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General Discussion => Welcome and General Discussion => Topic started by: georgec on January 07, 2016, 12:44:52 PM

Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 12:44:52 PM
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?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Slowdown on January 07, 2016, 12:57:51 PM

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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: G-dog on January 07, 2016, 12:58:47 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 07, 2016, 01:06:12 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: AZDude on January 07, 2016, 01:15:07 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: andy85 on January 07, 2016, 01:15:14 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: justajane on January 07, 2016, 01:24:33 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 01:35:38 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: marty998 on January 07, 2016, 01:44:37 PM
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...
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 01:45:03 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: StetsTerhune on January 07, 2016, 01:50:21 PM
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?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Altons Bobs on January 07, 2016, 01:50:45 PM
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
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: fruitfly on January 07, 2016, 01:52:56 PM
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!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: RFAAOATB on January 07, 2016, 01:55:17 PM
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. 


Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 01:58:17 PM
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!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 07, 2016, 02:01:21 PM
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. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: HenryDavid on January 07, 2016, 02:01:49 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: azure975 on January 07, 2016, 02:02:35 PM
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!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Paul der Krake on January 07, 2016, 02:03:04 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 07, 2016, 02:11:21 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mm1970 on January 07, 2016, 02:11:31 PM
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
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: 4alpacas on January 07, 2016, 02:12:58 PM
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. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: elaine amj on January 07, 2016, 02:14:26 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 02:15:08 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mm1970 on January 07, 2016, 02:15:16 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: 4alpacas on January 07, 2016, 02:19:50 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: NathanP on January 07, 2016, 02:21:34 PM
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.

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: MrsDinero on January 07, 2016, 02:37:39 PM
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. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheAnonOne on January 07, 2016, 02:42:28 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aceyou on January 07, 2016, 02:53:45 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: pbkmaine on January 07, 2016, 02:55:48 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 02:56:26 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Scubanewbie on January 07, 2016, 03:10:58 PM
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
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: justajane on January 07, 2016, 03:12:00 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: happy on January 07, 2016, 03:17:08 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TRBeck on January 07, 2016, 03:17:48 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: sjc0816 on January 07, 2016, 03:20:24 PM
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. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: WSUCoug1994 on January 07, 2016, 03:46:04 PM
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.

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: big_slacker on January 07, 2016, 03:46:30 PM
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.





Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: matchewed on January 07, 2016, 03:56:06 PM
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.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: fattest_foot on January 07, 2016, 04:26:57 PM
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?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: matchewed on January 07, 2016, 04:29:47 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aceyou on January 07, 2016, 04:36:08 PM
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. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: redbird on January 07, 2016, 04:49:50 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 04:51:57 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: RFAAOATB on January 07, 2016, 04:57:26 PM
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?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: forward on January 07, 2016, 05:04:14 PM
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? 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 07, 2016, 05:04:40 PM
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.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: HappyMargo on January 07, 2016, 05:46:54 PM
...
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!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: georgec on January 07, 2016, 05:52:56 PM
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! :)

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: big_slacker on January 07, 2016, 05:53:18 PM
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.

I know a shocking number of people that don't max 401k. Our employer matches 50% up to federal max, free money!!! And people are leaving it on the table for cars. :(
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: justajane on January 07, 2016, 06:15:29 PM
We don't max out our 401K. We are a percentage or so over match IIRC. I'm okay with that. My husband isn't interested in early retirement. But we use the rest of the money wisely, either putting it in other retirement vehicles, college savings, investment vehicles, spending it on the house, or paying for cars in cash when needed.

We bought an old house, and since I am a homebody, when I think about going on a 5K vacation, I think, "but I could do X, Y, and Z to the house for that!" Experience, shmerience. Give me an improvement on my home that I see or enjoy every day over a 5 day experience. I guess that's the way my spendypants manifests itself, though our house is far from fancy or extravagant. I'm hoping in the next decade or so we will finish our list of improvements that we want to make incrementally. Right around the time the first kid goes to college. Egad! 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 07, 2016, 06:32:47 PM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: ender on January 07, 2016, 07:13:36 PM
Page 39 of this PDF (http://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf) indicates that in 2013:


In other words, one in five households earns a fair bit over 100k a year. Yes, probably not location adjusted, but still insightful for this question.

When you also consider that a vast majority of those at the bottom of that graph effectively live in a different society than nearly everyone on this board (let's say the poorest 20% of households, 21k), those percentages become even higher. Keep in mind this is probably the case - most of us on this forum, with the exception of some shopping, probably never interact with people making the bottom 20% of income much in our daily lives.



Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aceyou on January 07, 2016, 07:20:08 PM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household, not individual, household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes. The savings rate would be extremely mustachian; while some principals are good, it's pretty damn extremist for most.

That's a good point.  We are definitely speaking from a position of privilege.  But here's the best answer I would give to your point, which again, is a fair one:

If you were making 50k combined, I'd max out the roth IRA at 11,000 before touching a 401k, since the tax bracket is going to be really low anyway.  And finally, MMM talks about not talking about the "average costs" of things like it's imposed upon us.  Spending is the better word, because it implies that we can make choices about it to improve.  In the same way, just because the median family income may be 50k, doesn't mean that's imposed on any individual family.  Yes you can find examples where that may really be the best they can do, but almost all families can get over that in time through working their skills and/or certifications.  So even if maxing out a 401K isn't currently accessible for most americans, it can be for just about any americans given time and effort. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Noodle on January 07, 2016, 08:23:29 PM
I ponder the OP's original question myself sometimes. I live in a condo complex that I would characterize as falling right at the border between modest and nice. I manage the mortgage + fees just fine on a mid-career professional salary that is low for Mustachians but very good for my career field; but it's at the top of what I was willing to pay. The garage is crammed with expensive cars, SUVs and big trucks (which is particularly ridiculous since our parking spaces are quite small and the garage is full of pillars just waiting to take out a paint job)--the kind of thing I would characterize as financially appropriate for people with much higher salaries than mine (corporate salaries, lawyers, etc). I can't decide if my neighbors are extremely prudent (ie, they want a fancy car so they pick modest housing to afford it; or, they're paid-for relics of a spendier time of which they have now thought better) or extremely dumb (ie, if they're already buying/renting the nicest housing they can afford, like a lot of people, these cars are way too expensive).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Vilgan on January 07, 2016, 08:50:25 PM
Some people fuel it with debt, but the most common I've seen is just a lack of any saving. The American marketing machine constantly tells people how to spend their money, what to buy, things to do, etc and they don't have the ability to turn it off. So instead of paying off a mortgage and saving a relevant amount in their 401k they spend every extra dime on whatever. There's plenty of marketing around cars, so that's a frequent area where people spend too much.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: fattest_foot on January 07, 2016, 09:45:54 PM
I know a shocking number of people that don't max 401k. Our employer matches 50% up to federal max, free money!!! And people are leaving it on the table for cars. :(

Holy crap! Is this a typo? Did you accidentally hit the 0 key after the 5 somehow? That's insane!

I could probably cut my time to FIRE in half working there.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: richyf on January 08, 2016, 03:07:21 AM
I don't think that it's wealth that you are seeing all about you... it's spending/consuming... which is not a good indicator of wealth.
Almost anyone can present the image a "millionaire lifestyle", in the short term with the aid of debt.

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Bertram on January 08, 2016, 05:45:26 AM
Some people fuel it with debt, but the most common I've seen is just a lack of any saving.

I agree with this. And also with the prior comments saying that family helps out a lot.

Personally I don't see the argument holding water that it *mostly* financed with debt, simply because paying with debt for something makes it more expensive, and carrying large debt (and the interest it costs) sucks away money that could otherwise be used to consume. So if you look at the mid- to long-term and compare the same income someone with less debt will be able to consume more and live a more lavish lifestyle than somebody with a lot of debt. Anything else really only works short to mid-term at best.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Bertram on January 08, 2016, 05:51:33 AM
And of course this one seems especially true:

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).

I think this problem of perception is especially true. And I've fallen into this trap as well myself. Everyone has some topics that they are passionate about, and it's easy to sort of blend all the people together and get the impression that everybody is spending a lot on everything, when that's not necessarily the case.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Fishindude on January 08, 2016, 05:58:21 AM
Many are over their heads in debt, and a whole lot are simply cash flowing things living right at the edge of what their incomes can pay for.  They have little if any safety net, and very little net worth.  Creditors own most of the shiny things they enjoy daily.

I see this daily with employees (I know how much they make).  My first home was $25,000 and when the kids were young a nice vacation was to rent a small cabin on a lake for $700 a week.   I see these young folks driving brand new cars, some have had new homes built, they frequently go to expensive restaurants, and take fancy western skiing and Caribbean beach vacations.

A few missed paychecks and they would be in trouble.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Rural on January 08, 2016, 06:14:09 AM
Many are over their heads in debt, and a whole lot are simply cash flowing things living right at the edge of what their incomes can pay for.  They have little if any safety net, and very little net worth.  Creditors own most of the shiny things they enjoy daily.

I see this daily with employees (I know how much they make).  My first home was $25,000 and when the kids were young a nice vacation was to rent a small cabin on a lake for $700 a week.   I see these young folks driving brand new cars, some have had new homes built, they frequently go to expensive restaurants, and take fancy western skiing and Caribbean beach vacations.

A few missed paychecks and they would be in trouble.


And it's all about perspective, as you implied. I can't even imagine spending $700 for a week's accommodations. Not of my own money,anyway, though I've had to on business trips.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: andy85 on January 08, 2016, 06:34:29 AM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!
agreed

By my rough calculations, if you spend 25k per year you need to roughly earn around 54k/year in order to max a 401k. This is assuming that you set ZERO dollars aside in any type of cash/emergency fund. Even with a small mortgage, which I consider myself having, at 557/month, that takes spending down to around 18k/year.

By my calculations, spending 30k/year (which includes my mortgage), I need to be making between 55k-60k in order to max my 401k, and by estimations that wont happen for another 4-5 years. But...I'm totally ok with that. as aceyou stated, it is possible to do given the time and discipline, and the majority of people lack the latter.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: justajane on January 08, 2016, 07:01:35 AM
Many are over their heads in debt, and a whole lot are simply cash flowing things living right at the edge of what their incomes can pay for.  They have little if any safety net, and very little net worth.  Creditors own most of the shiny things they enjoy daily.

I see this daily with employees (I know how much they make).  My first home was $25,000 and when the kids were young a nice vacation was to rent a small cabin on a lake for $700 a week.   I see these young folks driving brand new cars, some have had new homes built, they frequently go to expensive restaurants, and take fancy western skiing and Caribbean beach vacations.

A few missed paychecks and they would be in trouble.


And it's all about perspective, as you implied. I can't even imagine spending $700 for a week's accommodations. Not of my own money,anyway, though I've had to on business trips.

Do you have young kids, though? I would say with a family of four or above, $700 a week would be the minimum, unless you were churning credit cards or had some other kind of "in" to get you cheaper, non-camping accommodations.

We went to an obscure lake in the rural Midwest, stayed in a pretty crappy cabin that many people probably wouldn't deem nice enough, and it was $125 a night this past summer.

Whenever friends post semi-local vacations on FB, I go to look at how much it costs in order to see if we would want to do it, and more often than not, these types of cabins or hotel suites that can accommodate our family of five are $200+ a night. And this is nothing fancy, trust me.
Title: Re:
Post by: Miss Prim on January 08, 2016, 07:23:52 AM
Yes, it is an appearance for a lot of people.  My daughter had a friend who had a huge house on a private small lake in a fancy subdivision.  Her dad was a builder and when the economy went downhill in 2008, they lost everything.  In the meantime, he than had an accident and couldn't work anymore.  They ended up living in a flea bag apartment in Florida, just scraping by. 

I'm sure they lived way beyond their means and amassed a lot of debt.  We live in a fairly affluent community and I have seen a lot of this type of stuff happen to people you thought were wealthy.  Turns out they just had a lot of debt.  We live in a modest house on 4 acres and I would see these people's houses and be kind of jealous, but I hated debt, so was not going to take it on just to try to live like the "Jones".  I prefer to spend my money on travel anyway.

                                                                                       Miss Prim
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mm1970 on January 08, 2016, 07:48:47 AM
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.
That income is going to depend on what you do and where you live.

I'm an engineer in my 40's, and a bit underpaid.  My husband has a PhD in engineering. Our total household income is about that.  We live in CA, but not the Bay area.

In my town, that would not be uncommon - an engineer and a pharmacist.  A PA and a contractor.  A nurse and a scientist.  A partner in an engineering firm and an accountant.

It would be equivalent, say, to my relatives who were both teachers in my home town.  By the time they retired, they were making $75k a piece, but the cost of living was very low.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 08, 2016, 07:59:30 AM
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.
That income is going to depend on what you do and where you live.

I'm an engineer in my 40's, and a bit underpaid.  My husband has a PhD in engineering. Our total household income is about that.  We live in CA, but not the Bay area.

