Author Topic: The "everybody seems wealthy" illusion — is it really just all fueled by debt?  (Read 88333 times)

georgec

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I often have this struggle where it seems as if everybody around me is wealthy. Friends, strangers, whoever. It happens in all sorts of ways — from the houses I ride my bike past on my way to the grocery store, to online friends always taking off on extended trips or living in pricey areas of the country.

Is it all just amassing of debt for immediate gratification? I know when I dig into things with people whom I can have such conversations, I discover the veneer of success and wealth wears off quickly.

But I find it difficult to imagine that the majority of people are living beyond their means to such a degree. Perhaps I am just naive about how extensive debt and credit is in the world.

Me, I was in some bad debt and worked very hard many years ago to get out so I could go into business for myself. I've maintained a primarily debt-free life since then (8 years ago), and continue to live modestly and frugally. Partially dictated by my income levels. But also motivated by never wanting to be in debt like that again. I was wise enough to realize that I had nothing to show for it and wasn't any happier having indebted myself to get all that Stuff.

I've been budgeting out some professional events at which I'd like to exhibit as of late. The costs add up to a small family vacation for some of these things. Yet unemployed colleagues with whom I've discussed plans with seem to just sign up for them all. It boggles my mind as to how this is even possible.

To be honest, at times it kind of makes me feel dumb and sometimes even like a failure at what I do.

Is it really just all fueled by debt?

Slowdown

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To be honest, at times it kind of makes me feel dumb and sometimes even like a failure at what I do.

Is it really just all fueled by debt?

I don't think so. I feel the same sometimes. Much of their "wealth" is real, because
- they inherited a house and live in it, maybe even rent out a unit or more - this gives them the possibility to save more than a tenant,
- they are two people with good jobs and no children - share one apartment, share a car, maybe even pay less tax as a married couple,
- they started to save money much earlier than I did plus had better jobs and thus are already near to FI.

But other people's seeming wealth may indeed only be fueled by debt.

Some do it better, some worse than me. At least I am not on the debt side.

G-dog

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I think much of it is - or at least paid for by "leverage".

What I mean is, for many of these people, they use credit to leverage their future cash flow into current instant gratification. IF they can maintain the cash flow, they will be OK for the most part. It is when the cash flow ends OR they let their instant greed/need get too far out of control OR both. Thus is why so many are one paycheck away from crises, or one unexpected expense away from crises.

But, I know how you feel. I almost never spent money I didn't have yet (or even money I had), and have watched peers take more trips, buy grander houses or vacation homes, and wear nicer clothes.  But I retired last year (@ 55 yo - a bit late to the MMM or FIRE game, but I caught up quickly). Had I been more aware years ago, I could have retired earlier.

I'm a red panda

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Some of it is, but maybe not all.

We have a lot of stuff. We have a nice house and take nice vacations. We have only mortgage debt and we could pay it off tomorrow if we wanted to.

What we have that people don't see are the trade-offs. We haven't had cable in over a decade. We go out to eat less than once a month. We don't buy new clothes. I get my hair cut every 2 years. Standard mustachian things. 

I think there are a lot of people who do things like that; but since they trade off things other people don't think about, all other people see are the big things. And since everyone has different "big things" eventually all the trade offs seem to disappear.  (The Smiths have a big house, the Jones have fancy cars, the Browns always go out to eat- so people then think they should get ALL of that).

There also seem to be a lot of people who are subsidized by family wealth. I know MANY people who have had their house purchased for them. That's unreal to me.

But yeah, probably some of it is debt. I know many people who think as long as they can make the payments debt just doesn't matter.

AZDude

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I imagine "everybody" is really just the people in your neighborhood or people you associate with. Since you are reasonably affluent, most likely the people you see are also affluent. The median wage is like $50K in the US. So everybody is definitely not wealthy. Feel blessed you that you are.

andy85

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I think much of it is - or at least paid for by "leverage".

What I mean is, for many of these people, they use credit to leverage their future cash flow into current instant gratification. IF they can maintain the cash flow, they will be OK for the most part. It is when the cash flow ends OR they let their instant greed/need get too far out of control OR both. Thus is why so many are one paycheck away from crises, or one unexpected expense away from crises.

But, I know how you feel. I almost never spent money I didn't have yet (or even money I had), and have watched peers take more trips, buy grander houses or vacation homes, and wear nicer clothes.  But I retired last year (@ 55 yo - a bit late to the MMM or FIRE game, but I caught up quickly). Had I been more aware years ago, I could have retired earlier.

definitely that in my opinion.
 
OP, this is exactly how i've felt since i graduated college. All my friends immediately got their own house, car, marriage, kids, etc....meanwhile, I'm just like wtf are these people doing? How can they afford all of this? maybe i just suck at life. But i knew the reason...debt. That isnt to say i wasnt guilty of credit card debt either, because i was, but lesson learned.

