FREE NEWSLETTER
Go to main Forum page »
I was sitting on the deck of my holiday home, enjoying the morning sunshine and breakfast, when a deep rumble announced the arrival of an expensive, sporty car. It was my neighbour. He’s a very nice man in his 40s who always dresses impeccably, with two well-turned-out kids and an immaculate wife – to all intents and purposes, a family living the dream.
Contrast that with me: I drive a seven-year-old SUV with 70,000 miles on the clock, habitually run around in shorts and T-shirts, own three pairs of trainers, one pair of dress shoes, and exactly one suit. It’s obvious there’s no comparison in who’s “winning the game of life”… or is there?
About 18 months ago, a conversation started when I mentioned I’d just paid off the mortgage because my wife was retiring. My neighbour then spoke with pride about his ability to juggle credit cards, expertly transferring balances with 0% transfer rates. However, he also revealed a concern about his own mortgage. As is common in the UK, his rate was fixed for five years, and with two years left on his 1.25% rate, he couldn’t see how he’d afford the jump to around 5%.
That nice car, the designer clothes, the immaculate facade – they all come with a hefty, often hidden, price tag. While my neighbour projected an image of success, his confession about juggling credit cards and his anxiety over the impending mortgage hike painted a different picture. This isn’t just about the obvious payments for the car or the latest fashion; it’s the relentless pressure to maintain a certain lifestyle. The “keeping up with the Joneses” trap is real, amplified by social media. People feel immense pressure to project prosperity, even if it means accumulating significant debt. This pursuit often takes a quiet but heavy psychological toll: the constant anxiety of making ends meet, the fear of exposure if the carefully constructed illusion crumbless, and the never-ending striving that leaves little room for peace.
I was going to offer some advice, but then I thought better of it. Who was going to listen to a guy in a scruffy T-shirt and shorts? Appearances, it turns out, can be very deceiving.
I wanted an immaculate wife but had to settle for a real one, alas. 🙂
Yesterday, on my way to the gym in my son’s older Mitsubishi which is far from flashy, but perfectly functional, I caught a glimpse of a few workout buddies pulling in with their sleek SUVs. For a split second, I wondered if they looked at me and saw someone “less than” because of the car I was driving. It wasn’t envy, more like a passing curiosity.
But then I took stock: I own my home outright. I’ve built a solid retirement fund. I’m 54 and financially secure. And most likely, none of them were even thinking about me that way. Still, that little inner voice whispered the doubt until I remembered one of Dave Ramsey’s classic rants about people living paycheck to paycheck in nice cars, while he was cruising debt-free with cash in the bank.
That thought settled me. By the time I drove home, I wasn’t thinking about anyone else’s ride, I was thinking about how peace of mind always beats monthly payments.
I don’t really know how much of my personal finance andvice over the years has “stuck” with my now adult children. But recently when discussing the financial anxiety she feels, my youngest daughter said to me “Mom, I remember you always saying that it is far better to actually HAVE money than to look like you have money.” I’m still waiting to hear from my other daughter….
Spending is usually visible, and wealth hidden.
In Psychology of Money Housel shares a story about his college job as a car valet. He realized people drooling over those expensive cars he parked are picturing themselves in it, not admiring the owner/driver.
His point: if you want respect and admiration, there are far more effective ways to achieve it than blowing precious cash on fancy things, ways which allow you to compound wealth over time through savings you keep from the gap between your income and your ego.
I suspect this is more the rule than the exception. Most people don’t like doing the math, even if their jobs require math.
Thank you Mark for an interesting and thought provoking post!
Nice illustration of the millionaire next door concept. There are those who show and those who do the opposite.
I always remember showing up at a car showroom sweaty on a mountain bike because I was having a ride. I had a new company car allowance ready to spend. But the salesman couldn’t shove me out of the door fast enough because to him I was a broke bum who couldn’t even afford a car.
To this day I’ll sometimes play this perception thing to my financial advantage.
On the flipside of course sometimes highly leveraging lifestyle in the form of property does work out for people. I just always wonder though whether they can really face the downsizing needed to eventually release that equity.
Good move to NOT offer any advice. Why bother, no matter what your appearance?
Thanks Mark for a great little piece. This got me thinking about the psychology of those that do and don’t want to keep up with the Joneses.