In my town, that would not be uncommon - an engineer and a pharmacist.  A PA and a contractor.  A nurse and a scientist.  A partner in an engineering firm and an accountant.

It would be equivalent, say, to my relatives who were both teachers in my home town.  By the time they retired, they were making $75k a piece, but the cost of living was very low.

Yup, any major metro area is going to have a lot of large companies, and professional-level jobs (engineering, finance, etc) with a college degree pay $100k+ maybe 5-10 years into one's career.  You put two of those in a household and add in a couple bonuses, $250k is perfectly doable. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mm1970 on January 08, 2016, 08:00:46 AM
Quote
When you also consider that a vast majority of those at the bottom of that graph effectively live in a different society than nearly everyone on this board (let's say the poorest 20% of households, 21k), those percentages become even higher. Keep in mind this is probably the case - most of us on this forum, with the exception of some shopping, probably never interact with people making the bottom 20% of income much in our daily lives.

I wouldn't be so sure there.  Maybe I'm just special, but many of my family members fall, or have in the past, into that bottom 20%.  Including me when I was growing up.

My son's school has more than 60% of the families on free and reduced price lunch.  I have quite a bit of interaction with the poorest 20% of households.  Which is maybe why I have a lot of sympathy.


On a side note of looking poor or being poor... my older son, many times, has talked about how his friends are "richer" than he is.  Friend A has THREE DIFFERENT VIDEO GAME CONSOLES.  And two SUVs.  And we don't.  (They have owned their house longer so lower mortgage, only have one steady income.  At one point the mom said to us "it must be nice to be able to pay for summer camp and not use it.")  Our sons were in one week of camp together (my son was there all summer), and our son had a dentist appointment and dr appt in the same week, right before school.  So he missed 2 afternoons.  They live closer to the edge than we do for sure.

Friend B has a nice RV.  But they bought their house 2 years before we did, which means their mortgage is $1400 a month less than ours.

I know some people think we are struggling because I choose not to spend on some things, like cars, a bigger house, eating out, and fancy vacations. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: sam on January 08, 2016, 08:17:56 AM
I think the answer is to not compare yourself to others.

You’ll never know what their story is.

Sam
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheOldestYoungMan on January 08, 2016, 08:37:06 AM
Understand that there are two worldviews out there with regards to healthy finances.  There are those that have a problem with debt, they recognize the risk you take on by obliging yourself to a negative cashflow situation.  We have a risk aversion to this situation, even when it would make good financial sense to take on debt, many MMM still avoid it with pathological obsession (myself included).

But then there are those that do not have a problem with debt.  Their risk tolerance for the negative cashflow situation is very high.

We can pass all the value judgment aspersions on this second group we want, but if you want to know how they "afford" these things, you just need to realize that to the extent you are OK with debt, then as long as you can afford to pay all of your monthly obligations, you actually are doing fine.

To clarify, it isn't a choice I would make, and I don't see it work out well long term for anybody, but that's what they think about the situation.

So if the median wage was 40k, and lots of people have a spouse that works, then you're looking at 80k as a reasonable estimate for household income in many of the places we MMM folks are going to be living.  Probably 80-150k more likely (this isn't a poor man's  internet hangout spot).

So if you're making close to 5k/mo after taxes, you can "afford" a shitload of stuff.  You and I wouldn't make this choice, because being one paycheck away from oblivion isn't fun for us.  But some people can tolerate that feeling better (maybe because they just aren't aware of it).

Then you really dig into it, and tear into people's finances.  That 40 something that has always lived in their own house and owned their own new car?  Well, they've usually held down a job too, and they've earned close to $1 mil just off wages.  Even spending like a knob you'd be hard pressed to have nothing by then.  The forced savings account of a mortgage and a car note have probably made it so they have a net worth excluding debt of around 200k by the time they're 45.  So you look at their total debt number and it looks insane to you, but their debt to equity ratio might be better than the 20 something mustachian who is OK with a high mortgage number.

What I think a lot of people don't see is the total history of the folks you interact with.  If one of us hit age 40 and decided that we'd had enough of FIRE, re-entered the grind making as much as we could, and lived off that new amount, in some hedonistic post FIRE splurge, we'd be in a situation where we could FIRE at any time and yet can still live an insane lifestyle.

And you can read through the postings to see people that do exactly that.

But I don't think that's the way most do it.  I think most end up with a high long term debt payment in their 20's (mortgage or student loans or both) such that they get used to the idea of a debt payment, and then they just keep tacking on more and more.

As one of those types described to me "to the extent you have debt, it doesn't really matter how much."  He was trying to explain why it was OK for the government to to keep borrowing money in a limitless way, but that he could even utter that sentiment made me feel all hollow inside.

I recently met up with him after spending several hours (after he and his wife specifically asked) walking through how to improve their financial situation.  We went through each debt, each payment, talked at length about what their action plan would be, them nodding the whole time, about 6 months ago.

They drove up in a brand new BMW 6 months later.  *facepalm*

But it works for them.  They've been living this way for a decade now.  IF it all falls apart at some point, then maybe it wasn't a good idea, but it may very well work out fine, and it is their choice to make either way.
Title: Re: The "everybody seems wealthy" illusion
Post by: partgypsy on January 08, 2016, 08:58:15 AM
Page 39 of this PDF (http://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf) indicates that in 2013:

  • 5% of households made 200k+
  • 10% made 150k+
  • 20% made 112k+
  • 40% made 68k+

In other words, one in five households earns a fair bit over 100k a year. Yes, probably not location adjusted, but still insightful for this question.

When you also consider that a vast majority of those at the bottom of that graph effectively live in a different society than nearly everyone on this board (let's say the poorest 20% of households, 21k), those percentages become even higher. Keep in mind this is probably the case - most of us on this forum, with the exception of some shopping, probably never interact with people making the bottom 20% of income much in our daily lives.

When I was going to graduate school, most of the fellow students I knew, were being helped by their parents on either a monthly or yearly basis.
 
We live in an above average net worth neighborhood, and the school is as well, so the kids play with other kids living in very nice houses, with their own bedroom and often their own playroom. As far as who lives in the houses, a lot of university people where one spouse has a very good income, some double income parents along with some who were helped by parents to purchase their first house, a few multi-millionaires, and I'm sure some who have quite a bit of debt.
I tell my kids, it is easier to see the people who are doing better or who have more than you, than the people who have less. The poor are essentially invisible, especially if your school or work never takes you through those neighborhoods.  My oldest is learning about the Industrial revolution and how children were working in mines or unsafe factories and working 7 days a week 12 hours days for very little or even nothing. And we talked about how in today's age how there are places like that still in other countries.  I am grateful for where I am, but at the same time I want to do better.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Apples on January 08, 2016, 09:09:52 AM
It's always easier to have one of the nicer homes on the block and make a bit above the average income of the neighborhood where you live.  That way your spending after a normal level of saving is in line with people who make a bit less than you and don't save at all.  Also, I think most of the country doesn't save at all, except for "we're not going out to eat quite as much this month b/c we're going on vacation next month and saving up for it".  Which a lot of people do who consider themselves prudent with their money.  They don't quite go for the credit card debt, but they never really cut back on their lifestyle to get any sort of significant savings going.

Also, parental help.  I've received plenty as they were willing to pay for college and since I got scholarships helped renovate the house DH and I live in.  Families that own businesses and have one child taking it over, may give gifts or pieces of ownership to the other siblings for the one in the business to buy them out.  My uncles have gotten some years of $30k to $50k windfalls over time from this transition plan. 

Whenever I feel the green eyes of jealousy coming around, I turn on the Dave Ramsey show podcast.  We're saving up to buy the family business and my father has given us several warnings that I may get gifts of equity in the future while my brothers get $50k checks written to them.  And he emphasizes how it's hard to stay the course while watching your siblings use 20% of that money for a really  nice vacation, throw 50% into savings of different sorts, and use the rest as needed for a year or two.  It will make anyone feel poor in comparison.  So sometimes right now I see friends doing "cool expensive thing" and I go turn on the DR podcast and remind myself we're in "baby step 3b" and that goal is important and look there's all these other people living on budgets and not taking vacations in order to reach their goals!  I'm not even a big DR fan, but the positive reinforcement of hearing about other people living prudently makes it easier to stay on course.

ETA:  I listen to the podcast so I can skip his rants, promotions for their events and products, and every now and then when he gives cringe-worthy advice.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: honeybbq on January 08, 2016, 09:53:08 AM
I often wonder this myself, who are these people and why/how are they spending all this money?

So, I'm in a 1%er household in a HCOLA. And I am *shocked* by friends, co-workers, strangers clogging up Nordstrom, Pottery barn, etc. I feel like *I* can't afford to shop there, I'm not sure how 'average' Joe or Jane can shop there. A coworker bought a $2000 coffee maker thing to "save money" and not go to Starbucks every day as opposed to drinking the free work coffee. But he still goes to Starbucks, bless his heart.

Same goes for restaurants. We got a GC for Red Lobster -- we went on a Tuesday night or something - the time to wait was almost an hour! Who are these people who can afford to eat that kind of food on a Tuesday? I can' t imagine everyone was on a GC.

Last minute plane tickets, new cars... I really think people just don't save for retirement, float credit card debt month to month, and live paycheck to paycheck. All you have to do is read the antimustachian thread and read about everyone panicking about their paychecks showing up 1 day late and you see that all hell breaks loose.

Disclaimer:

Now, we are in the subsection of people who like to earn money and like to spend money; we could pull the plug and buy a smaller house in the burbs somewhere for cash and live there for the rest of our lives, but we do like to travel, fund our kid's 529s, etc. So we certainly could cut back if we wanted, but we choose not to.


Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 08, 2016, 10:01:17 AM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!
Unless this family of four earning $25k/yr is buying new cars every 2-3 years and is taking $5000 vacations, I'm not sure how that's relevant.

Two $5000 vacations and two $500 car payments = $22k *net* per year. That's easily a maxed 401k and IRA....hence my comment.
Title: etc.
Post by: Neustache on January 08, 2016, 10:03:46 AM
We could easily have a much 'nicer' life on paper and we are a one income family, making 100K with a 16k/yr defined retirement contribution on top of that.

We have about 2500 a month extra for investing.  We already have a huge house, but it's in a poorer area.  Upgrade to a fancy pants house in our area would be about $500 a month.  So 2K left.  - low cost of living area here-

If both of us had fancy cars (on credit), at $500 a month each, then we'd still have 1K a month to spend.

Fancy meals each month?  Sure.  Let's spend $200 on that.

That leaves $800 a month for vacations.  We could take 1 really luxurious vacation or 2 moderate ones (we usually spend 3K a year on vacations). 

And then we look rich.  And we would be 'saving' 16K a year with the company contribution, so it's not like we were in a huge amounts of trouble.  And that's on one income.  Say I become a teacher, we then have $2500 extra a month to spend, whether that's on retirement or other fancy pants expenditures.  But that's after contributing the required 15% to my pension while the district matches that.   So we'd still be saving a good deal for retirement, but we'd be spending a heck of a lot, too. 

We would look super wealthy if we started blowing my teacher's pay.  And that's on a 140K gross income.  Not too hard to reach that level of income with two earners with degrees at the ages of 35/34.   
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 08, 2016, 10:38:55 AM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!
Unless this family of four earning $25k/yr is buying new cars every 2-3 years and is taking $5000 vacations, I'm not sure how that's relevant.

Two $5000 vacations and two $500 car payments = $22k *net* per year. That's easily a maxed 401k and IRA....hence my comment.

The comment was not to yours- it was to the person who said a "shocking" number of people don't max their 401k. 

It's not shocking to me at all the the vast majority of people do not max their 401ks.  It is shocking to me the number of professionals who do not take advantage of a match, but to max? That is a LOT of money.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 08, 2016, 10:45:27 AM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!
Unless this family of four earning $25k/yr is buying new cars every 2-3 years and is taking $5000 vacations, I'm not sure how that's relevant.

Two $5000 vacations and two $500 car payments = $22k *net* per year. That's easily a maxed 401k and IRA....hence my comment.

The comment was not to yours- it was to the person who said a "shocking" number of people don't max their 401k. 

It's not shocking to me at all the the vast majority of people do not max their 401ks.  It is shocking to me the number of professionals who do not take advantage of a match, but to max? That is a LOT of money.

Ahhh, yeah. I absolutely agree.
Title: Re: etc.
Post by: TheAnonOne on January 08, 2016, 11:13:18 AM
We could easily have a much 'nicer' life on paper and we are a one income family, making 100K with a 16k/yr defined retirement contribution on top of that.

We have about 2500 a month extra for investing.  We already have a huge house, but it's in a poorer area.  Upgrade to a fancy pants house in our area would be about $500 a month.  So 2K left.  - low cost of living area here-

If both of us had fancy cars (on credit), at $500 a month each, then we'd still have 1K a month to spend.

