The Planner's Perspective: Keeping Up With The Jones's

By Paul Morrone, CFP®, CPA/PFS, MSA

The ‘keeping up with the Jones’s’ mentality has never been more pervasive than it is today. Before the widespread use of social media, most people didn’t have an idea of what the rest of the world was doing aside from their neighbors, family and friends. With information about others so easily accessible as people continue to openly share details of their personal lives online, it necessitates frequent reality checks about spending, savings and living within your means. Remember, not all of us can live the Kardashian lifestyle.

One of the assumptions that we all make when we see others taking exotic trips, buying fancy cars, wearing the nicest clothes or moving into a McMansion is that they are in a financially sound place to afford it. As evidenced by a multitude of research reports about the American consumer, this is not always the case and many folks have a nasty habit of spending more than they can afford to.  That shiny new BMW sitting in the driveway, it may be financed over 7 years or more at an unfavorable interest rate. That European getaway that was posted all over Facebook may have generated significant credit card debt that they are now saddled with. It may sound cliché, but you can’t always judge a book by its cover.  Rest assured, those that overspend would never admit they are up to their nose in debt, making benchmarking your lifestyle against someone else’s incredibly dangerous.

That’s not to say it’s not possible to have fun and enjoy the fruits of your hard-earned labor. Managing debt and expenses are crucial to being able to enjoy yourself and doing so in a manner that doesn’t create a financial hangover makes the process infinitely more rewarding. The after effects of overspending in the short-term can lead to an unserviceable amount of debt and the perpetual feeling of not being able to get out of the proverbial ‘hole.’ For some, the tweaks may be simple and relatively unnoticeable, for others it may require a hard look in the mirror and accepting a new financial reality. Hopefully, it is as simple as trading a stay the Ritz Carlton for a Marriott, or a new Mercedes for a certified pre-owned one, but that is not always the case.

There is a compounding effect of living beyond your means as well. The inevitable ‘life happens’ events are infinitely more painful and can completely derail a financially unstable household when emergency strikes, you come down with an illness, a water heater blows, you get a flat tire or an unexpected layoff occurs. A financially fit household would have reserved an emergency funds for such instances that would help lessen the short-term blow and keep them afloat during difficult times, hopefully without compromising their long-term plans.

Those that have maxed out their credit and are living paycheck to paycheck will have a much harder reality facing them if they find themselves short on credit and are in need of cash. Cash strapped households may find themselves dipping into retirement funds, borrowing from family or even being forced into bankruptcy to settle their debts. These events can not only upend a retirement plan, but worse, can completely undo months or even years of savings and investing depending upon the magnitude event.

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