I have one friend in particular that seems to have it all, but that comes with a price....and that price is being highly leveraged with the "fact" that a substantial amount of money will be coming in the future. I'd rather just kick debt to the curb, build my nest egg, and be happy.
« Last Edit: January 27, 2016, 08:34:20 AM by andy85 »

justajane

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I regularly have the same thoughts as you and haven't really comes to terms with what I really think is going on. It's the vacations that really get me that I see on Facebook. I live in a pretty modest neighborhood - houses are between 150K and top out at 400K. The 400K homes are huge ass places that in nicer areas would be closer to a million. These are the families that attend school with my kids. Over the break, I noticed two families who took skiing vacations to Vail. What does something like that run?

The other one that throws me are dinners out that people ubiquitously post on FB. We go out to eat fairly regularly, but it's usually to cheap places. I often see "girl's night outs" or "date nights" that clearly are at expensive restaurants that I just would never pay for. I really don't think we can afford them AND reach all of our saving's goals AND maintain our house AND feel like we can breath financially. 

I think many of these people might not be in debt, but, like someone said above, if the gravy train of lucrative employment ends, they are royally screwed. I'd like to think that my husband and I have positioned ourselves differently. But I try not to judge and just try to avoid the feelings of jealousy. That's my biggest goal: to be happy with less, but not in a holier-than-thou way.

georgec

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Lots of good info here, thanks all. I should point out (as mentioned above) that I do live in a nice area. By no means a "wealthy" area (although there are chunks of those for sure). And I am definitely not on the wealthy side of things. I do OK, but I am very vigilant about my finances. My Mustachiansim is more about FI than RE. I started late, and don't earn enough to really stash enough to accelerate things.

It's true I do not know the behind the scenes for many of these people, but I've heard gossip in the past and leaned about people in mansions with $500,000 of debt, parents buying a house for newlyweds (and micromanaging their house and lives), and many other less-than-desirable situations to trade for the Stuff.

And I just assume that Mustachians are in the minority, so I do not assume people are living frugally or minimally. Perhaps I am wrong there. But in my experience, even the friends I have who proclaim they want to be out of debt or get out of their job sure act like gluttonous consumers when I'm around. But maybe those with outward appearances of More are really the more frugal types?

And it's true, I am most likely conflating the expenses of many into one aggregate "person". But often I do see the same person doing things that don't compute. Obviously there is a hidden side. I wondered if it's inherited money, debt, wise saving, or something I am overlooking.

marty998

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I regularly have the same thoughts as you and haven't really comes to terms with what I really think is going on. It's the vacations that really get me that I see on Facebook. I live in a pretty modest neighborhood - houses are between 150K and top out at 400K. The 400K homes are huge ass places that in nicer areas would be closer to a million. These are the families that attend school with my kids. Over the break, I noticed two families who took skiing vacations to Vail. What does something like that run?

That one riles me up too. Have a couple of friends who post almost every other week that they've gone somewhere new... then at the end of the year "brand new gigantic ass 4WD" which would have cost something like $50,000.

New friend of mine is planning 3 overseas holidays this year. And since Australia is a world a away from most places and with our currency falling it's going to cost a bomb.

Just don't understand where the money comes from...

georgec

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I regularly have the same thoughts as you and haven't really comes to terms with what I really think is going on. It's the vacations that really get me that I see on Facebook. I live in a pretty modest neighborhood - houses are between 150K and top out at 400K. The 400K homes are huge ass places that in nicer areas would be closer to a million. These are the families that attend school with my kids. Over the break, I noticed two families who took skiing vacations to Vail. What does something like that run?

The other one that throws me are dinners out that people ubiquitously post on FB. We go out to eat fairly regularly, but it's usually to cheap places. I often see "girl's night outs" or "date nights" that clearly are at expensive restaurants that I just would never pay for. I really don't think we can afford them AND reach all of our saving's goals AND maintain our house AND feel like we can breath financially. 

I think many of these people might not be in debt, but, like someone said above, if the gravy train of lucrative employment ends, they are royally screwed. I'd like to think that my husband and I have positioned ourselves differently. But I try not to judge and just try to avoid the feelings of jealousy. That's my biggest goal: to be happy with less, but not in a holier-than-thou way.

This is pretty much my perspective as well. Sounds like we live in similar areas as well.

It struck me that I may also be more aware of all this due to a recent revelation by my Mom being in quite bad financial shape. I saw how she did things, and always wondered how she could afford it. Now I realize she couldn't, and the piper is finished with his song. Perhaps there's a bit of projection going on here.

It's definitely the "AND"s you mention that get me. The house AND the vacations AND eating out, etc. It's not different than living healthy — now that I regularly exercise, meditate, eat well, etc., there's just very little time left over for things like TV, bars, etc. My finances are the same. Once I top off the emergency fund, save/invest aggressively, and pay the bills, there's not too much left over.

Of course, as mentioned I do not earn a lot currently, and even another $10k a year could easily be conspicuously consumed on many of the aforementioned luxuries.

Maybe people just earn more than I imagine?

The cognitive dissonance of hearing economy gloom and doom stories (when I happen past the news by accident) compared to the vulgar displays of affluence enveloping me even in this small midwest city are confounding.