Fancy meals each month?  Sure.  Let's spend $200 on that.

That leaves $800 a month for vacations.  We could take 1 really luxurious vacation or 2 moderate ones (we usually spend 3K a year on vacations). 

And then we look rich.  And we would be 'saving' 16K a year with the company contribution, so it's not like we were in a huge amounts of trouble.  And that's on one income.  Say I become a teacher, we then have $2500 extra a month to spend, whether that's on retirement or other fancy pants expenditures.  But that's after contributing the required 15% to my pension while the district matches that.   So we'd still be saving a good deal for retirement, but we'd be spending a heck of a lot, too. 

We would look super wealthy if we started blowing my teacher's pay.  And that's on a 140K gross income.  Not too hard to reach that level of income with two earners with degrees at the ages of 35/34.


Right, if my Wife and I stopped putting any money in taxable accounts, maxing both 401k's, and maxing IRAs, we could blow about $100,000 more yearly and we already live pretty good IMO.

What could 100k YEARLY do?(After tax in pure spend...)
Well, it could be a Lambo....Or a million dollar house..... Or some sort of mega world trip(yearly)..... Or a new Corvette every 6 months (Without selling them at all) and enough to build a hangar to keep them in.

It's pretty impressive.... Yet, I prefer to attempt to buy my freedom. If I want the above items, I can just work a year or two longer after my FIRE date, and get it all.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Bertram on January 08, 2016, 12:30:44 PM
Understand that there are two worldviews out there with regards to healthy finances.  There are those that have a problem with debt, they recognize the risk you take on by obliging yourself to a negative cashflow situation.
...
But then there are those that do not have a problem with debt.  Their risk tolerance for the negative cashflow situation is very high.

Not only that, It goes further than that. And I would take leasing a car as an example to illustrate it. Some people are convinced that you are only living within your means if you have bought the car, i.e. if you were able to save for it and then buy it. They will say that if you are leasing the car you are living above your means.
Whereas another school of though will say that leasing a car means paying for the depreciation in value as it happens (more or less, i.e. linearized over 24-36 months), hence if you are able to afford that cash-flow on a month by month basis (and the other running costs obviously) you are living well within your means. So in contrast somebody who did not have a car for 10 years to save up and bought the car from savings and could not afford the monthly leasing payments is the one who is living above his means (even though he never used any debt).

Much in the same way you can argue that somebody who never goes bankrupt and is always able to service/pay off his debt is not living above his means. However he is certainly foregoing the possibility of saving for old age by living better today - or more simply: the prefer certain current consumption over uncertain future consumption. I've heard surprisingly many people say that they don't want to get old and do not expect to live much beyond the retirement age.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: big_slacker on January 08, 2016, 01:24:34 PM
I know a shocking number of people that don't max 401k. Our employer matches 50% up to federal max, free money!!! And people are leaving it on the table for cars. :(

Holy crap! Is this a typo? Did you accidentally hit the 0 key after the 5 somehow? That's insane!

I could probably cut my time to FIRE in half working there.

Seriously, and there is no vesting periods like most companies. Free 9k+ a year. And up to 15% of your income in 10% discounted stock. I say again: Free. Money. And people don't immediately max it, they're buying cars and shopping at Nordstrom. :(
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 08, 2016, 01:36:29 PM

Seriously, and there is no vesting periods like most companies. Free 9k+ a year. And up to 15% of your income in 10% discounted stock. I say again: Free. Money. And people don't immediately max it, they're buying cars and shopping at Nordstrom. :(

That is a really nice match.
I'm really lucky as my company puts in 13% and requires you to put in 2% (no match). But we have 2 year vesting.

However, I recently found out that because the 2% is compulsory it doesn't count towards the $18k limit, so I can put in 18k in addition to that 2%.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 08, 2016, 01:39:55 PM

Seriously, and there is no vesting periods like most companies. Free 9k+ a year. And up to 15% of your income in 10% discounted stock. I say again: Free. Money. And people don't immediately max it, they're buying cars and shopping at Nordstrom. :(

That is a really nice match.
I'm really lucky as my company puts in 13% and requires you to put in 2% (no match). But we have 2 year vesting.

However, I recently found out that because the 2% is compulsory it doesn't count towards the $18k limit, so I can put in 18k in addition to that 2%.

Are you sure? I've not seen that before.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 08, 2016, 01:43:17 PM

Seriously, and there is no vesting periods like most companies. Free 9k+ a year. And up to 15% of your income in 10% discounted stock. I say again: Free. Money. And people don't immediately max it, they're buying cars and shopping at Nordstrom. :(

That is a really nice match.
I'm really lucky as my company puts in 13% and requires you to put in 2% (no match). But we have 2 year vesting.

However, I recently found out that because the 2% is compulsory it doesn't count towards the $18k limit, so I can put in 18k in addition to that 2%.

Are you sure? I've not seen that before.

Does it matter that it is a 403b?
But yeah, $18,000 is the limit on elective contributions. What the company requires is not elective, it is a condition of employment and the IRS separates it.  It is just subject to the limit on annual additions- employee + employer, which I think is $53k.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BlueHouse on January 08, 2016, 01:44:05 PM

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.
THIS.  Sums it all up in two sentences. Well done. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: GodlessCommie on January 08, 2016, 01:51:53 PM
We socialize mostly with other immigrants who, like us, came with no real money, but to good IT jobs waiting. It seems like people in our circle tend to fall into one of two extremes... One is trading a new BMW for a newer BMW every two years, wear designer clothes, take frequent and expensive vacations, and not even think about 401K or anything like that. Another one is to live in modest (by HCOL standards) houses on two 100K+ (estimated) incomes, never eat out, complain that there is no money for anything, but flat out refuse to go into details. Which is all fine, except it's exactly the people who could probably share something about money who don't like talking about money.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: oinkette on January 08, 2016, 02:43:48 PM
I used to wonder the same, especially in higher COL areas. I've lived in LA and now NYC and the way I see some people live, boggles the mind. Then I think about the fact that I'm saving ~70% of my income and how I would live if I didn't. Heck, even if all I did was simply max out my 401k I'd have a pretty fly lifestyle.

If you're on the MMM forums, chances are you are saving a goodly portion of your income, far and above what 90% of Americans are. For most of us, that's going to mean a drastic difference between your lifestyle and that of your coworkers.

I don't think it's debt, at least entirely, but also lack of savings.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Albert on January 08, 2016, 02:45:53 PM

When you also consider that a vast majority of those at the bottom of that graph effectively live in a different society than nearly everyone on this board (let's say the poorest 20% of households, 21k), those percentages become even higher. Keep in mind this is probably the case - most of us on this forum, with the exception of some shopping, probably never interact with people making the bottom 20% of income much in our daily lives.

This is true, we don't tend to socialise much outside our income bracket. Not because we are such snobs, but because those people just don't seem interesting and we don't have much to talk about. I was just thinking that the lowest earning person (aside of students and apprentices who are very young) I know in this city makes about $70k. On the other side a good friend of mine together with her husband makes about $300k. I don't think I know personally anyone even wealthier than that.  It's a bit different with relatives as those you don't choose.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: use2betrix on January 08, 2016, 03:02:53 PM


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.

So let's say a household earns 250k total. They put $4000 every month into tax advantages accounts. They earn 8% for 30 years as they like their jobs and lifestyle. By the time they retire, they will have nearly 5.8 million! They could have a SWR of 200k and leave the whole stache to their kids.

On top of that, they could spend 100% of their other 200k in taxable income. That leaves a LOT of stuff to be owned. House, cars, vacations, etc.

Not everyone wants to retire in 10 years. Some love work and their lifestyles. No one should really judge them. The reason why it "seems" like so much to us, is because most of us want to retire 20,30,40 years before everyone else.

Of course, this isn't everyone. This isn't most. I think most cut their finances and debt very close. This would just be ideal for some.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Helvegen on January 08, 2016, 05:21:17 PM
I know a shocking number of people that don't max 401k. Our employer matches 50% up to federal max, free money!!! And people are leaving it on the table for cars. :(

Holy crap! Is this a typo? Did you accidentally hit the 0 key after the 5 somehow? That's insane!

I could probably cut my time to FIRE in half working there.

Seriously, and there is no vesting periods like most companies. Free 9k+ a year. And up to 15% of your income in 10% discounted stock. I say again: Free. Money. And people don't immediately max it, they're buying cars and shopping at Nordstrom. :(

Damn, and I thought I had a good gravy train at my job...Time to work where you do!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Gin1984 on January 08, 2016, 05:38:29 PM
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!
Our last vacation probably looked expensive, we went to NYC.  But the rooms were free because of points.  And our major event was Xmas to each other plus a serious amount of fun money saved. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Xlar on January 08, 2016, 05:56:32 PM
I used to wonder the same, especially in higher COL areas. I've lived in LA and now NYC and the way I see some people live, boggles the mind. Then I think about the fact that I'm saving ~70% of my income and how I would live if I didn't. Heck, even if all I did was simply max out my 401k I'd have a pretty fly lifestyle.

If you're on the MMM forums, chances are you are saving a goodly portion of your income, far and above what 90% of Americans are. For most of us, that's going to mean a drastic difference between your lifestyle and that of your coworkers.

I don't think it's debt, at least entirely, but also lack of savings.

I definitely think it is a lack of savings.

I live in a HCOL area and my coworkers complain that they can't even hit to company match of 6% but they're easily spending more than $1500 a month eating out! Then add on a hefty car payment, mortgage, vacations, etc. and suddenly they're living paycheck to paycheck.

As mustachians we're making the opposite choice. Just think of what you would be able to buy if you didn't save a penny and I think you'll realize why people are able to afford these things.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: use2betrix on January 08, 2016, 06:04:03 PM
I know a shocking number of people that don't max 401k. Our employer matches 50% up to federal max, free money!!! And people are leaving it on the table for cars. :(

Holy crap! Is this a typo? Did you accidentally hit the 0 key after the 5 somehow? That's insane!

I could probably cut my time to FIRE in half working there.

Seriously, and there is no vesting periods like most companies. Free 9k+ a year. And up to 15% of your income in 10% discounted stock. I say again: Free. Money. And people don't immediately max it, they're buying cars and shopping at Nordstrom. :(

That's about how mine is. I'm 100% vested since day 1. Because my income is high enough, they will put in about 7500/yr into my 401k just as their match. If I work overtime, they'll do even more.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: ShortInSeattle on January 08, 2016, 06:06:07 PM
I also wonder about this.

We've got friends who have giant fancy houses, new cars, private school for the kiddos, off on luxury vacations, twice daily dog walkers... the whole shebang.

Are their incomes freakin' amazing OR is that shiny veneer of consumer goods covering up a mountain of shitty debt and despair?

I wanna sidle up to them and whisper... Hey! Are you super-rich or are you just faking it?

But that's really none of my business. And it would be super rude of me to ask. So I don't.

I'm super curious though.

SIS
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: use2betrix on January 08, 2016, 06:06:42 PM
I hate going to Wal Mart because I rarely see people in the stores.  I probably average about 1-3 people when I go.  The rest are just slaves to the system.  I see nothingness in their eyes.  It's like I see poor shadowy figures in Purgatory trudging along aimlessly.  Exhausted, no soul, inner truth, life. 

Scary.

I think you're referring to Schindler's List. I've been to probably 100+ wal marts and have never seen one so... Solemn...
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: okits on January 08, 2016, 06:39:02 PM
I also wonder about this.

We've got friends who have giant fancy houses, new cars, private school for the kiddos, off on luxury vacations, twice daily dog walkers... the whole shebang.

Are their incomes freakin' amazing OR is that shiny veneer of consumer goods covering up a mountain of shitty debt and despair?

I wanna sidle up to them and whisper... Hey! Are you super-rich or are you just faking it?

But that's really none of my business. And it would be super rude of me to ask. So I don't.

I'm super curious though.

SIS

Well, eventually the tide will go out and you'll get to see who's been swimming naked.

I think it's human nature to speculate, but bear in mind there are so many sources of money you may not readily see.  Job, spouse's job, previous savings, inheritance, parental support, debt, even government programs that subsidize or cap certain costs depending on someone's eligibility based on rules.  It's easy to see the goods and services a person consumes but not how precarious their continued access is to those things (if they're FI, access is solid.  Up to eyeballs in debt and no job security, access is very shaky.)

I'm curious, too, but in the end I try to focus mostly on my situation and how to optimize it.  Maybe that's easy to say because I am in a pretty good position, but at least some of that is due to my inward-looking efforts.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: MrsPete on January 08, 2016, 07:39:55 PM
Two thoughts:

- Putting aside the idea of "everyone's living on credit", which probably has some merit, a whole lot of people are living on exactly what they earn.  If I weren't saving aggressively, I could live in a bigger house, go out to eat more often, and take some pretty nice vacations. 

