Over the past few decades, I have met with hundreds of individuals and couples to discuss their personal finances. Often, those who appear to be well-off are struggling, while those who seem to be living modestly are thriving. Let me introduce you to three fictional couples, all named Jones, to illustrate the diverse realities behind financial appearances.
Indiana and Marion Jones
What you see:
Indiana (52) and Marion (50) live in a $1,000,000 house, belong to the country club, and each drive newer luxury cars. They take two or three big vacations each year and usually dress like they're out on a date. They eat out regularly and enjoy material goods as the “finer things in life.”
What you don’t see:
Their household income is $275,000 per year and they save 3% into a 401k with a balance of $212,000. Their savings account balance is $4,200. They owe $600,000 on their house, have a car loan of $35,000, a monthly car lease payment of $600, and owe $50,000 on their boat. They owe $12,000 on a credit card from their last vacation that they are working to pay off. They never formed good savings habits and have always taken a short-term view with spending vs saving. Instant gratification has always won and because of this, retirement is nowhere in sight. They have wealthy friends and live in a neighborhood full of rich people who do rich people things.
In order to even think about retirement, they are going to need to make drastic changes at some point.
Mark and Bridget Jones
What you see:
Mark (53) and Bridget (54) Jones live in a $500,000 house in a nice neighborhood. Bridget drives a four-year-old Chevy Suburban and Mark drives a six-year-old Toyota. They like to take one nice vacation each year plus a couple of long weekends where they visit out-of-state friends.
What you don’t see:
Mark and Bridget have household income of $200,000 per year and they contribute 13% per year to a 401k with a balance of $1,150,000. They owe $150,000 on their mortgage and have no other debt. They keep $80,000 in their emergency fund and contribute $1,000 per month to this account to help save for large upcoming expenses. They regularly pack their lunches and limit eating out for dinner to 2-3 times per month.
Mark and Bridget would not consider themselves wealthy, but they have a solid financial foundation. With the right guidance, they should be on track for a comfortable retirement in their 60s.
They did not start out as good savers but really picked up the pace about ten years ago. They resisted the urge to increase their lifestyle when their income increased and instead saved and invested the extra income.
Desmond and Molly Jones
What you see:
Desmond (52) and Molly (52) Jones live in a $350,000 house in a tidy neighborhood. Desmond drives a five-year-old Chevy pickup and Molly drives an eight-year-old minivan. Both vehicles look brand new. They own a 26-foot camper trailer they use for most of their vacations. They eat out occasionally but prefer inviting friends over for a home-cooked meal.
What you don’t see:
Desmond and Molly have a household income of $150,000 per year and they contribute $25,000 to a work 401k with a balance of $1,050,000. They also have a taxable investment account with a market value of $350,000 and an invested HSA with a $45,000 balance. Their emergency fund has $60,000 and they contribute $750 per month into this account to save for large purchases or emergencies. Any bonuses they receive from work are invested in their investment account. Desmond and Molly have no debt.
Desmond and Molly are quite well-off relative to their income. They fall into the “Millionaire Next Door” category. They live conservatively but comfortably. Their friends would have no idea they are debt-free millionaires.
Although starting with humble beginnings - Desmond working in a marketplace and Molly singing in a band - they formed good savings habits early on. They always saved 20-25% of their income and paid cash for everything other than their house.
Some Key Takeaways
- Indiana and Marion are probably not as happy as they appear, although it is possible they are living in a state of ignorant bliss that will come crashing down at some point.
- Falling into the “Keeping up with the Joneses” trap may put you in a situation similar to Indiana and Marion
- It can often be difficult to know someone’s true financial situation based solely on outside appearances.
- Who you keep as friends can have a significant impact on your own spending habits and financial wellbeing.
- You likely don’t know the path any of the Joneses took to get where they are. They may have been aggressively saving while you were spending so that now they can spend while you need to save.
- Keep your eye on your own savings rate instead of your neighbor’s new car.
- The examples above play out in real life across all income levels.
- There are countless stories of people who made millions and died broke.
- There are also many stories of people who never made much but died very wealthy simply by living below their means.
- The sooner people learn to live on no more than 80% of their income while avoiding debt, the better off they will be financially.
- Envy is a human and immensely powerful trait – but it can be controlled.
- Gratitude and a long-term view are a great elixir for envy.
Don’t just take it from me…
You shall not covet your neighbor’s wife. And you shall not desire your neighbor’s house, his field, or his male servant, or his female servant, or his ox, or his donkey, or anything that is your neighbor’s. Deuteronomy 5:21
If you or someone you care about could benefit from some honest financial feedback, please don’t hesitate to reach out to Grand Capital Advisors for a no-commitment, no-judgment consultation.