StetsTerhune

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I think there's a lot more money floating around in the world than most people have any concept of. A lot of small businesses/consultants/etc. are doing ludicrously well, but don't really talk about, because, well they got a good thing going. In addition there's a huge amount of inherited wealth out there supplementing people's incomes in various ways. These people don't talk about it either, because there's a stigma against inherited wealth in most circles.

But I also think that the people who have more money (and that people don't know why they have money) is what drives people going into debt. People see their neighbor who's "just like them" get a pool, so they figure they must be able to afford it too. What they don't realize is that that neighbor is getting a "gift" of 56k a year from their parents. This cycle then self-perpetuates because people now see both of those people with a pool. So maybe by now it is primarily fueled by debt?

Altons Bobs

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Some people are indeed wealthy, some people are just in a lot of debt.  I had no concept of debt when I was growing up, I always thought you had to have money in order to buy what you wanted to buy. So because of that, I was never in debt, but I always thought people around us were mostly richer than us, until when I got older. I have a friend who has more money than all of us friends combined, her jewelries alone are in the millions, but she's not showy, if you don't know her, you wouldn't think she had that kind of money at all.  She does go on a lot of vacations, even if she uses 1mil a year until she dies, she will still have money leftover.  Then I have another friend, who is in at least a 7 digit debt, she always brags about how much she had and bought a big expensive house that if he husband is laid off, they would lose everything.  This 'friend' always looks down on me. :-D

fruitfly

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georgec, I wonder this as well. The vacations on Facebook are the ones I find most baffling. A friend who bought a Wii from me a couple of years ago (on a payment plan!) posted from a fancy resort in the Caribbean. I thought WTF?! how did he afford that? Parents is probably the answer but still strange.

Cars are my big confusion. I live in a very modest neighborhood (gentrifying as we speak) and one of the houses on the block has peeling paint and a shedding roof. It also has a brand new SUV in the driveway. My unemployed neighbor has a boat, a giant new truck to pull said boat, a new smaller truck and a new sedan (his girlfriend's, who actually has a job). Though maybe he's a lesson in FI!

RFAAOATB

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Perhaps poor people do a good job of hiding, making wealth look more prominent.

I'm in the aggravating income bracket of having more than enough to save for retirement if I live like I'm low income, or get some of the upper middle class luxuries of cable TV, faster internet, newer iPhones, a second car, a bigger house, and more vacations with no retirement, but not both.  Making a bit more money than friends of lower incomes while having only slightly more or in some cases less to show for it is quite annoying.  I don't know what their old age plans are but I'm hoping my old age plans of cruises, global travel, and a big house financed by investment returns greater than I could earn by working are not out of reach. 



georgec

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I think there's a lot more money floating around in the world than most people have any concept of. A lot of small businesses/consultants/etc. are doing ludicrously well, but don't really talk about, because, well they got a good thing going. In addition there's a huge amount of inherited wealth out there supplementing people's incomes in various ways. These people don't talk about it either, because there's a stigma against inherited wealth in most circles.

But I also think that the people who have more money (and that people don't know why they have money) is what drives people going into debt. People see their neighbor who's "just like them" get a pool, so they figure they must be able to afford it too. What they don't realize is that that neighbor is getting a "gift" of 56k a year from their parents. This cycle then self-perpetuates because people now see both of those people with a pool. So maybe by now it is primarily fueled by debt?

I think you are on to something here. I've been earning on my own since age 16, paid for college (and all expenses) myself, and while I got occasional bumps from inheritance, they were small (and always went to pay off debt!).

Cars are my big confusion. I live in a very modest neighborhood (gentrifying as we speak) and one of the houses on the block has peeling paint and a shedding roof. It also has a brand new SUV in the driveway. My unemployed neighbor has a boat, a giant new truck to pull said boat, a new smaller truck and a new sedan (his girlfriend's, who actually has a job). Though maybe he's a lesson in FI!

Agreed. I see news cars parked out side of the McMansion Blvd. I ride down, and last night's trip triggered this post. It's not even a wealthy area, unless there's a prestige about living a block away from the Target/grocery store shipping area that I am unaware of!

I'm a red panda

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Another thing is that for people with high incomes, even if they aren't in consumer debt, they may just be living right at the line.

My husband and I often say we can't afford a vacation.  But we have hundreds of thousands in a non-retirement investment account.  Of course we COULD afford it.

So people who have all the ANDs may be able to do it without debt; but I doubt many of them do it with significant cushion either.   The ones who do are TRULY wealthy. I don't think too much of that actually exists in my neighborhood. 
« Last Edit: January 07, 2016, 02:12:06 PM by iowajes »

HenryDavid

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Friend of mine took ten, TEN, trips last year. Places like Hawaii, San Fran. A week, a long weekend, ten days. Now she will "scale back" for 2016  . . . By buying a new $30k SUV!
Thing is, two good 6 figure incomes, no kids, a great but "modest" house (under a million) means this is EASY. My only question is why they still work. But hey like the spending. It's fun. They also have decent savings.
Upper middle class Canadians--world's most comfortable people.

azure975

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In my social circles, a lot of the people in this situation were getting substantial amounts from parents. It was very common for parents to give their children down payments for houses, especially since it was a HOCL area, and sometimes they would also pay for cars, grad school, weddings, etc. And now that I'm older, I'm seeing people who are regularly getting $28K/year tax free from their parents as part of their estate planning (double that if they are married). Ah well, can't choose how rich your parents are!