The default thinking is that those happy to go into debt to have the biggest house, newest car etc. are driven by a need to appear wealthy and successful to others. Or perhaps they just like these expensive things in their life and it brings them some sense of happiness.
For those that aren’t worried about big houses and shiny cars, I wonder if our motivation is driven by a fear of the future. If we spend too much today, what might tomorrow look like? What might retirement be like if I don’t save 11% of my salary each year?
For those of us that have been able to save and invest with some success, we probably like to pat ourselves on the back about how analytical and thoughtful we are. But maybe our saving habit is driven by the very basic emotion of fear and worry and the future, rather than being as rational as we would like to think?
I’ve got nothing solid to back this up, just my musings on a Saturday afternoon!
Just wanted to add that if I felt I could spend it, I would buy a new car. New cars are safer, have better stereos, they are quieter – like a Lexus, they have technology that will help me from getting in a crash, they don’t squeak, and I don’t have to spend time hunting down an issue. I could list several other reasons I’d like a new car. I wouldn’t buy one to impress anyone or because it is shiny. I know many people do buy cars due to an image, but that isn’t the only reason.
Good morning from Ireland! I like your musings. My reason to save for retirement was personal: my father became ill with a heart condition when I was a young teenager. He still worked, but it was obvious, even to my younger self, it was taking a massive toll on his health. This solidified in my young mind that I didn’t want to be in the position of having to work later in life. My experience with Dad gave me the expectation I would face health problems at a young age as well. My young mind was obviously painting a bleak picture that wasn’t necessarily true, but the seeds of saving were formed then.
There are some people who can afford to live like that and save large amounts of money. What was his job? What did you think his income was?
He works as a sales director. As far as his earnings, definitely above average.
While raising the kids with my first wife, we became close with neighbors John and Mary. Keep in mind that I drove a beer truck for a living. John was a Lincoln Town Car driving high flying salesman. John and his wife thought I was a cheapskate because I occasionally had to pass on a night out due to finances. John eventually got a big raise and bought a big house on 10 acres with a pond. John also never saved a cent.
Then one day John got to work to find his office cleaned out. Over the next couple years he lost everything including the house and Mary.
John was a facade. Today his only source of income is Social Security, he’s 83 and living in a hotel room size apartment.
But me, I’m doing fine and I never have to skip a night out due to finances.
Dan, that’s a powerful story. Hopefully others learn from John’s poor decision-making.
Yup, save first as much as possible, no credit card balance at end of the month and then spend as you like.
Your article mentions something I wasn’t aware of until relatively recently; that outside the USA “fixed rate mortgages” usually reset to the current interest rate after some period of time (eg. 5 years, 7 years, etc). An interesting alternative definition of “fixed rate mortgage”. To me that’s really a variable rate mortgage. As a previous mortgage holder, I definitely prefer the U.S. version of fixed rate mortgage.
Mortgages with interest rates fixed for their entire term are available in the UK, but they’ve largely remained a niche option, struggling to gain widespread popularity among borrowers.
Is that because people believe rates will go down for them at some point?
The prevalence of 2 and 5-year fixed mortgage offerings is largely lender-driven; banks utilize these specific terms because their corresponding interbank swap rates are among the most heavily traded, allowing for efficient risk hedging.
In the states they’re called ARMs (adjustable rate mortgages) and they’re very popular.
A typical buyer that expects to move within 5 years would prefer the lower payments or if you expected rates to go down.
We had an ARM in the early 80’s that was based on 12-3/8% but floated with T-notes. We had negative amortization before we actually moved into the house, so we already owed the bank more than we paid for the house. We refinanced to a lower fixed rate as soon as we could (10% if I recall), to get away from the risks of more negative amortization.
Especially with the option to refinance if rates drop. My ability to pay off my mortgage in twelve years was partly due to buying less house than I could theoretically afford and making extra principal payments, but also to refinancing to a fifteen year mortgage at a lower rate after the first two years as rates dropped. (Still above what’s on offer today.)
As I have written before about five years into my last 30 year mortgage the Russian debt crisis occurred. I was able to refinance to a 15 year mortgage and pay roughly the same payment. I was early in my knowledge of finance but had learned how mortgages were tied to the then 30 year treasuries, and that when a financial crisis occurred throughout the world treasury rates dropped because investors rushed to buy them as they were considered the safest investment. This theory may be changing, and our national debt payments may be about to soar even more as a result.