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April 06, 2011

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I'm 26...and I can honestly say...this post should be printed and stuck on my fridge. I fall in that nasty spiral...and the worst part is, I know I do!! I catch myself wanting more, reaching a goal and still not being satisfied, etc. My friends are usually older...have 7+ years on me so their financial situation is different than mine. If I compare myself to my fellow graduates from HS and college...I'm doing fairly well. Have a career in a field that interest me and that I have a degree in, I just purchased my own condo and live alone, make 82k a year, no kids, Bachelor lifestyle at the moment, have 2 cars (a "toy" and a daily driver) and of course...have payments on both, student loans, and a small balance on a CC. Yet I wake up and have the urge to sell both cars and get myself the new E92 M3...nothing like having an 1100 month car payment for 6 years w/ no money down (yes...that's how much it would be, and I have lost sleep at night thinking about if I can swing it!). For what? To say I drive an M3 at 26? yes it's my dream car...but nobody else will care about that fact.

Long story short...It's sad. I know better, I want to do the "right" responsible thing, but it is a daily struggle for me not to stretch myself so THIN. Thanks for the post, I needed a slap in the face!

Mike - you are blessed to have such parents. How would you suggest modern day parents convey the same message to modern day kids? I don't have any yet, but would think the pressure is even more today with cool gadgets / toys all around us...

Great post, Mike! It's so true that the people you try to keep up with are usually the ones under a pile of debt!

I know so many people that are driving around in new fancy BMWs and Mercedes and all I can think is there is NO possible way they can afford those cars. But they do it to keep up with one another! It really doesn't make any sense at all.

Even if you can afford that stuff, think of the opportunity costs...like not investing more and retiring earlier... or perhaps the bigger picture. For instance, I have always wanted to live on a lake...not to keep up with the Joneses, but rather a lifetime dream and goal of mine... though I suffer from lifestyle inflation in the meantime like many others.

Break the cycle now. If the Joneses start thinking you're crazy that just means your on the right track.

I keep trying to explain this to my kids. Mother of 3 teenagers. Not sure if they are getting it. I'm sure they see me as cheap as my daughter, who is 16 constantly rolls her eyes at me when I mention saving. Every time I get extra money, she always asks me, "Mom, what are you going to do with the money"? I always answer and say--something boring...like "I'm adding it to my savings account". Here comes the eye roll. I try and teach her to save some, spend some and give some. She tends to spend ALL. I learned the valuable lesson of saving from my father and am trying to instill that in my own children. They are not as receptive as I was, but I keep trying. The article is on point!

I have a neighbor that does his best to encourage others to follow his example.
This guy is my age, in his mid seventies, and yesterday he called me over to admire a new car that he had just bought. When he opened the garage door I was amazed, there was a brand new 2011 silver Mercedes E350 for which he had just paid $51K and next to it was his older Mercedes E350 of the same color that is in totally pristine condition. While he was proudly demonstrating all of the new Bells & Whistles on the new one I said, "What are you going to do with the old one?". His reply was "I'll just give it to my son".

They are an old couple of Palestinian refugees from the West Bank that used to own a very popular Deli and never take trips and never go to restaurants, but he likes to have the best of everything and show it off to everyone on the street whether they are interested or not. I am going to stick with my 1991 Mercedes 560SEL backup that I drive about 500 miles/year just to keep the battery charged, and our primary car, a 1998 Mercedes C230, that we both drive about 3000 miles/year.

Our $51K plus 9.25% sales tax gets to remain at Fidelity making money for us so that we will still be able to afford healthcare after the Republican party gets through with their current plan to disembowel Medicare! I also will be paying a lot less every year for car registration fees and insurance - that also matters to me.

I agree with your thoughts 100%. When I worked in a bank, the managers all had old cars and phones that made phone calls. The hourly employees had new hot shot sports cars and the newest iPhones and gadgets.

While they looked like they had it better on the surface, the managers all owned homes in nice neighborhoods and had healthy savings and investment accounts. The hourly people had their money in depreciating assets (cars) and lived in small, rented apartments.

Needless to say, the Warren Buffet approach is much better. Live below your means and try to grow your assets through long term decisions. The Joneses might look good, but you never know what their credit card bills and savings accounts look like. I am not too worries about them.