Paul der Krake

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Before we all pat ourselves on the back, consider that the US has over 10m millionaire households: that's people with $1m in assets excluding their primary residence. Wealth is not rare.

I'm a red panda

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Before we all pat ourselves on the back, consider that the US has over 10m millionaire households: that's people with $1m in assets excluding their primary residence. Wealth is not rare.

That's 3% of the population.  It's not that common.


I also know people with over a million in assets who will say they aren't wealthy, and compare themselves to people with all the stuff named in this thread. Wealth is very relative.
« Last Edit: January 07, 2016, 02:12:56 PM by iowajes »

mm1970

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Quote
To be honest, at times it kind of makes me feel dumb and sometimes even like a failure at what I do.

Is it really just all fueled by debt?

Sometimes yes and sometimes no.

I live in coastal So Cal, which is expensive. My observations about friends/ families/ neighbors:

- fancy car because they cannot afford a house anyway
- big house because they bought a decade ago and only have one car (and a good solid income)
- 3 nice vehicles because they have a low mortgage payment
- 2 big SUVs and a big house because of stock options
- fancy vacations but no college funds and not enough cash to replace the roof
- 3 homes (2 as rental income) but no 401k and older cars
- nice house but down payment came from parents

Some people are also a lot more comfortable living close to the edge

4alpacas

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It's also worth noting that some people might spend extravagantly on one area of their life, but keep the rest of their spending austere.  The Facebook pictures might be a picture of the extravagance because no one wants to see me curled up on the couch on a Friday night with a library book. 

I try to stay focused on my journey and spend my money on what I view as a priority.  If I notice a green-eyed monster peeking out, I look internally at what is missing in my life to cause the reaction and adjust my spending accordingly. 

elaine amj

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DH and I wonder the same thing all the time....

Especially since one of our favorite free activities is to walk/cruise past wealthy neighborhoods. Way back when, we used to go to open houses of massive homes as a "free date" activity :)

I remember one friend who had a wealthy father and inherited his business. He was making decent money and was the one among us with all the toys. I know DH used to feel a little green-eyed, especially when we were just starting out and raising a family on one average income. It all unraveled in his forties and we found out he is struggling with a lot of debt. When he was separating from his wife, he told me how frustrated he was that she wasn't hustling to get full time work (she had been a SAHM for many many years) because "I work hard - I should be able to enjoy the fruits of my labour". He hasn't mentioned his financial situation in recent months, but I can't imagine it's much better now that he's living on his own, probably paying some kind of child support, and spending to date (a woman in even more financial troubles), and going out on the town.

I guess it's just hard to figure out other people's financial situation. At the end of the day, I only know my own - what I can afford and what I can't. Right now, with credit card hacking and $6k a year set aside for vacations, we can afford multiple exotic vacations throughout the year while still saving 50+% of our income. I post it all on FB - but do feel a little guilty and wonder if it promotes an unrealistic lifestyle expectation. I continue doing it because it is my personal scrapbook and my friends and family tell me they like seeing where we go next.

georgec

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Another thing is that for people with high incomes, even if they aren't in consumer debt, they may just be living right at the line.

My husband and I often say we can't afford a vacation.  But we have hundreds of thousands in an investment account.  Of course we COULD afford it.

So people who have all the ANDs may be able to do it without debt; but I doubt many of them do it with significant cushion either.   The ones who do are TRULY wealthy. I don't think too much of that actually exists in my neighborhood.

Yeah that's the part I wonder about too. I have a decent investment stash going, and I could easily have spent it all on Stuff.

I know some people who make well above average incomes, but live in a pricey area, bought a house they can barely afford, and now are struggling to make it all work. Savings blown, borrowing money from family.

My experiences keep orienting me towards a perspective that it's all a veneer, and illusion. The people who I have the ability to ask the deep questions reveal a very tenuous and paycheck-to-paycheck life, even if they have all the outwards trappings of being wealthy.

mm1970

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I regularly have the same thoughts as you and haven't really comes to terms with what I really think is going on. It's the vacations that really get me that I see on Facebook. I live in a pretty modest neighborhood - houses are between 150K and top out at 400K. The 400K homes are huge ass places that in nicer areas would be closer to a million. These are the families that attend school with my kids. Over the break, I noticed two families who took skiing vacations to Vail. What does something like that run?

That one riles me up too. Have a couple of friends who post almost every other week that they've gone somewhere new... then at the end of the year "brand new gigantic ass 4WD" which would have cost something like $50,000.

New friend of mine is planning 3 overseas holidays this year. And since Australia is a world a away from most places and with our currency falling it's going to cost a bomb.