- It's easy to see a "slice" of someone's life and fill in a bunch of blanks to fill it in.  For example, say you have a co-worker who travels frequently ... and a friend who lives in a house that could be pictured in House Beautiful ... and another friend who drives a drool-worthy sports car.  It's easy to let your imagination run wild and think to yourself EVERYONE EXCEPT ME is traveling and living in a mansion and driving something hot ... when in reality, your friends may be living frugally in one area of their lives to pay for their splurge item. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Nickels Dimes Quarters on January 09, 2016, 05:47:45 PM
There are so many social and mental issues at play with this question. Maybe it isn't debt, but many people like to have big showy homes, newer cars and all the newest tech gadgets. Maybe they have great jobs, carry no debt and that's just who they are. Yet we all know that not everyone has the sort of income to do this and go into great debt to look wealthy to others. It's a sad story.

I have family members who earn a lot of money and live modestly, and others who will never earn enough to afford the lifestyle they want. Until a person is content with their life, happy in their relationships and comfortable in their own skin with who they are and what they value, it's easy to use "things" to compensate.

So no, I don't think it's fueled by debt. Debt isn't the problem, it's just the means to getting the "drug" of stuff to make oneself feel better for all things lacking in life. Self-medicating with stuff, purchased through debt, is the problem. Once you get comfortable and happy with who you are, what you have and your life, you don't need the rest.

NDQ
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Zamboni on January 09, 2016, 06:06:28 PM
You are experiencing relative deprivation, which is more a state of mind than any truth about your financial situation.

I take the back way to work pretty regularly. Partly it is to avoid traffic and a construction zone, and partly it is because it is a really low income neighborhood that runs along the train tracks. Honestly that morning drive erases any relative deprivation I sometimes experience. I also deliver meals to low income seniors, and that is quite eye opening. We have it really good.

Also, bear in mind that many quite wealthy people don't actually appear to be wealthy in the stereotypical sense (aka the millionaire next door.) Most of those you are observing who have very high burn rates have cash flow, or at least credit flow, but are not actually wealthy.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: faramund on January 10, 2016, 12:17:40 AM
I'm now 46, and I used to feel like this a lot back in my 20s. Most of my friends spent everything they earned, and maxxed out whatever credit they had. So back then, they were always buying much more 'stuff' then I ever did. In contrast, my wife and I saved up a deposit, and generally avoided non-mortgage debt, and over the years built up investments. Now, they seem the most financially limited - many of them live in rented apartments, have no assets, and periodically complain about how much debt, how little money they have. If I ever mention my retirement plans, the usual reply is that they don't know how they'd ever do it.

So, debt/non-investing can certainly allow people to consume more, but not forever. And for most people, their spending only has a loose correlation with how much assets they have.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheNick on January 10, 2016, 02:52:00 AM
Right, if my Wife and I stopped putting any money in taxable accounts, maxing both 401k's, and maxing IRAs, we could blow about $100,000 more yearly and we already live pretty good IMO.

What could 100k YEARLY do?(After tax in pure spend...)
Well, it could be a Lambo....Or a million dollar house..... Or some sort of mega world trip(yearly)..... Or a new Corvette every 6 months (Without selling them at all) and enough to build a hangar to keep them in.

It's pretty impressive.... Yet, I prefer to attempt to buy my freedom. If I want the above items, I can just work a year or two longer after my FIRE date, and get it all.

Haha...my plan is exactly the same as yours!  Why buy fancy stuff with money I'm punching a clock today for when I can invest that money and when I get enough invested buy that fancy stuff with magical dividends that just appear in my account?  The way I look at it is simple sacrifices...like maybe skipping a vacation for 10 years and investing that money instead, will leave me with enough dividend income to go on a vacation a year for the rest of my life after that.  Seems like a no brainer to me...10 vacations now or 40 vacations later...

I'm now 46, and I used to feel like this a lot back in my 20s. Most of my friends spent everything they earned, and maxxed out whatever credit they had. So back then, they were always buying much more 'stuff' then I ever did. In contrast, my wife and I saved up a deposit, and generally avoided non-mortgage debt, and over the years built up investments. Now, they seem the most financially limited - many of them live in rented apartments, have no assets, and periodically complain about how much debt, how little money they have. If I ever mention my retirement plans, the usual reply is that they don't know how they'd ever do it.

So, debt/non-investing can certainly allow people to consume more, but not forever. And for most people, their spending only has a loose correlation with how much assets they have.

I'm 32 now, and its a pretty interesting age to be at in terms of financials.  It seems like half my friends are finally waking up and aggressively paying off debt and upping 401k contributions, while the other half are still in la la land totally oblivious to the fact they'll be working until the day they die if they keep their current habits up...but who cares...they have a nice car and fancy smart phone lol.

I see the end game though with older people I know and its exactly like you say.  A lot of the ones who had the most toys, vacations, and biggest houses over the years either end up with next to nothing or working until the day they die.  I'd almost feel bad for some of these people if it wasn't for the fact they are generally the ones that love to brag about all their stuff the most and look down on you for not having stuff.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: steviesterno on January 10, 2016, 06:04:49 AM
i think one of the issues is people only really post to social media the good things. I know I won't put a picture of the 4th PB&J sandwich I bought from home to save money. so if you only show off the good stuff, it's really easy to look like you're doing better than you are.

the other idea i'm having is a quote, not sure where I heard it, maybe here. "I can have anything I want, but I can't have everything I want." if I wasn't putting any money into a 403 I could drive a masarati. but I think a lot of us on this forum would rather have financial freedom or a big nest egg or not work in their 50s, which is something we're paying for.

I have a buddy who's big into spending, and he values a nicer car more than investing, so his car costs what my house does. it's pretty nice, but that's what he likes.

I don't think people we know are really poor, but I also don't have a chance to spend time with people living on nothing in the swamps of alabama, I'm in a major city. so everybody here has to have at least enough money every month to stay here. so we see people in similar income brackets. we don't see the super swings of the scale, so we don't know.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: greentea on January 10, 2016, 09:10:02 AM
I'm 32 now, and its a pretty interesting age to be at in terms of financials.  It seems like half my friends are finally waking up and aggressively paying off debt and upping 401k contributions, while the other half are still in la la land totally oblivious to the fact they'll be working until the day they die if they keep their current habits up...but who cares...they have a nice car and fancy smart phone lol.

I have a nice car and a fancy smart phone... and yes I have been FI for over 10 years. What am I saying is it is very easy to judge people based on their watch, bag, jewelry, car, phone etc. With my car and a pair of giant simulated diamond earrings (looks great and totally not expensive), my friend's mother watched me step out of my car and she laughingly said "You look like someone's mistress!". Haha! This is much much worse than being seen as stupid with money if you ask me!

Unless I really know what their situation is, I try not make these kinds of assessments of people based on these items.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: pachnik on January 10, 2016, 10:41:28 AM
I save about $1,200.00 per month from my salary and put it into long-term investments.  That's $1,200.00 per month that I am not spending on stuff or experiences other than the experience of having a healthy investment account. 

If I wanted to spend that money every month, I could come in to work with a Starbucks coffee + muffin  and eat lunch out everyday.   This is probably about $300 per month so there's $900 more to go.  I could buy lots of new clothes and accessories every month and talking about going out for dinner a lot.  I don't know if I would look 'wealthy' though anyway since I work for very wealthy people. 

I've also had experiences where I meet someone who appears wealthy - expensive car + living in a mansion in a HCOL area - and has serious money trouble.  Can't go by appearances I guess. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Exhale on January 10, 2016, 11:32:04 AM
I've always wondered how things would look if we didn't have credit cards/easy access to credit. I mean this both in terms of using it for luxury items, but also as a safety net. Due to job insecurity and health issues in my early adulthood, there were times when I needed the credit card to get me through the month (groceries) or to deal with an unexpected emergency expense (medical). Without a credit card at those times I would've been at a food bank or without medical care.

I've been advising students for almost 15 years now and see the increasing amounts of credit card debt they acquire to support their Starbucks habit, new phones/computers, the "right" clothes and outings/vacations. (Seems to be tied to feeling "grown-up," an extension of habits learned at home and/or simply not really thinking about what the consequences are.) It's so easy to just pull out the card and deal with payment later.

I'm experimenting with how to fold financial information into the advising I do. I'm not qualified to/interested in doing financial advising, but I do think that as an advisor I need to say something. After all, we talk to students about professional development and staying physically and emotionally healthy (in addition to the educational advising). Recently I came across a website for junior academics and one of the main recommendations was to get/stay financially healthy because it'd allow a degree of independence in terms of what jobs to take and where. I'm adapting that resource to use with my students.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheNick on January 10, 2016, 12:09:14 PM
I'm 32 now, and its a pretty interesting age to be at in terms of financials.  It seems like half my friends are finally waking up and aggressively paying off debt and upping 401k contributions, while the other half are still in la la land totally oblivious to the fact they'll be working until the day they die if they keep their current habits up...but who cares...they have a nice car and fancy smart phone lol.

I have a nice car and a fancy smart phone... and yes I have been FI for over 10 years. What am I saying is it is very easy to judge people based on their watch, bag, jewelry, car, phone etc. With my car and a pair of giant simulated diamond earrings (looks great and totally not expensive), my friend's mother watched me step out of my car and she laughingly said "You look like someone's mistress!". Haha! This is much much worse than being seen as stupid with money if you ask me!

Unless I really know what their situation is, I try not make these kinds of assessments of people based on these items.

Great, thanks for sharing, but I wasn't talking about you.  There is obviously nothing wrong with nice things when you have a high income...but if you actually read my whole post and not just that little bolded section you wanted to pick out of it, I was referring to friends of mine that I do know, not just making broad sweeping judgements about random people...because yes, I do know plenty of people who definitely aren't high income earners who have money for a nice car, vacations, and the latest greatest phone they upgrade yearly...but if something unexpected pops up like a trip to the vet or a TV crapping out that is going to cost hem a few hundred bucks more than they had expected...they end up in absolute panic mode because they have no savings and their entire life is based around making all their payments next month.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: 4alpacas on January 10, 2016, 12:28:18 PM
i think one of the issues is people only really post to social media the good things. I know I won't put a picture of the 4th PB&J sandwich I bought from home to save money. so if you only show off the good stuff, it's really easy to look like you're doing better than you are.
If you're eating 4 PB&J sandwiches in one sitting, then I think that's post worthy!

the other idea i'm having is a quote, not sure where I heard it, maybe here. "I can have anything I want, but I can't have everything I want."
I think I first heard a similar comment at Afford Anything.
http://affordanything.com/2012/02/20/you-can-afford-anything-but-not-everything/ (http://affordanything.com/2012/02/20/you-can-afford-anything-but-not-everything/)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BTDretire on January 10, 2016, 07:40:31 PM

 I think much is fueled by debt.
23% of households earn less than $25k
51% of households earn $25k to $100K
23% +51% = 74%, and 100% -74% = 26%
A percentage of that 26%, live in HCOL areas,
call that 1/3, that leaves 18% of households
that can live the high life, ahh, spending life, versus borrowing life.
Pg 31,
https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf


50% of households have a net worth less than $82k,
However, I contend most of that is not liquid, mostly
equity in a home.
http://www.frugalfringe.com/numbers-crunching/how-to-compare-your-net-worth-to-others-without-being-rude/
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: tobitonic on January 10, 2016, 07:51:14 PM
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.

If they're earning as much as you suggest, they're not upper middle class--they're just upper class.

In 2010 in Canada, the middle quintile for households was 60-85k, while the 4th quintile (upper middle) was 85k to 125k. The top quintile was anything (http://www.moneysense.ca/columns/are-you-in-the-middle-class/) above 125k.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: tobitonic on January 10, 2016, 08:02:02 PM
It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!

Excellent post and point.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: VladTheImpaler on January 10, 2016, 09:21:09 PM
Here's a quick remedy: get off Fakebook, I mean Facebook.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 11, 2016, 04:43:49 AM
We’re probably spending the same amount of money as our next door neighbor, but we’re buying different things. They bought a boat; we bought investments. They buy a fancy car; we buy our freedom.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: steviesterno on January 11, 2016, 05:24:44 AM
i think one of the issues is people only really post to social media the good things. I know I won't put a picture of the 4th PB&J sandwich I bought from home to save money. so if you only show off the good stuff, it's really easy to look like you're doing better than you are.
If you're eating 4 PB&J sandwiches in one sitting, then I think that's post worthy!


haha not in a row... every day for a week, and I get half days on friday. Everyone goes out and averages like $15 a day/4 days a week for lunch. and I eat some much fancier left overs than they get
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Squirrel away on January 11, 2016, 05:37:47 AM
I think some people are in a lot of debt, some get helped out financially a lot by their families, some are spending now because they are banking on a big inheritance when their parent/s die...

We are putting a lot into pensions and savings, if we didn't we could live a more outwardly lavish lifestyle but that isn't important to us.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: 2Birds1Stone on January 11, 2016, 06:49:57 AM
I think a lot of this has to do with how you prioritize your spending.