I struggle with this somewhat, but for me it is a bit different. Let me explain.

Sometimes I get these crazy ideas of things I want, but instead od running out and buying them brand new, I try to find innovative ways to obtain what I want. Case in point.

- I have been wanting a little sports car to drive around (Right now I drive a truck)
- I have been hesitant to buy one becuase I do sometimes have a need to haul things in my truck
- I got the craazy idea to see if I could sell my truck, and use the proceeds to buy both a sports car and an older truck that I could still use to haul things when needed

Of course I don't really need a sports car, but I would enjoy one. And at least on the surface it looks like I could buy one plus another truck without spending any money.

These are the type of weird ideas I get whenever I feel the itch to buy something. I turn it into a challenge.

My wife and I are saving 25% of our gross income for retirement, and investing more on top of that into real estate and taxable accounts.

To me, you reacha point where it really is OK to spend money on things you want, even if they are flashy and go fast.

The only thing money can be used for is spending, either now or later.

I lack a competitive spirit and didn't realize this is actually a benefit to me when it comes to this topic of keeping up with the Joneses.

I don't feel competitive with my friends or family, if anything most of my self-improvement is for me and anything I buy is stuff "I" want.

I'll admit I can get a little green-eyed sometimes (because I'm human!), but I bring myself back down to Earth and say that is their life and not mine.

Also if they're people you care about why would you want to compete with them, if anything you should be happy for them!


Limey, I'm curious what you plan on doing with your assets? At my age (27), I am squirreling away every spare dollar for income-producing investments, with the expectation that within 10 years I will be able to replace my salary with investment income (perhaps combined with other side income). The goal is to have freedom from the need to work on someone's schedule as well as freedom from the need to worry that I won't be able to pay the bills, all in order to be able to enjoy life, be available for friends, family, and children, give generously, etc.

It is clear to me, from your posts, that you are very likely to have a significant estate when you eventually pass. Is your goal to pass it to your children (sort of like your neighbor, passing his car along)? To give it to the government to fund Medicare? To give it to charity? I guess what I'm asking, and I really do ask this out of curiosity and not as an accusation, is why continue to revel in frugality at this stage of life when you can clearly afford to loosen the reins a bit without causing anyone any hardship?

I used to hear the same thing from my parents all the time. I think that we need to understand how to manage our own households before we begin comparing ourselves to others! This is especially true, when we use the size or amount of possessions in order to make the comparisons!

Great article, I luckily learned this lesson long ago and cut up every credit card I had. Now they're all paid off and that money I WAS WASTING goes towards month long vacations and taking a lot of time off work with no problems.

I value TIME not money:)

Jonathan:
We still save because we have everything we want and we buy everything we need without a second thought and we still don't even make a dent in our annual income.

My 1991 Mercedes is in perfect condition with 86,000 miles on it. The 1998 Mercedes is also in perfect condition with 63,000 miles on it. Both were pre-owned so what would I achieve by replacing either one. The house, built in 1972 is also in perfect shape and now that the children have left we have more rooms than we need but the thought of packing up and moving is terrifying. Neither of us have the energy or desire to do that. If you could see our garden right now with many red and green Japanese maples in new leaf, the crab apple, plum, apple, and cherry trees in full blossom, the lawn a perfect emerald green, and the large colorful fish happily swimming around in a beautiful pond with a cascading waterfall that will soon have water lilies blooming you wouldn't want to move either, especially since our property taxes are only $2,172/year for a 2,500SF home on 1/3 acre in the best custom home tract in the city, close to everything, and with a climate that is second to none in the world in our opinion.

A question I sometimes ask a person is, "Are you happy with what you see when you look in the mirror?"
Many people obviously are not and feel that they have to buy new toys in order to impress others. I do not feel an urge to impress anyone nor does my wife. We are as happy now as we have ever been.

Eventually our estate will pass entirely to our three children and their grandchildren but not in equal amounts of course.

What if the Jones are big savers. Is it ok to keep up with them then?

And if they are big savers, and you are competitive and want to outsave them, does that make it better?

Money buys two things. Freedom and choices. If you already have both, or can't have either one, then money matters little.