Just don't understand where the money comes from...

This is a trend I see also -
Friends who date, and go on a nice vacation.  Then they get engaged some place fabulous - like Paris, Moscow, or Italy.
Then, of course, because they were on a fabulous vacation when they got engaged, the honeymoon has to be EVEN BETTER - Fiji, Australia, etc.
Then, of course, the babymoon.

I have many friends who travel a LOT.  But they don't have the cash cushion that I do.  I just don't see myself living that close to the edge.

4alpacas

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I guess it's just hard to figure out other people's financial situation. At the end of the day, I only know my own - what I can afford and what I can't. Right now, with credit card hacking and $6k a year set aside for vacations, we can afford multiple exotic vacations throughout the year while still saving 50+% of our income. I post it all on FB - but do feel a little guilty and wonder if it promotes an unrealistic lifestyle expectation. I continue doing it because it is my personal scrapbook and my friends and family tell me they like seeing where we go next.
Don't feel guilty!  I love seeing pictures of my friends and family enjoying themselves, and I'm sure your friends and family feel the same.

NathanP

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Lets ignore debt and inherited money for a moment and consider what your lifestyle would look like to others if you spent the money shown below instead of doing what a US based Mustachian should. Even after taxes you could take several amazing vacations and buy a new car each year. You would look rich!

Ideal yearly savings for a dual income couple in the U.S. = $18k*2 (401k) + $5.5k*2 (Roth/Trad IRA) + $6750 (HSA) = $53.75k. Obviously some will save more/less depending on income.


MrsDinero

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I've wondered that too.  I have a couple of friends who seem to go on 4 days weekend trips at least twice a month.  They will fly from the East Coast to the West Coast, spend a lot of money on hiring a driver, going to fancy restaurants, penthouse hotel suites, etc.  Mr. D pointed out that most of our friends work in IT where the bonus structure can be outrageous (depending on where you work). I'm guessing that a lot of them spend their entire bonus on new cars, trips, clothes, and jewelry.  I hate to think that these people are racking up debt, because they are all very smart individuals. 

TheAnonOne

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Like most have said....

It isn't all debt, I take a few decent vacations(Maui, Vegas, FL, Dubai), and own a fancy pants sports car and do some track events. All very outwardly 'rich' activities.

Though we live in a small townhouse (by choice) and have a very high income of around 250k. (Mortgage being under 70k)

We still end up saving 50% or more yearly and are on target for a total working career of 10-15 years before FIRE in our mid 30s. So we could sell the car, cut the travel and retire a year or two earlier, but it seems like a small price to pay to keep our 'standard' of living.


Most of my buddies are scraping by unfortunately, and cannot fathom the ability to save large amounts AND splurge on a few fun activities. So I avoid the finance topic with them. The OP, somewhat reminds me of a some things I have heard my friends say.

aceyou

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This is why they are able to do it.  Basically, you are probably most like group #1, except that instead of making lots of fancy stuff your luxury good, you are making years and years less at work your luxury good.  Remember, early retirement is quite the luxury.  You get to be jealous for the next few years, and they get to be jealous for the rest of your life:)  And ideally you learn to not be jealous in the meantime!!!

Group 1 - (sad but not screwed...just different lifestyle) Lots of them are not in consumer debt (but huge mortgage), but are spending nearly 100% of their income, so they will be working for a decade or two longer than you will, and once they retire, their lifestyle will likely have drop a bit. These people probably will be fine though, just working a long damn time.

Group 2 - (slightly screwed but they'll probably survive) Same as group 1 except with huge student loan debt.  They will either get bailed out by the government on this, or will have to make larger cuts later, or will have to work even longer.  Plus, they must have a pit in their tummy over that college loan bill looming, that they don't post on facebook. 

Group 3 - (Royally screwed) They are funding it on consumer debt.

pbkmaine

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Financial planners talk about this a lot. The clients with modest houses, well-kept older cars and no designer labels tend to have high net worth. The ones with bling, McMansions and designer everything tend to have debt up to their eyeballs. The Millionaire Next Door nailed it.

georgec

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Like most have said....

It isn't all debt, I take a few decent vacations(Maui, Vegas, FL, Dubai), and own a fancy pants sports car and do some track events. All very outwardly 'rich' activities.

Though we live in a small townhouse (by choice) and have a very high income of around 250k. (Mortgage being under 70k)

We still end up saving 50% or more yearly and are on target for a total working career of 10-15 years before FIRE in our mid 30s. So we could sell the car, cut the travel and retire a year or two earlier, but it seems like a small price to pay to keep our 'standard' of living.


Most of my buddies are scraping by unfortunately, and cannot fathom the ability to save large amounts AND splurge on a few fun activities. So I avoid the finance topic with them. The OP, somewhat reminds me of a some things I have heard my friends say.

The $250k income make a HUGE difference. I just can't fathom that everyone I see with signs of wealth are making $250k, but maybe there are more big earners out there than I realize. To my way of thinking, those are rare jobs. Maybe I'm way out of touch with reality (more than I'm aware of, that is).