In 2015 I earned $80k, spent $20k, and invested $60k.

I can only imagine how lavish I could make my lifestyle look if I spent 4X my actual spending for the year......we are talking a nice house, a high end sports car, vacations to exotic places, etc. At the cost of having to work forever.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kitsune on January 11, 2016, 07:36:48 AM
I think a lot of this has to do with how you prioritize your spending.

This.

I posted on another thread about some of my colleagues suddenly looking at my lifestyle and being like 'huh, someone CAN be doing well, what I am doing not-well?" But it's true.

Look: on the surface, if you see me, I'm in my early 30s, with a large-ish and full-of-gorgeous-antiques house, dress in cashmere sweaters and wear pearls and diamonds on a regular basis, and we eat excellent food that we reguarly invite people over to share (duck magret in a brandy and peach sauce, anyone?)

But: the jewelry is all inherited from my grandmother (and if I sold it, I'd get maybe 20% of what you'd pay in store for it - worth of jewelry is a funny thing). The house is our only large expense, and both of us prefer to stay home than go out, so it made sense to have a house we wanted to stay in and instead cut our going out and travelling budget, since that's what we enjoy. The antiques are hand-me-downs or refinished dirt-cheap kijiji finds. Our main hobbies are gardening (which, even if you go bonkers on tools and landscaping, at least breaks even if you're growing food) and curling up in front of the fireplace with our cat and a good book (library! also time with spouse!). My husband mixes amazing cocktails (20% the cost of a cocktail in a restaurant, and much, much better!), I cook (less than 20% the cost of going to a restaurant!), we spend time with our daughter, we donate time and effort to our community... we genuinely don't spend much money outside of our mortgage and car maintenance.

Look: we live in a spot known as a 'vacation spot' (15 minutes farther from work than most of my colleagues, nestled between a climbing mountain with a clifface and a large lake). Last summer, I brought my swimsuit to work regularly, and switched into it under my clothes before leaving. Then I picked up my daughter at daycare and we spent an hour at the beach before going home for an excellent dinner, and then she'd go to bed and I'd have 2 hours with my husband (cocktails on the patio with candles and books, anyone?) before we headed up. Beaches and cocktails all evening make it feel a LOT more like a summer-long vacation... Expenses: house in a good location, daycare and car (associated with work), 1 swimsuit for the summer, homemade food and cocktail ingredients... And yet I've had visitors comment that they 'don't know how we make ends meet' and 'they couldn't afford this' and 'are so jealous'. Universally, these are people who make more than we do, but they go out for dinner/drinks 4-5 nights per week (100$ per night, each, easy), and so no, they couldn't afford our lifestyle WHILE STILL PAYING FOR THEIRS. That's the key.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: big_slacker on January 11, 2016, 08:00:28 AM
I think a lot of this has to do with how you prioritize your spending.

In 2015 I earned $80k, spent $20k, and invested $60k.

I can only imagine how lavish I could make my lifestyle look if I spent 4X my actual spending for the year......we are talking a nice house, a high end sports car, vacations to exotic places, etc. At the cost of having to work forever.

When I was young and very dumb I got my first 35k/yr job (which was pretty good for '99 in a small town) I went out and leased a $35k car. Lived in a nice condo with a view of the lake. New snowboard gear and clothes on credit card. 24 year old rolling up to the ski resort parking lot in the audi thinking I was hot shit. Maybe someone else did too. I shoulda kept my beater wagoneer and bought the condo I was living in for the $92k it was offered to me at instead. It's worth $350k now and I'd be retired already. As they say in TX, "All hat, no cattle."
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: MrsDinero on January 11, 2016, 08:09:18 AM
"All hat, no cattle."

One of my favorite phrases
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kitsune on January 11, 2016, 08:21:21 AM
"All hat, no cattle."

One of my favorite phrases

OMG that's brilliant.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: justajane on January 11, 2016, 08:50:40 AM
Look: on the surface, if you see me, I'm in my early 30s, with a large-ish and full-of-gorgeous-antiques house, dress in cashmere sweaters and wear pearls and diamonds on a regular basis, and we eat excellent food that we reguarly invite people over to share (duck magret in a brandy and peach sauce, anyone?)

At least for me, none of the things you mention would lead me to think anyone is living beyond their means. The only jewelry that would lead me to think someone is overspending would be an enormous, clearly new-looking engagement ring. Otherwise, jewelry or antiques could clearly be inherited and thus not a marker for overspending. The same with cashmere or other, non-conspicuously branded clothing, which can be found at a thrift store. But a brand-new looking North Face jacket? The newest and shiniest new phone, car, or electronic? That to me is a better marker for overspending - not a slam dunk, mind you, but a more clear indication.

Vacations are still the grey area, especially since I know there are people who travel hack. I really shouldn't make a conclusion about someone based on the vacations they take. And in general I don't, but it's the ubiquitous Facebook posts that make it harder to ignore. One woman I know posts constantly over-the-top places that she goes. But she is certifiably rich. I mean, like golden parachute, tens of millions in the bank kind of rich. It doesn't really bother me when she posts, since I know she is not living above her means. It doesn't really bother me (per se) when other people post either, aside from the fact that I just don't understand how the math works in their favors.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 11, 2016, 08:59:57 AM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 11, 2016, 09:04:08 AM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 11, 2016, 09:26:50 AM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.   
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Marus on January 11, 2016, 09:49:26 AM
Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 11, 2016, 09:53:15 AM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.

Imagine a $350,000/yr pay cut, then you'd be where most people are. :P
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: wenchsenior on January 11, 2016, 10:31:42 AM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.

Statements like this blow my mind. It's not 'to many you are'. There's no question you are wealthy, objectively speaking. You just ARE. Shit, we recently cracked 100K gross per year, and I was well aware that we were breaking into the upper quintile of wealth, and how incredibly fortunate we are.  Just because we live modestly, in a 90K starter home, drive 10+ year old cars, and don't consume much, doesn't change the actual stats of our relative position in the wealth stratum.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mm1970 on January 11, 2016, 10:33:20 AM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.
Top 1% income is about $400k a year, so yes, whether you feel like it or not, you are wealthy.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: kasperle on January 11, 2016, 10:36:37 AM
Funny because I don't consider us wealthy but I suppose to many we are.

I really want this to be sarcasm, but it reads so sincerely!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BTDretire on January 11, 2016, 10:46:49 AM

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: golden1 on January 11, 2016, 11:19:24 AM
In what realm of imagination is $400K a year not wealthy? 

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: jengod on January 11, 2016, 11:22:51 AM
Funny because I don't consider us wealthy but I suppose to many we are.

I really want this to be sarcasm, but it reads so sincerely!

I want to stand with kasperle and say the same thing: "I don't consider us wealthy, but I suppose to many we are."

I think anyone feels wealthy until ALL aspects of their lifestyle are "upper class": first-class vacations, five-star restaurants, luxury vehicle, interior decorator, private school, nanny, housekeeper, newest iPhone, etc. Unless you ARE the Jones that people are trying to keep up with, even legitimately wealthy people don't necessarily feel rich and untouchable and forever secure.

My husband once described my parents' lifestyle as extravagant. (They probably have an eight-figure net worth and they live a very nice life.) I told my mother this and she snorted: "Have you seen our cars?" She drives a 10-year-old Nissan Quest minivan she bought used for $10K. My dad drove a 10-year-old Honda Civic until recently. He sold it to my younger brother and upgraded to a relatively luxurious new Volkswagen Passat.

Ditto my in-laws. They probably have a high seven-figure net worth. They don't live like it. They live in a perfectly modest house in an "age-preferred" Vegas housing development, they shop at Costco and Smith's and buy clothes with coupons at Kohl's, and they get their jollies playing Scrabble competitively (MIL) and watching old movies on TCM (FIL). MIL won't buy a hearing aid even though she is 70 percent deaf in one ear because it's "so expensive."

All I'm saying is Accounting and Feelings are not the same thing, and that I think, to OP's original question, the difference between "millionaires next door" and "just millionaires" is a confidence gap. Spenders (who may or may not be balance-sheet wealthy) feel rich, feel like there's always going to be more money, feel like they can trade this cash for that item and be just fine later. Savers (who may or may not be balance-sheet wealthy) would prefer to keep cash on hand for the proverbial rainy day.

Our society discusses spending early and often. It does not honor and valorize saving. (Whereas, Japan, for example, does seem to place a cultural premium on saving, at least until very recently, cf Mottainai Grandma (http://www.npr.org/templates/story/story.php?storyId=14054262) and Japan’s Recovery Is Complicated by a Decline in Household Savings (http://Japan’s Recovery Is Complicated by a Decline in Household Savings).)
Title: Re: The "everybody seems wealthy" illusion —
Post by: Neustache on January 11, 2016, 12:39:37 PM

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 11, 2016, 01:09:26 PM
Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.

Last night for dinner, I cooked two filets (seared indoors on my new $16 Target cast iron skillet!) and boiled a couple lobster tails and had a bottle of red wine for dinner.

Lunch was a ham sandwich.

I skipped breakfast.


Guess which meal went on Facebook?  :)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 11, 2016, 01:12:22 PM
I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 11, 2016, 01:23:13 PM
All I'm saying is Accounting and Feelings are not the same thing, and that I think, to OP's original question, the difference between "millionaires next door" and "just millionaires" is a confidence gap. Spenders (who may or may not be balance-sheet wealthy) feel rich, feel like there's always going to be more money, feel like they can trade this cash for that item and be just fine later. Savers (who may or may not be balance-sheet wealthy) would prefer to keep cash on hand for the proverbial rainy day.

There's also an acronym, HENRY, for High Earners Not Rich Yet.  If one is young and makes a lot money, they still may be in the "Setting up" phase of life where you're buying a house, furnishing it, maybe buying a car, paying for daycare, paying off student loans, etc, and simply haven't had time to accumulate any money yet.  Year 1 of making $400k is very different than year 10 of the same income.  I'd put my wife and I in this category; we're in our early 30s, each have a six-figure income, but only a few years ago we were making half that income.  And we've been laying out for things like house down payments, etc.  We don't have a particularly high NW simply because we haven't been making this money for long and we haven't had a long time for our investments to grow and compound. 
Title: Re: The "everybody seems wealthy" illusion
Post by: Neustache on January 11, 2016, 01:30:48 PM
HENRY - I like that - it's where I feel we are as it's only been the last two years that our household has hit 6 figures in income and pension contributions.

I suspect that year 10 after making more than 6 figures will feel differently than it does now.  I do think we are 'rich', just not the way the average US person defines it. 

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: KCM5 on January 11, 2016, 01:33:11 PM
All I'm saying is Accounting and Feelings are not the same thing, and that I think, to OP's original question, the difference between "millionaires next door" and "just millionaires" is a confidence gap. Spenders (who may or may not be balance-sheet wealthy) feel rich, feel like there's always going to be more money, feel like they can trade this cash for that item and be just fine later. Savers (who may or may not be balance-sheet wealthy) would prefer to keep cash on hand for the proverbial rainy day.

There's also an acronym, HENRY, for High Earners Not Rich Yet.  If one is young and makes a lot money, they still may be in the "Setting up" phase of life where you're buying a house, furnishing it, maybe buying a car, paying for daycare, paying off student loans, etc, and simply haven't had time to accumulate any money yet.  Year 1 of making $400k is very different than year 10 of the same income.  I'd put my wife and I in this category; we're in our early 30s, each have a six-figure income, but only a few years ago we were making half that income.  And we've been laying out for things like house down payments, etc.  We don't have a particularly high NW simply because we haven't been making this money for long and we haven't had a long time for our investments to grow and compound.

As opposed to a young household making $50k/yr? Own your money and the difference in lifestyle that it affords you. It's okay!

(Or maybe it will afford you with the ability to stop working for money very early. There should be a blog or two about that!)
Title: Re: The "everybody seems wealthy" illusion —
Post by: Think on January 11, 2016, 01:46:34 PM

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending.


Yes.  pp here.  We paid around 100k in income taxes last year.  Of the approx 300k take home , we save around 100-125k.  We spend 60k paying down our mortgage. 
Title: Re: The "everybody seems wealthy" illusion —
Post by: JLee on January 11, 2016, 01:48:43 PM

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending.


Yes.  pp here.  We paid around 100k in income taxes last year.  Of the approx 300k take home , we save around 100-125k.  We spend 60k paying down our mortgage.

lol, I can't even imagine.

Hopefully I'll get there someday. : )
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 11, 2016, 01:48:51 PM
I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 11, 2016, 01:49:53 PM
I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason. 
Title: Re: The "everybody seems wealthy" illusion —
Post by: Think on January 11, 2016, 01:52:32 PM

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending.


Yes.  pp here.  We paid around 100k in income taxes last year.  Of the approx 300k take home , we save around 100-125k.  We spend 60k paying down our mortgage.

lol, I can't even imagine.

