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Beating The Joneses

23 June 2015 in Investing Insights

Human nature has a tendency to convince us we deserve what other people have even if we haven’t earned it. As children, if we see another child with a shiny new toy, we expect one too. The allure of consuming and acquiring what those around us has gets ingrained in our mindsets early on. But if we’re not careful, keeping up with the Joneses can become quite debilitating in adulthood because we may spend money we don’t have.

The Original Joneses

So who exactly are the original Joneses? There are a couple of theories thought to spur the catch phrase “keeping up with the Joneses”. One theory states that it stemmed from a comic strip of the same name by Arthur “Pop” Momand that was popular in the early 1900’s. The main characters had neighbors called the Joneses who were never shown, but were often referenced in dialogue.1

Another likely theory is that of the wealthy Jones family of New York who were tied to Chemical Bank in the mid 1800s. The family had many country villas, which they consistently expanded to make more impressive to capture elite attention.2 Nowadays, the Joneses refer to one’s neighbors and those you admire and the expectation that you deserve everything that they do.

The Grass Isn’t Greener In The Joneses’ Yard

While it may seem like Joneses are living large, loaded with cash, chances are they may actually be broke. Why? Roughly 33% of Americans between the ages of 30-49 have more credit card debt than savings, and seven out of ten families live paycheck to paycheck.3

Those who become rich can easily plunge themselves into debt. For example, 78% of NFL players file for bankruptcy within five years of retirement.4 Most of that money disappears due to poor money management and living in excess, especially when you understand the minimum rookie NFL contract is $425,000 for 2015.5

Beating The Joneses

If you are hoping to live a happier, fulfilled life without money stress, you may not want to obsess with the Joneses. You can outsmart them by making better choices. Here are several ways you can try to beat the Joneses and improve your financial health:

• Watch the Joneses closely and consider the opposite route. If your neighbor goes out and buys a brand new luxury car with the latest sports package, instead of drooling over it and rushing out to buy one for yourself, focus on keeping your existing car in good shape so that it can last even longer. You may even consider downsizing if your family has more than one car. Ride sharing programs or public transit is an even cheaper alternatives. The median car price in 2015 is around $32,0006 compared to the median household income of roughly $52,000.7 Spending a substantial chunk of your gross income on a car won’t help your finances.

• Buy an affordable house. Think about how differently our grandparents lived when they were our age. Typically that generation had more people living together in smaller houses. It’s important to questions whether you really need to stretch yourself financially to get that bigger house? And keep in mind the more space you have, the more maintenance you’re responsible for, not to mention higher property taxes to pay.

• Spend within your means. The Joneses are great at racking up debt. Instead of using credit cards and loans to make purchases, try using cash instead. You can’t spend what you don’t already have when you use cash. Studies have shown that people typically spend 12-18% more when paying with credit cards versus cash. This is true even at inexpensive restaurants such as McDonald’s where people spend $7 on average with credit cards versus $4.50 with cash.8 If you want to spruce up your wardrobe, use cash and skip the expensive luxury brands that the Joneses go for. Purchase generic products instead, there are plenty of ways to look stylish for a fraction of the price of designer goods.

• Avoid entitlement. Using “I deserve to have xyz” as justification for purchases is dangerous for your finances. Get out of the mindset that you’re entitled to anything that other people have. Reap what you sow and distinguish between necessities and conveniences. Do you really need the latest cellphone when an older model works just fine? As one saying goes, “Don’t Compare Your Beginning to Someone Else’s Middle.” So forget about what may seem better over the fence and do things your own way. The more you focus on achieving your own goals, the less you’ll care about what others may have that you do not.

• Commit to financial goals. The Joneses are too focused on looking good versus looking at their finances. Protect your financial future and well being by setting specific goals. Start investing early and saving for retirement. Start planning your ideal asset allocation by age, teaching your kids about investing, increasing your retirement contributions and continuing to explore how you can save and invest more wisely.

• Focus on non-material values. Don’t forget that feeling satisfied comes from within not from how many things you have. If you look back on your life, chances are the most memorable moments were experiences outside of a shopping mall. Most material things depreciate over time while experiences tend to appreciate in value.

• Join a personal finance or investing group. Having discussions with people who have similar interests can be encouraging. Take part in personal finance discussions and surround yourself with people focused on more than watching the Joneses.

• Practice stealth wealth. When you start making better choices and are able to grow your wealth, keep it hidden. Stay under the radar even if you surpass the Joneses. You may even end up helping other people from trying to keep up with you.

Stay Ahead Of The Joneses

The temptation to keep up with the Joneses continues. With social media and reality TV, showing off material possessions may appear to be the status quo. Savvy investors know that keeping up with the Joneses can be a losing battle. The median retirement account balance for all working-age households in the U.S. is only $3,000, and $12,000 for near-retirement households, according to the National Institute on Retirement Security in 2014. Beat the Joneses by learning from their mistakes.

1Wikipedia, http://en.wikipedia.org/wiki/Keeping_up_with_the_Joneses

2Wikipedia, http://en.wikipedia.org/wiki/Keeping_up_with_the_Joneses

3DaveRamsey.com, http://www.daveramsey.com/blog/tired-of-keeping-up-with-the-joneses/

4US News, http://money.usnews.com/money/blogs/my-money/2015/04/10/why-you-should-never-try-to-keep-up-with-the-joneses

5Spotrac, http://www.spotrac.com/blog/nfl-minimum-salaries-for-2015-and-the-veteran-cap-benefit-rule/

6US News, http://usnews.rankingsandreviews.com/cars-trucks/best-cars-blog/2014/03/Can_You_Afford_the_Average_Car_Probably_Not_Study_Says/

7Wikipedia, http://en.wikipedia.org/wiki/Household_income_in_the_United_States

8Nerdwallet, https://www.nerdwallet.com/blog/tips/credit-cards-make-you-spend-more/

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