The other night we watched the movie, The Joneses. I won’t spoil the plot for any others who haven’t seen it (because it was fairly good), but the basic premise was that an advertising company would hire a group of actors to play a family. They would place them in an affluent neighborhood and give them a group of products to sell. They would then strike up friendships with people in the neighborhood, show off the fancy toys, and get their “friends” to be envious and buy the items themselves from the stores.
For example, the son might invite some friends over to play video games and show off the great video game system he had. The father might play golf and show off a great set of irons. The goal was to get everyone to want to “keep up with the Joneses” and go out and buy more themselves. Of course the problem is that many would people try to keep up with the Joneses by running up their credit cards and putting another mortgage on their homes.
Most people make more than enough money to become rich but never will be because they are trying to keep up with the Joneses despite not having the money to do so. You can’t ever save money if you are spending half of your money on interest.
If you buy a car for cash, you will pay about half of what you would pay if you buy it on payments. That extra $30,000 could have paid for tuition and books at a state school.
If you pay for a vacation at 30 with a credit card and start making the minimum payments, you won’t pay it off until you are in your sixties and you will have paid for it about six times over in interest payments. That $3000 vacation may have cost you $20,000. This is $17,000 that could be in your retirement fund (and it would be worth over $200,000 if it were invested).
If you want to have some nice things, that is fine, but don’t pay for them twice (or three times or four times). If you can’t afford to pay cash for things you can’t afford them. Instead, save up and buy them. Better yet, build up investments with your income from your job, then use some of the proceeds from your investments to make the purchases. That will be putting interest in your favor. You will have both the money and the items.
Chances are, that guy across the street with the shiny new car or the big screen TV is paying for it on credit. In five years that car will be looking old and that TV will be an electronics dinosaur but those payments will still be around. Let your status symbols be a paid-for house and a portfolio of stocks. Let your neighbors envy your ability to just write a check when you want to go on vacation or the water heater breaks down.
Stop spending money you don’t have to impress people you don’t like. Let someone else keep up with the Joneses.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.