Hopefully I'll get there someday. : )

I do realize we make a lot.  We are also preparing ourselves for having children and forking out a good 50-60k of pretax income on childcare (nanny).  Sometimes I feel guilty about only saving 100-125k but I don't want to retire before 50, when I'm eligible for my pension.  I'm 32.  Plan on having our rental properties and primary residence paid off in my 40s.  My husband loves his job and I can't imagine him wanting to retire anytime soon. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 11, 2016, 01:54:55 PM
I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: honeybbq on January 11, 2016, 01:59:54 PM
I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

LOL, why? My house cost 7 figures (yeah, yeah) and I have the same plan. A family sized house here costs $750k. Get one that has a big yard, and garage, etc, and it's easy a Mil.  Plus selling and moving away and downsizing and laughing all the way to the bank when we ER.   Why would that make anyone mad?

To the 400k income not being wealthy-- it might not FEEL wealthy, but you ARE wealthy. I have the same misconception of my own life sometimes. Just because you drive a 10 year old Honda doesn't mean you AREN'T wealthy.  Or maybe you ARE. It just depends on so many other things.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: justajane on January 11, 2016, 02:00:26 PM
Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.

Last night for dinner, I cooked two filets (seared indoors on my new $16 Target cast iron skillet!) and boiled a couple lobster tails and had a bottle of red wine for dinner.

Lunch was a ham sandwich.

I skipped breakfast.


Guess which meal went on Facebook?  :)

I think most of us mentioning meals aren't talking about home cooked meals, even the fancy ones. I'm talking about the weekly pictures of expensive restaurant meals.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: big_slacker on January 11, 2016, 02:07:26 PM
We argued about this for pages on another thread and seemed to come to the idea that X/yr salary is high income, X in liquid assets is rich/wealthy.

I said in that thread my idea of rich is $1m in liquid assets, wealthy would be beyond that quite a bit.

You certainly have a very high chance of becoming rich if you have a 400k/yr income but it doesn't mean you currently are.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 11, 2016, 02:11:05 PM
I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area.
Oh easily...I'm just outside of NYC and I'm renting a furnished room, which costs me ~$100/mo less than the mortgage/tax/insurance on my house in AZ.

I would still bet that it's possible to save more on a 400k NYC salary than on a 200k TX salary, unless you insist on the same standard of living (i.e. the big house, etc).  I moved from Phoenix to northern NJ for a 36k raise and I am financially far better off than I was.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: beltim on January 11, 2016, 02:15:05 PM
Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area.
Oh easily...I'm just outside of NYC and I'm renting a furnished room, which costs me ~$100/mo less than the mortgage/tax/insurance on my house in AZ.

I would still bet that it's possible to save more on a 400k NYC salary than on a 200k TX salary, unless you insist on the same standard of living (i.e. the big house, etc).  I moved from Phoenix to northern NJ for a 36k raise and I am financially far better off than I was.

People usually talk about the same "standard of living" when talking about the "cost of living."  Otherwise it's a meaningless comparison.

How much of your being financially far better off is because you're living in a single room instead of a house?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 11, 2016, 02:38:12 PM
Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area.
Oh easily...I'm just outside of NYC and I'm renting a furnished room, which costs me ~$100/mo less than the mortgage/tax/insurance on my house in AZ.

I would still bet that it's possible to save more on a 400k NYC salary than on a 200k TX salary, unless you insist on the same standard of living (i.e. the big house, etc).  I moved from Phoenix to northern NJ for a 36k raise and I am financially far better off than I was.

People usually talk about the same "standard of living" when talking about the "cost of living."  Otherwise it's a meaningless comparison.

How much of your being financially far better off is because you're living in a single room instead of a house?

I own a house in AZ and had three roommates. I'm renting a room in a place with two other people now.  My living situation hasn't really changed all that much - I just am the renter instead of the owner.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Nangirl17 on January 11, 2016, 02:50:56 PM
I've come to the conclusion that most of Facebook (and indeed a lot of social life) is an illusion since what is seen is not taken in context. People post their best moments or socially present their best selves, and unless you know them very well, cannot compare your life with theirs.

a CW of mine appeared to have a fantastic life, and it was all an illusion - she suddenly decided to move out of country... long story short, she owed the CRA a bunch of money, then people showed up at our workplace looking to serve a subpeona...
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Sjalabais on January 11, 2016, 02:53:10 PM
First of all: What a great discussion! Such a pleasure to read these MMM conversations in honest, clear and proper language.
Quote
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 the hard part for me. I was born in the GDR to a bourgeois family, meaning we were impoverished and everything had been taken from my family a generation or two above me. So I grew up surrounded by some sort of undignified bitterness that runs in my veins. I had to start from scratch, and when my mother died shortly before I went to university, there wasn't much to inherit - about what I had saved myself in one year of work. I'm doing well enough now, but I strive really hard with accepting how other people's birth luck and choices create an uneven playing field, and have done so forever. I see people around me changing careers like underwear, because that's an easy way to climb in salaries, and I struggle with the disloyalty they display and the unfinished projects they leave behind. It's stupid, yet I can't help it! I see friends my age buy cabins worth more than our house, and I can't help but think about the vast challenge they load upon themselves financially ("We eat cheap bread now") and timewise (all property tends to fall apart in rainy, windy, icy Norway). There's a distance left to not caring and just enjoying life. Got to say I am surprised at the massive, constant relief that having paid off the house is though.
Quote
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.
Agreed! Just today I paid a bill to a friendly little IT lady who helped us setting up a new software at work. Two days, 6 + 4 hours, she charged us a tad below 2 average monthly posttax saψaries. Splendid way of earning money! Lots of people with the gusto to jump to self-employment earn a lot of money, surprisingly quickly. Then again, they do shoulder a lot of risk.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 11, 2016, 02:57:41 PM
Agreed! Just today I paid a bill to a friendly little IT lady who helped us setting up a new software at work. Two days, 6 + 4 hours, she charged us a tad below 2 average monthly posttax saψaries. Splendid way of earning money! Lots of people with the gusto to jump to self-employment earn a lot of money, surprisingly quickly. Then again, they do shoulder a lot of risk.
Yes! This is on my long-term career plan...we happily pay IT contractors $10k a week, and nobody even blinks!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: PaulMaxime on January 11, 2016, 03:35:00 PM
One thing to add to this discussion is that we are not all in the same stage of life.

Many of my co-workers are 20 somethings just starting out while I'm a 52 year old guy who's been working and saving for 30 years. Of course I have a nicer house than the person who's just out of college. If I didn't there would be something wrong.


Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mm1970 on January 11, 2016, 04:03:39 PM
I've come to the conclusion that most of Facebook (and indeed a lot of social life) is an illusion since what is seen is not taken in context. People post their best moments or socially present their best selves, and unless you know them very well, cannot compare your life with theirs.

a CW of mine appeared to have a fantastic life, and it was all an illusion - she suddenly decided to move out of country... long story short, she owed the CRA a bunch of money, then people showed up at our workplace looking to serve a subpeona...
I've been helping out with that lately.

Three rounds of stomach flu since Thanksgiving...canceled our vacation, canceled all of our holiday get-togethers...making my FB friends feel awesome.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 11, 2016, 04:17:57 PM
Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.

Last night for dinner, I cooked two filets (seared indoors on my new $16 Target cast iron skillet!) and boiled a couple lobster tails and had a bottle of red wine for dinner.

Lunch was a ham sandwich.

I skipped breakfast.


Guess which meal went on Facebook?  :)

I think most of us mentioning meals aren't talking about home cooked meals, even the fancy ones. I'm talking about the weekly pictures of expensive restaurant meals.

Oh, I know, it was just an illustration of the principle.  Personally, I might "check in" at a restaurant, but to pull out a camera and take a picture of the food is exceptionally tacky.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: soccerluvof4 on January 11, 2016, 04:18:55 PM
One thing to add to this discussion is that we are not all in the same stage of life.

Many of my co-workers are 20 somethings just starting out while I'm a 52 year old guy who's been working and saving for 30 years. Of course I have a nicer house than the person who's just out of college. If I didn't there would be something wrong.



I agree with the first part of your statement BUT not that because your 52 if you dont have a nicer house there is something wrong.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: GreenSheep on January 11, 2016, 07:49:06 PM
I guess I should start saying what's really on my mind on Facebook and to people in general. I just feel like no one wants to hear about my excitement regarding my frugal wins (a flight bought with airline miles, a grocery store checkout snafu in my favor, etc.). Most people are spendypants who don't see the point in considering such things and find it silly to care about them. I don't brag about the flashy parts of my life (mostly because there aren't any!). And so the cycle continues.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 12, 2016, 06:23:12 AM
I guess I should start saying what's really on my mind on Facebook and to people in general. I just feel like no one wants to hear about my excitement regarding my frugal wins (a flight bought with airline miles, a grocery store checkout snafu in my favor, etc.). Most people are spendypants who don't see the point in considering such things and find it silly to care about them. I don't brag about the flashy parts of my life (mostly because there aren't any!). And so the cycle continues.

I've noticed people seem to brag about exceptionally expensive and exceptionally cheap.  My FB friends are not frugal, but they love to post about an amazing deal they found.  I'd post about travel hacking if it is something that interests you.  Why tailor YOUR facebook to other people. It's YOUR page.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: matchewed on January 12, 2016, 06:35:23 AM
Or maybe don't try to derive value in your life by what banner you hang in your virtual representation of the life you're presenting to the world?

Then there is no cycle to continue.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on January 12, 2016, 06:42:52 AM
One thing to add to this discussion is that we are not all in the same stage of life.

Many of my co-workers are 20 somethings just starting out while I'm a 52 year old guy who's been working and saving for 30 years. Of course I have a nicer house than the person who's just out of college. If I didn't there would be something wrong.
Good point, that. In a conversation with my cousin (~10yrs younger) who just started investing in the last year, our $1k+/wk investment pace came up and he almost sounded disheartened because he was pretty excited about hitting $1k/mo. Had to reassure him this is the product of years of streamlining and he's well ahead of his peers - I'm genuinely proud.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: GreenSheep on January 12, 2016, 08:16:24 AM
Or maybe don't try to derive value in your life by what banner you hang in your virtual representation of the life you're presenting to the world?

Then there is no cycle to continue.

Believe me, you're preaching to the choir here. I'd actually like to get off Facebook entirely, but I'm not sure how else to keep in touch with those people I still care about but don't see/speak to on a regular basis. Hell, I'd like to remove the Facebook-like interactions from my offline life as well, but it's nearly impossible to remove useless chatter and small talk from life entirely.

As for the real world, it's just not much fun (or polite) to start or continue a conversation on a topic no one else cares about. It's not about representing myself in a certain way. I'm just not one of those rude people who insist on continuing to beat a topic to death when it's clear that no one else is interested. If everyone else is talking about some big purchase or the latest tv show, I smile and nod for as long as necessary before I can make a discreet exit.

My point was that it's nice to know there are other people who would prefer to discuss more meaningful topics, but it's frustrating to be in the minority, and a rather quiet minority at that.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: elaine amj on January 12, 2016, 08:41:51 AM
This is the hard part for me. I was born in the GDR to a bourgeois family, meaning we were impoverished and everything had been taken from my family a generation or two above me. So I grew up surrounded by some sort of undignified bitterness that runs in my veins. I had to start from scratch, and when my mother died shortly before I went to university, there wasn't much to inherit - about what I had saved myself in one year of work. I'm doing well enough now, but I strive really hard with accepting how other people's birth luck and choices create an uneven playing field, and have done so forever. I see people around me changing careers like underwear, because that's an easy way to climb in salaries, and I struggle with the disloyalty they display and the unfinished projects they leave behind. It's stupid, yet I can't help it! I see friends my age buy cabins worth more than our house, and I can't help but think about the vast challenge they load upon themselves financially ("We eat cheap bread now") and timewise (all property tends to fall apart in rainy, windy, icy Norway). There's a distance left to not caring and just enjoying life. Got to say I am surprised at the massive, constant relief that having paid off the house is though.

What really helped me was to accept that life was never set up to be fair. Bad things happen to good people all the time. What matters is how you deal with it.

But yes, I do sometimes get a teeny bit green seeing people do stuff I wish I could do. But then I start counting my own blessings and my life is so overflowing with abundant blessings that I am just overwhelmingly thankful to be where I am.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: ender on January 12, 2016, 09:41:33 AM
Wealth perception is all about the comparison between standard of life and your expectation for standard of life.