Again, comes down to cognitive dissonance of hearing about the average or median incomes which are nowhere near $250k, basing my mental calculations on that. Based on incomes of $250k, nothing would be confusing at all. But just doesn't seem like there could be that many jobs paying that much out there.

Scubanewbie

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Didn't read all replies so perhaps this has been covered but for us at least the difference is largely tied up in retirement, college savings, and charity.  If DH and I cut retirement down to the American average and cut out college savings and charity entirely we'd have like $40-50K more per year.  So, yeah, we'd look a heck of a lot wealthier and be able to take some kick-@ss trips.  Instead, we save and give.  So even if your friends are not in debt (which is likely in some cases) they are probably just not saving adequately, if you're going to go with the most likely scenario given statistics I've seen.

Unfortunately its just not as cool to post on Facebook about a maxxed out IRA as it is about a trip to Hawaii
^^^ tongue in cheek before anyone goes off the deep end

justajane

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It's possible that people I know posting those things on FB make 250K or more. I don't think it's likely though. In fact, one is an educational administrator, so I know what he makes: 100K. His wife is a part-time social worker, so she's not making that much above that.

I'm not judgmental enough to think that all these people are in debt up to their eyeballs. They might pay cash for all these things, but it's just the fact that we don't make much less than that and still feel like we can't afford vacations like that. I mean - the airfare alone on a family vacation makes it largely prohibitive to me. We go to Arizona every couple years to see family. We don't even have to pay for food or hotels and it's still crazy expensive.

It's mostly just perspective. In some ways, I wish we could blow more money. I know my husband would likely be more free with his money, but he's married to me so....

And, yes, maybe they do prioritize vacations over other things. I recall a conversation with one of the Vail travelers mentioned above in which she said that their house will never be super fancy because they care more about vacations than they do their home. But there's only so much delayed maintenance on your home that you can do. I grew up in a Mustachian home that was penny wise pound foolish about home maintenance and upgrades. It sucked. Maybe that's why I'm currently dropping 15K on a bathroom. This is not a frivolous expense (okay, maybe the fancy tile was....); the plumbing was no good. Now that we've seen the huge crack in the cast iron stack, we should have probably done it five years earlier.

So, for this family, spending money on vacations rather than their home can only go so far. At some point, your home will betray you and you have to drop a few grand, not on granite countertops and custom cabinets but rather on tuckpointing or foundational issues or a new roof. And where's the money for that when you've spent it all on vacations and expensive dinners? I guess that's how people leverage their home and lose all their equity.

happy

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Not just a US phenomenon.
Even in my "spendy" pre-MMM days the only debt I carried was a mortgage and I was usually paying it down faster than required. 
Allegedly in  a big income bracket, I would look around at all the spending around me  and scratch my head, wondering how people could afford it and why I couldn't. I think others have explained all the reasons quite well.  These days I don't notice it so much…I'm not interested in ALL the stuff, so I just don't pay much attention.

TRBeck

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Lots of good comments here, and I admire how many of you put the best construction on this, assuming people are only public about the big spending and are really frugal in other parts of their lives, but really, yes, there's a ton of debt. Crushing debt. A friend at work racked up big debt while his wife was going through nursing school. When she graduated, they took a family trip to Disney "even though we have big debt, because it's the right time" and then upsized their house "because, I mean, she's going to be earning more now." They continue spending weekends chasing kids at club sports or hitting up Top Golf or buying new toys, and I feel very close to 100 percent certain they have not put a dent in the debt at all.

Most of my coworkers carry car debt, a small amount of credit card debt, and a mortage, from what I can tell. Some are worse off than others. But I can count on one hand the number who actually save any real money, even though most of them admit that they know they should. In other words, almost everyone at my work is one rough patch away from real financial trouble, even if they aren't horribly in debt.

sjc0816

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Like most have said....

It isn't all debt, I take a few decent vacations(Maui, Vegas, FL, Dubai), and own a fancy pants sports car and do some track events. All very outwardly 'rich' activities.

Though we live in a small townhouse (by choice) and have a very high income of around 250k. (Mortgage being under 70k)

We still end up saving 50% or more yearly and are on target for a total working career of 10-15 years before FIRE in our mid 30s. So we could sell the car, cut the travel and retire a year or two earlier, but it seems like a small price to pay to keep our 'standard' of living.


Most of my buddies are scraping by unfortunately, and cannot fathom the ability to save large amounts AND splurge on a few fun activities. So I avoid the finance topic with them. The OP, somewhat reminds me of a some things I have heard my friends say.

The $250k income make a HUGE difference. I just can't fathom that everyone I see with signs of wealth are making $250k, but maybe there are more big earners out there than I realize. To my way of thinking, those are rare jobs. Maybe I'm way out of touch with reality (more than I'm aware of, that is).

Again, comes down to cognitive dissonance of hearing about the average or median incomes which are nowhere near $250k, basing my mental calculations on that. Based on incomes of $250k, nothing would be confusing at all. But just doesn't seem like there could be that many jobs paying that much out there.