Limey, thanks for the response. I don't doubt you are very content with your life, which is everyone's dream at its deepest level. But even your response triggers the question I'm still wondering the answer to: you don't want to move, "especially since our property taxes are only $2,172/year." What if they were $5,000 per year instead of $2,172? Would that especially bother you? What if Jerry Brown raises the income tax and you get hit up for one more percent? So long as these costs remain "not even a dent in your annual income," then why do you get so much satisfaction from the fact that your costs are where they are?

The book "Millionaire next Door" kinds of sums up what you are talking about. The person who looks wealthy (buys all the gadgets, toys, etc) usually isn't becuase he spent all his money buying stuff.

You become wealthy by spending less than you make, investing wisely, and add in some time.

Enjoyed the post. I can personally say I've been through your friends shoe and learned the hard way.

The sentiments expressed in this post are spot on. Very rarely do you see the true finances of people who claim to be well-off and like to show-off about it. The richest people are often the least flashiest and the most modest. Keeping up with the Jones is like a race against time....there is only one winner.

Jonathan:
If we were to sell our home and move up to one of greater value, the property taxes would jump from $2,172 up to well over $10,000. I feel that I would rather do, or buy other things with that money rather than just hand over another $8,000+ to the Santa Clara County Tax Collector every year and receive absolutely nothing more in return than what I am already getting.

As for state income taxes, I am a Democrat and side with Jerry Brown on the need to keep the tax rates and fees that were passed in 2009 the same for a few more years in order to prevent huge cuts in education and having to close some of our beautiful State parks among other things.

As for moving elsewhere in the state, I also like parts of San Diego and Monterey counties very much but we have been here since 1960 and have put down some deep roots that I would hate to have to sever. There's also a provision in proposition 13, the law that keeps our taxes low, that gives each county in the state the right to decide whether or not to allow newcomers from other counties to keep their current tax assessments if they buy a property of "equal" or "lower" value. The most desirable counties, the ones that retirees are most likely to want to move to, have all pretty much decided not to reciprocate with other counties in order to limit the influx of new residents. They would rather have people that move there be assessed at the regular rate of over 1% of the sales price.

The roots I am talking about are things like the 33 years of blood, sweat, and tears that I have put into making many improvements, and landscaping our property and watching all the shrubs and trees mature to their present state. I also hike every Friday of the year with an "Adult Ed" group that carpools to one of the scores of beautiful parks in the Bay Area to exercise, enjoy the flowers, birds and animals (Bobcats, Deer, Coyotes, Hawks, Quail, and Wild Turkeys are OK but hopefully not a Mountain Lion). Often when we are hiking along and looking out over the pristine forests of the Santa Cruz Mountains, having not seen any other hikers all day, I sometimes remind people that there are 1,000,000+ people living within the greater San Jose area, but they're nearly all at work, at home, or on the freeways. A trail called the Bay Area Ridge Trail has been constructed since our arrival, it has 330 miles already finished and non profit groups are actively attempting to purchase lands that close the gaps and bring it to the final 550+ miles in length. We also have children and grandchildren in the area and we have each made many friends that we don't want to give up.

Thanks everyone for the awesome feedback. It's a great feeling to see something you write actually have an affect on people.

@Sunil, I definitely think it's harder than ever to teach kids to avoid the latest gadgets and toys. The best thing you can do is be a good role model for your kids. If they see you walking the walk, hopefully they'll open their ears when you talk the talk.

As Dave Ramsey says, "If you live like no one else, someday you will live like no one else"

For some people, they may want to buy that new Mercedes, others may want the dream house. Some may just want to travel the world. What one finds to be a waste of money, is different to someone else. Does it really matter if they have saved diligently?

Great article. Keeping up with the Joneses can be crippling, but you need some competitive fire to get ahead and improve. Finding that sweet spot, happy medium is key. Saving is great for the future and we should all save as much as we possibly can. But appreciating what you have helps you enjoy your right now!

As I progress more away from comsumption I am realising more and more how much money I just don't spend. I'm suddenly earning more cash than I have for a while these days and I just don't spend it anymore. Still in debt but working on killing that and life will be so much better..... Keep away from the Joneses and things get much better!

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