If that expectation includes a fulltime dedicated nanny costing $60k/year, a $1M+ house, and a HCOL area then $400k may not make you feel wealthy, because you are "only" at your expectation for what life should be.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: John74 on January 12, 2016, 10:22:08 AM
A "wealthy lifestyle" does not have to be fueled by debt to be unsustainable. The more you spend now, you less you save, and the more likely the house of cards will collapse at some point. With a big income (and there are plenty of people making good money), you can pull off the illusion of wealth for a while without getting yourself into debt, but without actual accumulated wealth it will all come tumbling down around you if you are asked to turn in your badge. The more of your income you spend now, the harder the fall (and that won't make it on Facebook).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 12, 2016, 11:47:36 AM
A "wealthy lifestyle" does not have to be fueled by debt to be unsustainable. The more you spend now, you less you save, and the more likely the house of cards will collapse at some point. With a big income (and there are plenty of people making good money), you can pull off the illusion of wealth for a while without getting yourself into debt, but without actual accumulated wealth it will all come tumbling down around you if you are asked to turn in your badge. The more of your income you spend now, the harder the fall (and that won't make it on Facebook).

Depends.  If your lifestyle is new fancy material items every year, you're right, but if one spends time acquiring fancy things (house, car, etc) and pays them off and keeps them, it's not nearly as expensive to continue to own them as it is to acquire them.  And hell, if you buy an expensive house in a desirable area and pay it off and live in it for years, it's entirely likely that you can sell that fancy house and retire somewhere less $$, or to a condo or something, and fund your retirement.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: John74 on January 12, 2016, 12:06:57 PM
A "wealthy lifestyle" does not have to be fueled by debt to be unsustainable. The more you spend now, you less you save, and the more likely the house of cards will collapse at some point. With a big income (and there are plenty of people making good money), you can pull off the illusion of wealth for a while without getting yourself into debt, but without actual accumulated wealth it will all come tumbling down around you if you are asked to turn in your badge. The more of your income you spend now, the harder the fall (and that won't make it on Facebook).

Depends.  If your lifestyle is new fancy material items every year, you're right, but if one spends time acquiring fancy things (house, car, etc) and pays them off and keeps them, it's not nearly as expensive to continue to own them as it is to acquire them.  And hell, if you buy an expensive house in a desirable area and pay it off and live in it for years, it's entirely likely that you can sell that fancy house and retire somewhere less $$, or to a condo or something, and fund your retirement.

But if you sell the house in the desirable area and retire in a condo somewhere else, you lose the wealthy lifestyle. And acquiring fancy things and pay them off still cost a lot in upkeep usually.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 12, 2016, 12:09:14 PM
A "wealthy lifestyle" does not have to be fueled by debt to be unsustainable. The more you spend now, you less you save, and the more likely the house of cards will collapse at some point. With a big income (and there are plenty of people making good money), you can pull off the illusion of wealth for a while without getting yourself into debt, but without actual accumulated wealth it will all come tumbling down around you if you are asked to turn in your badge. The more of your income you spend now, the harder the fall (and that won't make it on Facebook).

Depends.  If your lifestyle is new fancy material items every year, you're right, but if one spends time acquiring fancy things (house, car, etc) and pays them off and keeps them, it's not nearly as expensive to continue to own them as it is to acquire them.  And hell, if you buy an expensive house in a desirable area and pay it off and live in it for years, it's entirely likely that you can sell that fancy house and retire somewhere less $$, or to a condo or something, and fund your retirement.

But if you sell the house in the desirable area and retire in a condo so where else, you lose the wealthy lifestyle.

Not necessarily.  Sell a big house in the NYC metro area and buy yourself a nice condo in FL for 20%?  Possible all day long.

Quote
And acquiring fancy things and pay them off still cost a lot in upkeep.

Again, not necessarily.  At least not necessarily more than buying new stuff.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: John74 on January 12, 2016, 12:18:46 PM
Big house in NYC metro= Wealthy lifestyle.
Condo in Florida: accessible to most people, nothing to brag about IMO. Didn't they give condos away in Florida a few years ago after the housing bust? And then Florida is not exactly NYC.

To me this is a big step down and illustrates exactly my point. Few people can afford to keep the big NYC house forever. It takes coin, more than people with expensive lifestyle can usually afford to accumulate.



Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: WGH on January 12, 2016, 04:01:38 PM
It was probably mentioned but I haven't read all the posts but I think a lot of the vacations, cars, McMansions are coming at the expense of no savings especially retirement savings. Think of all those articles about how the majority of the population has no emergency or retirement savings.

I work in finance and we have a pretty nice retirement plan that offers an after tax match. You put in 4% they match that 2% so you put in $100 you get $50. Can't beat that return. But get this. Despite the fact that this is a finance company where almost everyone has a business degree more than half of the staff does not participate in this as it's non-mandatory! Let that sink in a bunch of business educated, finance and accounting folks who live in a LCOL area and make good money are giving up a guaranteed 50% return!

Why? Because they would rather spend that 4% on the vacations and the nice cars.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dude on January 13, 2016, 09:15:07 AM
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.

Yep, this^.  Vacations last year for me include a week in Japan to snowboard, a week in Cozumel, MX to dive, a week in New Hampshire to climb, 2 weeks in Maui to surf, dive, and hike (and we were in Roatan, Honduras last week to dive).  DW and I are DINKS with combined income right at the top 5% of households.  We save a shitload (@$95k/year, not including employer contributions to pension), so we can easily afford it.  But a weeklong vacation costs us on average @ $2,500, airfare, lodging, etc. included.  We generally choose destinations that are reasonably priced, stay in modest accommodations, and eat pretty cheaply. We still work because (a) I need three more years to collect my (unreduced, immediate) pension, and (b) she likes her job and still needs to save more.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: elaine amj on January 13, 2016, 09:30:51 AM
For my family, if we are willing to work until conventional retirement age, we really don't need to save much more than the recommended 10% or so. I'm estimating that if we both work until normal age, we will get a conservative $40-$50k a year from our "forced" pensions. That's enough for a simple retirement with some luxuries.

So if I don't save at the 50% rate we are doing now, we'd have an extra $30-$40k in our pockets to spend every year. That can buy a lot of house, cars, stuff, and vacations!

Mind-blowing.

Of course, we'd never be able to "afford" to retire on $40-$50k if we're used to spending $80k/year.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: libertarian4321 on January 13, 2016, 10:02:30 AM
How do they do it?  Meet the Jones', er, the Johnson's, they're in debt up to their eyeballs:

https://www.youtube.com/watch?v=LG-Z-kYSC4s (https://www.youtube.com/watch?v=LG-Z-kYSC4s)

I know tons of people who make good incomes and appear to be living well, but have tons of debt, and if they were hit with a big emergency expense would probably have to hold a garage sale to cover the emergency.

When I briefly forayed into the world of investment advising years ago, I had a boss who drove a nice Mercedes (he was living the dream- nice house, fancy clothes, club membership, just like the guy in the video above). 

The AC went out in early August.  In South Texas (average daily temp probably about 100 degrees).

He drove around all month sweltering in his car, because he had to wait until the end of the month (pay day) to be able to afford the repairs.

This clown was going advising people on money and wealth management. 

Utterly freakin' ridiculous. 

But unfortunately, "fake it til you make it" seems to be far more common than "LBYM and build wealth slowly" in America.


Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: The Fake Cheap on January 13, 2016, 10:37:10 AM
From my days working in a bank, I can tell you that many of these people are funding these lifestyles with debt.  Not all of course, but the majority for sure.  In fact it was very rare for me to encounter someone in their 20's, 30's or even 40's with any sort of existing savings or savings plan.  Even the "big shot" lawyers and other highly paid occupations would often have maxed LOCs and HELOC's etc. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 13, 2016, 10:43:37 AM
From my days working in a bank, I can tell you that many of these people are funding these lifestyles with debt.  Not all of course, but the majority for sure.  In fact it was very rare for me to encounter someone in their 20's, 30's or even 40's with any sort of existing savings or savings plan.  Even the "big shot" lawyers and other highly paid occupations would often have maxed LOCs and HELOC's etc.

How do you know though?  For even my modest holdings I deal with 5-6+ different banks.  Couple checking and small savings account in one, 529, credit card, and IRAs in another, 401ks for wife and I in different banks, credit union with more cash, two mortgages (residence + rental) in two other banks, and then mutual fund holdings.  I always wonder what my main bank thinks of me with relatively small checking and savings balances, and no visibility to where the bulk of my savings is.  And I am a little different than most in that I do a lot of leveraging, so I have a fair amount of low interest debt that I make minimum payments on so I can invest more.  If you don't have the whole picture, you can make lots of incorrect assumptions. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: KCM5 on January 13, 2016, 10:57:29 AM
From my days working in a bank, I can tell you that many of these people are funding these lifestyles with debt.  Not all of course, but the majority for sure.  In fact it was very rare for me to encounter someone in their 20's, 30's or even 40's with any sort of existing savings or savings plan.  Even the "big shot" lawyers and other highly paid occupations would often have maxed LOCs and HELOC's etc.

How do you know though?  For even my modest holdings I deal with 5-6+ different banks.  Couple checking and small savings account in one, 529, credit card, and IRAs in another, 401ks for wife and I in different banks, credit union with more cash, two mortgages (residence + rental) in two other banks, and then mutual fund holdings.  I always wonder what my main bank thinks of me with relatively small checking and savings balances, and no visibility to where the bulk of my savings is.  And I am a little different than most in that I do a lot of leveraging, so I have a fair amount of low interest debt that I make minimum payments on so I can invest more.  If you don't have the whole picture, you can make lots of incorrect assumptions. 

Yeah, I wonder this, too. I don't even have a savings account at my main bank. And I keep the checking account balance below $3k. Yet we save 50% of our income. It's just with Vanguard, work 457, defined benefit pension, etc. AND I have a car loan (0%), mortgage (30 year at just over 3%), student loans (on 10 year plan at 2%), credit cards (paid off monthly so no interest). We're even looking at opening and using a HELOC for a home addition. People at the home bank could easily glance at that and think we're leveraged to the hilt - because we kind of are.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: LiveLean on January 13, 2016, 11:52:51 AM
I made a conscious effort to avoid social media in 2015 and, as a result, I don't notice it nearly as much. It's the pics-or-it-didn't-happen mentality. I am floored by how many folks in the Gen X generation (parents like myself) are subsidized by their parents or even trust funders. I can't imagine, at 46, having a parent give me money, vacations, down payments, etc. That ended when they paid my last college bill in 1991 (though I paid for a chunk of college, too). Back then, having a car payment or a student loan was unusual. Now it's commonplace.

Another thing fueling it is the wedding industry. It's amazing how many young women I know who will travel to the ends of the Earth to attend 6-8 weddings a year of college and high school friends. So when they establish that pattern of travel, that's a tough habit to break.

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 13, 2016, 12:12:14 PM
I made a conscious effort to avoid social media in 2015 and, as a result, I don't notice it nearly as much. It's the pics-or-it-didn't-happen mentality. I am floored by how many folks in the Gen X generation (parents like myself) are subsidized by their parents or even trust funders. I can't imagine, at 46, having a parent give me money, vacations, down payments, etc.

My parents took my wife, daughter and I, as well as my sister and her husband, on a very expensive vacation a couple years ago (to Alaska), and are planning another one next year (to Hawaii).  Last one was for dad's 60th, this one for mom's.  They've already told us that they don't plan on leaving us much money (though there will be a paid-for $500k+ house to split), they want to be alive to see us enjoy what they give/leave.  Taking us on vacation with them is one way they do that.  They have plenty of money, and that's how they want to spend it.  I'd never ask them for it, but if it makes them happy to give, I won't fight them.
Title: Re: The "everybody seems wealthy" illusion
Post by: jinga nation on January 13, 2016, 02:22:13 PM
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? <snip>

Is it really just all fueled by debt?
I haven't read the entire thread, but to answer the OP:
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: NESailor on January 13, 2016, 02:54:52 PM
From my days working in a bank, I can tell you that many of these people are funding these lifestyles with debt.  Not all of course, but the majority for sure.  In fact it was very rare for me to encounter someone in their 20's, 30's or even 40's with any sort of existing savings or savings plan.  Even the "big shot" lawyers and other highly paid occupations would often have maxed LOCs and HELOC's etc.

How do you know though?  For even my modest holdings I deal with 5-6+ different banks.  Couple checking and small savings account in one, 529, credit card, and IRAs in another, 401ks for wife and I in different banks, credit union with more cash, two mortgages (residence + rental) in two other banks, and then mutual fund holdings.  I always wonder what my main bank thinks of me with relatively small checking and savings balances, and no visibility to where the bulk of my savings is.  And I am a little different than most in that I do a lot of leveraging, so I have a fair amount of low interest debt that I make minimum payments on so I can invest more.  If you don't have the whole picture, you can make lots of incorrect assumptions.

Correct...but if you work at a bank and someone comes in to apply for a loan or CC or whatever, you get the person's whole picture real quick.  Income, assets, debts.  Boom, there you have it.  Perhaps that's what they were referring to?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JLee on January 13, 2016, 03:10:26 PM
From my days working in a bank, I can tell you that many of these people are funding these lifestyles with debt.  Not all of course, but the majority for sure.  In fact it was very rare for me to encounter someone in their 20's, 30's or even 40's with any sort of existing savings or savings plan.  Even the "big shot" lawyers and other highly paid occupations would often have maxed LOCs and HELOC's etc.