I don't think there are a ton of 250k single earners....but where I live, there are a lot of dual income households where each earns in the low 6 figures and there you have the 250k.  We chose to have me stay home with the kids and we are super frugal so we can save and do it all on my husband's 6 figure income...but I often think about how different our life would be if I had not left the workforce.  We would have SO much more money.  But....choices. 

WSUCoug1994

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I am somewhat fascinated by this topic.  If I look at those who are close to me - regardless of how much money they make - they tend to spend all of it.  The savings rate is somewhere between 4-5% which is likely mostly pre-tax contributions.

Although I live in a HCOL area and there is a ton of wealth here in the Bay Area - there are far too many Tesla's running around even for the populations income potential.  Assuming that the average consumer debt is around $15K per household and a savings rate of 4-5% most households are spending more than they are making.

I am lucky enough to live on 30% of my income but I have to admit I do get jealous time to time of the reckless spending of my friends and colleagues but that only lasts as few minutes as I fall asleep at night to my Scrooge McDuck pile of money.


big_slacker

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I live in a nicer area and I see both situations. Consider the story of some folks I know:

Guy graduated college and goes right to work for big tech company that give stock awards, bonus, 10% discount stock every year and 401k match.
Wife works at the same company.
15 years of stacking that, most of it DINK and a housing market that has greatly increased.
Wife now SAHM.

You ride by and wonder how a single income family can afford an $800k house, two new cars, vacations and not be drowning in debt. I made that same assumption initially as well. Truth is they're doing just fine. Could they already be retired if they lived more frugally? Sure. Could they retire right now if they sold their house and moved to a LCOL area? Absolutely. But the point is they're not financially inept, just lucky and smart in equal measure.

OTOH I see a *LOT* of folks who *ARE* up to their eyeballs in debt financing a lifestyle above their means. Lots of leased BMWs, houses they can barely afford and so on. Everything you would assume about the negative impact of consumerism.






matchewed

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I'm assuming you live either in the US/Canada/Europe, if so then yes most of the people you see around you are wealthy regardless of their vacations.

fattest_foot

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You ride by and wonder how a single income family can afford an $800k house, two new cars, vacations and not be drowning in debt. I made that same assumption initially as well. Truth is they're doing just fine. Could they already be retired if they lived more frugally? Sure. Could they retire right now if they sold their house and moved to a LCOL area? Absolutely. But the point is they're not financially inept, just lucky and smart in equal measure.

I've always wondered how many people absolutely cleaned up on housing in the 2000's. Had you bought a house in the 90's, you probably could have sold it in the 2000's for a 2-300% profit. Then you move into a bigger house and maybe repeat the process. Now you're suddenly living in a upper six figures or even million dollar house.

It also makes me wonder what will happen in another 20-30 years when those people start dying. The next generation will never be able to afford those houses. Are we due for another massive crash at some point?

matchewed

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You ride by and wonder how a single income family can afford an $800k house, two new cars, vacations and not be drowning in debt. I made that same assumption initially as well. Truth is they're doing just fine. Could they already be retired if they lived more frugally? Sure. Could they retire right now if they sold their house and moved to a LCOL area? Absolutely. But the point is they're not financially inept, just lucky and smart in equal measure.

I've always wondered how many people absolutely cleaned up on housing in the 2000's. Had you bought a house in the 90's, you probably could have sold it in the 2000's for a 2-300% profit. Then you move into a bigger house and maybe repeat the process. Now you're suddenly living in a upper six figures or even million dollar house.

It also makes me wonder what will happen in another 20-30 years when those people start dying. The next generation will never be able to afford those houses. Are we due for another massive crash at some point?

Housing over the entire US, read not specific cities/towns, generally raises at inflation rates. The next generation will be able to afford it just fine.

aceyou

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You ride by and wonder how a single income family can afford an $800k house, two new cars, vacations and not be drowning in debt. I made that same assumption initially as well. Truth is they're doing just fine. Could they already be retired if they lived more frugally? Sure. Could they retire right now if they sold their house and moved to a LCOL area? Absolutely. But the point is they're not financially inept, just lucky and smart in equal measure.

I've always wondered how many people absolutely cleaned up on housing in the 2000's. Had you bought a house in the 90's, you probably could have sold it in the 2000's for a 2-300% profit. Then you move into a bigger house and maybe repeat the process. Now you're suddenly living in a upper six figures or even million dollar house.

It also makes me wonder what will happen in another 20-30 years when those people start dying. The next generation will never be able to afford those houses. Are we due for another massive crash at some point?

Housing over the entire US, read not specific cities/towns, generally raises at inflation rates. The next generation will be able to afford it just fine.

Correct.  There is a large supply of houses, and houses are only worth what people can pay for them.  By definition, the houses will have to roughly cost with what people can spend. 

redbird

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Remember that there isn't just 2 options here. Some people are wealthy. Others are taking on debt. But yet others are neither wealthy nor have debt, they just spend all or most of what they have as soon as their pay hits their bank accounts.

