular to mean “not flashy”. These are the friends who lived in the best neighborhoods with parents who were executives and/or held secure positions. These friends did not care to draw attention based on what they could afford.
On the other hand, friends with flashy high priced shoes, book bags, and hairstyles tended to have parents who were less well off. These friends wanted to show everyone that they had the most expensive you name it. These friends were not secure financially.
The wealthiest among us does not care what others think, and their children do not either. When you are financially secure, you care a lot less what others think. You also have a bit more confidence because you are secure and you are less dependent on others for your well-being.
Group I /Group II
Think about this now in adult life. Think of your friends in two basic groups, Group I and Group II. The below (Group I/Group II expenditures) are only a generalization and does not include additional costs such as food, entertainment, student loan payments and other monthly costs. The below serves as a simplified example.
Group I
- Group I
- Leases their vehicle. Typically a luxury car: Mercedes, Porsche, BMW or a Tesla;
- Lives in a McMansion/junior McMansion;
- Takes lavish vacations;
- Post their activities frequently on social media; and
- Sends children to private school
On average, Group I are high earners, but are they wealthy? If Group I loses their jobs, could they survive? For how long? By leasing a car, Group I will carry car payments for the foreseeable future. However, as a benefit, Group I will always have the newest model car.
The junior McMansion’s mortgage is typically above average and comes with the associated expenses for heating and cooling such a large home, landscaping, and the inevitable general up keep and repairs. This adds up very fast.
Private school can cost tens of thousands of dollars and in some cases hundreds of thousands of dollars, per child.
Let’s face it; Group I’s monthly expenditure is very high. Any lost of income can have a dramatic effect on the well being of Group I. From this basic analysis, it becomes very clear why so many families earning six figure incomes are living paycheck to pay check. High earners losing their jobs played out for all to see during the last financial crisis. Stories were abound of those with household incomes of close to $500,000, who had large debts, and following the lost of a job eventually lost their homes.
Consider the following, if you lost your job but had $100,000 in savings, a $600 per month car payment, a $5000 mortgage, and $4000 monthly tuition for one child. How long could you keep up? Not long at all. Your savings would be depleted fairly quickly. The depletion of savings would be further accelerated by the payments associated with any outstanding credit card debt or student loan payments.
Group II
- Group II
- Owns their vehicle. Typically a an average car: Toyota, Honda, or Nissan;
- Lives in an average sized home;
- Takes vacation on a budget, use AirBnB;
- Does not frequently disclose their activities on social media; and
- Sends children to good public school/dabbles in private school.
Group II include high earners, but also those who earn an average salary. Unlike Group I, because the monthly expenditures are lower, interruptions in income will not be as dramatic. Group II tend to have more of a buffer.
Group II are the millionaires next door and typically do not care what others think. These folks do not know the proverbial Jones and if Group II did, Group II do not want to keep up with them because Group II are preoccupied with building wealth.
It is highly likely that Group II earns more than Group I, but simply lives below their means. Group II could be earning six figures and multiples thereof but will stay in the same home, drive the same car for 10 years and take advantage of good public schools. Even if Group II loses their jobs, because their expenses, on average, are lower than that of Group I, Group II are able to whether such a change in better shape than Group I.
The Unknowns
We all know folks who live in the largest homes and drive the newest cars. What you do not know is their financial situation. You do not know if they are in debt. Do you know if they have an inheritance? You do not know if they are behind on car payments or mortgage payments. What about credit card debt, or student loans. You just do not know.
With all the unknowns, focus on what you know. You know your situation, your goals, and your financials (savings, expenditures, investments). Instead of keeping up with the Jones, keep up with your goals.
Who would you rather be? Group I or Group II? In the end, the choice is yours.
Which door will you walk through?
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