Before I FIRE'd, I had some co-workers who knew I was FIREing. Some of them probably could've FIRE'd too if they had saved money and invested money. Instead they argued that they earned their money and they wanted to enjoy it. An extra few hundred dollars left over after paying the bills? They saw that as an opportunity to buy something or go to a spa or eat out a few times at some fancy place. AFAIK, these particular co-workers did not have any debt. They just kept their bank accounts artificially low by spending it.

georgec

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Even more great answers and perspectives the think about.

I guess my original post came across with more envy in it than curiosity, but I intended more the latter. I earn far less than those of you who have reported your incomes, but I've not found a way to bring in serious income as an artist (yet!). I've acclimated myself to that over the years, although it would be tempting to get a high-paying gig if I thought I could qualify! At any rate, I've been living without much for many years, and while I will admit to some envy, mostly it's just confusion/curiosity.

The few people I know with day jobs and I can ask questions about income and debt all seem to earn between $50k to $80k, and all have significant debt (but still buy craft beers, eat out, vacation, etc etc etc). Significant debt meaning they need the jobs they have (and hate) to pay for debt. They couldn't follow a preferred career because they have to have the income level of the despised job.

I earn less than these people, but have been debt-free for 8+ years and have stashed away a relatively decent retirement investment chunk. It confuses me how they couldn't just get out of the debt they claim to want to eliminate. I can only assume they must really be in debt.

From my perspective, making over $100k is "doing quite well", and $250k would easily be considered "very wealthy" from my perspective. Perhaps it's a matter of definition. And yes I am in the US, so I suppose I should have pointed out that my inquiry was relative to that. Without a doubt, US/Canada/Europe are, even at the low end of things, far better off than a good portion of the rest of the planet.

RFAAOATB

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It also makes me wonder what will happen in another 20-30 years when those people start dying. The next generation will never be able to afford those houses. Are we due for another massive crash at some point?

What I don't understand is why more houses don't stay in the family.  Geographic dispersion of jobs makes keeping a family compound difficult, but if everybody should go home for Christmas, shouldn't each family have a million dollar house kept by the patriarch and matriarch to rally around?

forward

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A lot of good discussion here, I wonder about where everyone is getting all their money from as well.  I know the best approach is to practice stoicism but it can be hard sometimes.

New car sales hit a new record in 2015, 17.5 million new cars sold - that is a lot of new cars!  Interestingly, 30% of those were leased, also a new record.  Ten years ago the lease numbers were 16% of sales. 

What does that all mean to this topic, I'm not sure.  The logical side of me says, they must all be able to afford those purchases, otherwise why would you do that? 

JLee

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I regularly have the same thoughts as you and haven't really comes to terms with what I really think is going on. It's the vacations that really get me that I see on Facebook. I live in a pretty modest neighborhood - houses are between 150K and top out at 400K. The 400K homes are huge ass places that in nicer areas would be closer to a million. These are the families that attend school with my kids. Over the break, I noticed two families who took skiing vacations to Vail. What does something like that run?

That one riles me up too. Have a couple of friends who post almost every other week that they've gone somewhere new... then at the end of the year "brand new gigantic ass 4WD" which would have cost something like $50,000.

New friend of mine is planning 3 overseas holidays this year. And since Australia is a world a away from most places and with our currency falling it's going to cost a bomb.

Just don't understand where the money comes from...
If you don't max a 401k/IRA, that's almost $2,000 a month per person. That will fund a lot of vacations/car payments.

HappyMargo

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...
It's mostly just perspective. In some ways, I wish we could blow more money. I know my husband would likely be more free with his money, but he's married to me so....


I KNOW my husband would love to blow more ca$h than we do!  He's a spendy-pants by nature.  But he appreciates my attention to numbers & detail & planning.  I (grudgingly) appreciate that he drags me along on some spendy but fun trips/activities.  We are a good balance.   

EDIT:   And he does ask me if the neighbors/ coworkers are really all so far in debt or what?  How can they possibly have all those goodies that we pass up on?  I figure we just can't really know their situations (many of our friends are getting handsome inheritance.  We will get zero.) 

I try to concentrate instead on what's working for us & what our goals are. 

Although, it is fun to run into other Mustachians IRL & get to talk in detail about RE & the relief of FI.  My DH just found out yesterday that his boss is one... boy, they had quite the conversation!   Not everyone out there is drowning in debt & one pay check from homeless... there's others with money sense & I'm always so pleased to share real conversations with them!
« Last Edit: January 07, 2016, 05:58:25 PM by HappyMargo »

georgec

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A lot of good discussion here, I wonder about where everyone is getting all their money from as well.  I know the best approach is to practice stoicism but it can be hard sometimes.

I hear ya. Like I said, I'm just really curious (and no doubt there's some envy there). I'm always wondering what these (to me) well-paying jobs are. Maybe I've been living frugally for so long I'm just way out of the loop as far as what base salaries are these days.

I know myself, and my freedom and autonomy is a far better choice for me than money from a job. Then again, sounds like I've never had a really well-paying job! :)