How do you know though?  For even my modest holdings I deal with 5-6+ different banks.  Couple checking and small savings account in one, 529, credit card, and IRAs in another, 401ks for wife and I in different banks, credit union with more cash, two mortgages (residence + rental) in two other banks, and then mutual fund holdings.  I always wonder what my main bank thinks of me with relatively small checking and savings balances, and no visibility to where the bulk of my savings is.  And I am a little different than most in that I do a lot of leveraging, so I have a fair amount of low interest debt that I make minimum payments on so I can invest more.  If you don't have the whole picture, you can make lots of incorrect assumptions.

Correct...but if you work at a bank and someone comes in to apply for a loan or CC or whatever, you get the person's whole picture real quick.  Income, assets, debts.  Boom, there you have it.  Perhaps that's what they were referring to?

I don't recall ever having to list investment/retirement account holdings for a loan or CC.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BTDretire on January 13, 2016, 03:39:10 PM
We argued about this for pages on another thread and seemed to come to the idea that X/yr salary is high income, X in liquid assets is rich/wealthy.

I said in that thread my idea of rich is $1m in liquid assets, wealthy would be beyond that quite a bit.


 Yes, $1M seems like you are rich, but it only generates $40,000 a year, $13,000 less than
the median household income. And as a mustachian, you don't want to spend any principal.
Most people would call you rich, but your certainly not living as well as most spendypants people.
 Quite a juxtaposition, but I know which I'd rather be.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: CheapScholar on January 13, 2016, 06:24:12 PM
The Facebook posts that crack me up most are the happy hours.  People go out to restaurants and bars constantly and pay God knows what for drinks and bad appetizers.  I also have many friends who go out to lunch nearly every day, although they don't Facebook it.  I don't think they ever take the time to do the simple math of how much they are spending.  For example, my brother in law works in Chicago and spends $10 a day easy on lunch.  I'd be willing to bet that he pays more each day in sales tax than I do for my entire lunch, typically leftovers, pb&j, or the free food constantly for the taking in my work break room.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: tobitonic on January 13, 2016, 07:00:07 PM
I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.

Imagine a $350,000/yr pay cut, then you'd be where most people are. :P

Hah, well put.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 13, 2016, 07:28:43 PM
I sure am glad for the FB posts to keep this economy rolling ;-)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Fastfwd on January 14, 2016, 06:36:22 AM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mrteacher on January 14, 2016, 06:38:45 AM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

Sure, but it's also a health thing. Even eating out at a 'healthy' restaurant/sandwich shop is not going to compare to a from-home meal - assuming, of course, that you are cooking/preparing healthy meals.

The line for the microwave can get long where I work, too, so many days I'll bring a beast of a salad: lettuce, tons of chopped veggies, nuts, hard boiled egg, beans, etc.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Fastfwd on January 14, 2016, 06:40:59 AM
Sure, but it's also a health thing. Even eating out at a 'healthy' restaurant/sandwich shop is not going to compare to a from-home meal - assuming, of course, that you are cooking/preparing healthy meals.

Very true. As in many things moderation is the answer. Maybe I should let myself eat prepared meals 1 or 2 days per week.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fuel by debt?
Post by: Giro on January 14, 2016, 07:11:04 AM
I agree with a few of the other posts.  The spending may not be all on credit, but it's at the expense of SOMETHING else.  If we didn't have the goal of early retirement, we would have an extra $8k a month.  That is a lot of change to spend. 

But, I like watching my investments grow so that I'm not a slave to this 9-5.  It's more important to me than a big house or lavish vacations. 

At the beginning of this  year, I wrote down a list of everything that is important to me.  One of those things was less time "doing things".  I have about 6 weeks of vacation each year and last year I ended up with 3 weeks in December that I had to use or I would lose it (no pay out, no nothing).  I stayed home.  It was wonderful.  I loved it.  I want to take more time staying home from work.  If I had to choose between one week in the Bahamas or four weeks at home doing nothing....I would stay home. 



Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: rubybeth on January 14, 2016, 07:25:31 AM
Haven't read the whole thread, but I've often thought the same thing (people living on leveraged money/debt), especially as DH and I still live in the same apartment we rented when we got married over 7 years ago, and still haven't saved up for a down payment on a house. But we've paid for other things without debt, so I try to keep track of what we have accomplished vs. what we haven't. We may not have a picket fence to show for it, but that's okay.

I used to be more more surprised when friends/family reveal what kind of financial picture they have (mortgages, student loans, etc.). I'm not as surprised after hearing so many of these stories. DH and I really are the outliers, and we're okay with that. We're both anxious people, and having debt didn't set well with either of us.

A lot of our friends probably make decent incomes, but they've made other choices that result in debt, or their situations were different to begin with. DH and I were very lucky to get our undergraduate degrees without student loans, under very different circumstances. But we had that advantage/privilege, and we fully appreciate that fact.
Title: Re: The "everybody seems wealthy" illusion
Post by: rockstache on January 14, 2016, 08:31:40 AM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

$5 seems like a pretty expensive homemade lunch. I estimate mine is around $1-2. But I eat the same thing just about every day and I know that probably isn't for everyone.
Title: Re: The "everybody seems wealthy" illusion
Post by: Chris22 on January 14, 2016, 08:50:38 AM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

$5 seems like a pretty expensive homemade lunch. I estimate mine is around $1-2. But I eat the same thing just about every day and I know that probably isn't for everyone.

Round numbers, I eat lunchmeat, bread, fruit, bag of chips for lunch 4 days a week (x 2 people = 8 lunches).

Estimates:
Lunchmeat (1lb) $8
Bread $3
Fruit $6
Chips $3
$20/8 = $2.50

Throw a drink from a vending machine on there, you're at $4, bring it from home, it's maybe $3 (or water is free).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fuel by debt?
Post by: Ramblin' Ma'am on January 14, 2016, 08:52:21 AM
I agree with a few of the other posts.  The spending may not be all on credit, but it's at the expense of SOMETHING else.  If we didn't have the goal of early retirement, we would have an extra $8k a month.  That is a lot of change to spend. 

I always think of this when I read sob stories in the NY Times or other outlets about people who were making six figures and then were laid off. "Mary Jones had a $150K a year job but was laid off in her 40s. Within a few months, her house had been foreclosed on and she had no savings left." Where does all the money go?
Title: Re: The "everybody seems wealthy" illusion
Post by: rockstache on January 14, 2016, 09:33:56 AM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

$5 seems like a pretty expensive homemade lunch. I estimate mine is around $1-2. But I eat the same thing just about every day and I know that probably isn't for everyone.

Round numbers, I eat lunchmeat, bread, fruit, bag of chips for lunch 4 days a week (x 2 people = 8 lunches).

Estimates:
Lunchmeat (1lb) $8
Bread $3
Fruit $6
Chips $3
$20/8 = $2.50

Throw a drink from a vending machine on there, you're at $4, bring it from home, it's maybe $3 (or water is free).

Yeah that sounds more accurate. I only drink water at work, and I eat a PB&J and a hard boiled egg pretty much every day for lunch with an afternoon snack of fruit or veggies depending on what we bought that week/month.

Title: Re: The "everybody seems wealthy" illusion
Post by: Kitsune on January 14, 2016, 12:58:51 PM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

$5 seems like a pretty expensive homemade lunch. I estimate mine is around $1-2. But I eat the same thing just about every day and I know that probably isn't for everyone.

Round numbers, I eat lunchmeat, bread, fruit, bag of chips for lunch 4 days a week (x 2 people = 8 lunches).

Estimates:
Lunchmeat (1lb) $8
Bread $3
Fruit $6
Chips $3
$20/8 = $2.50

Throw a drink from a vending machine on there, you're at $4, bring it from home, it's maybe $3 (or water is free).

Yeah that sounds more accurate. I only drink water at work, and I eat a PB&J and a hard boiled egg pretty much every day for lunch with an afternoon snack of fruit or veggies depending on what we bought that week/month.

Lunch today (and tomorrow) was pasta with cherry tomatoes, tuna, capers, green onions, parmesan, and olives (aka: last night's leftovers, which fed 4 people + 2 toddlers). Brought with a bowl of blueberries in yogurt (frozen berries, homemade yogurt) and a cup of tea (brought the tea bag from home). Total cost for the pasta = 1.20$/portion. Cost for the berries and yogurt: about 50 cents. Tea bag: ... maybe 5 cents? So, ambitious accounting for my lunch has it at about 2$CAD. On average, ingredients-wise, we're looking at about that cost on the high end. (Sandwich will be made with leftover meat and homemade bread, or boiled eggs on lettuce from the garden, or... you get the picture. Tasty, healthy, not expensive).

Compared to an average of 10-12$CAD at the local food court... Assuming 4 weeks/month at savings of 8-10$/day, we're looking at 180$/month. Times 2, because I pack my husband's lunch as well. I can think of a LOT of things I'd rather do with 4,3K/year than go to the food court for lunch...
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BlueHouse on January 14, 2016, 02:42:14 PM
This is the hard part for me. I was born in the GDR to a bourgeois family, meaning we were impoverished and everything had been taken from my family a generation or two above me. So I grew up surrounded by some sort of undignified bitterness that runs in my veins. I had to start from scratch, and when my mother died shortly before I went to university, there wasn't much to inherit - about what I had saved myself in one year of work. I'm doing well enough now, but I strive really hard with accepting how other people's birth luck and choices create an uneven playing field, and have done so forever. I see people around me changing careers like underwear, because that's an easy way to climb in salaries, and I struggle with the disloyalty they display and the unfinished projects they leave behind. It's stupid, yet I can't help it! I see friends my age buy cabins worth more than our house, and I can't help but think about the vast challenge they load upon themselves financially ("We eat cheap bread now") and timewise (all property tends to fall apart in rainy, windy, icy Norway). There's a distance left to not caring and just enjoying life. Got to say I am surprised at the massive, constant relief that having paid off the house is though.
Would you feel better knowing that your small inheritance made me envious of you?  At least you got something (positive and didn't inherit someone else's debt).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 14, 2016, 03:06:59 PM
At least you got something (positive and didn't inherit someone else's debt).

??  Except in very specific circumstances (prior arranged business deals, etc), it is impossible to inherit debt.  If an estate is in a negative worth position, you inherit nothing.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fuel by debt?
Post by: TheNick on January 14, 2016, 04:04:09 PM
I agree with a few of the other posts.  The spending may not be all on credit, but it's at the expense of SOMETHING else.  If we didn't have the goal of early retirement, we would have an extra $8k a month.  That is a lot of change to spend. 

I always think of this when I read sob stories in the NY Times or other outlets about people who were making six figures and then were laid off. "Mary Jones had a $150K a year job but was laid off in her 40s. Within a few months, her house had been foreclosed on and she had no savings left." Where does all the money go?

Let's not forget the sob stories about "Mary Jones is 62 and earns 150k a year after a long and lucrative career and has 200k in retirement accounts and is worried she will never be able to afford to retire."  My how little some people must have save when they have a good paying job and after a 40 year career they don't even have 2x their salary in their stash.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: tobitonic on January 14, 2016, 09:23:51 PM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

Sure, but it's also a health thing. Even eating out at a 'healthy' restaurant/sandwich shop is not going to compare to a from-home meal - assuming, of course, that you are cooking/preparing healthy meals.

The line for the microwave can get long where I work, too, so many days I'll bring a beast of a salad: lettuce, tons of chopped veggies, nuts, hard boiled egg, beans, etc.

+1. My BIL once made a statement about how he didn't like going out to restaurants unless he thought they could make a better meal than his wife and he could.

At the time, I didn't think much of it...but after I really, really got into healthy eating, I agreed with him, although by "better," I mean "healthier."

When we cook, which is every night except for the occasional leftover from the previous night's cooking, it's whole wheat this, fresh vegetable that, only canola or olive oil, cage-free eggs, organic meats, ocean-caught fish, etc etc.

I know exactly what goes into every meal, and I know it's about as healthy as food gets without growing it ourselves, rather than simply sourced from the cheapest ingredients on the shelf.

I never thought I'd become a health nut, food-wise, but yeah...I can still eat out when it's a family occasion, no problem, but I definitely don't miss it the 95% of the year when we aren't eating out. It's been an interesting change.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Fishindude on January 15, 2016, 05:24:35 AM
When we cook, which is every night except for the occasional leftover from the previous night's cooking, it's whole wheat this, fresh vegetable that, only canola or olive oil, cage-free eggs, organic meats, ocean-caught fish, etc etc.

I know exactly what goes into every meal, and I know it's about as healthy as food gets without growing it ourselves, rather than simply sourced from the cheapest ingredients on the shelf.


Good intentions, but if you aren't raising it yourself or don't have a close relationship with the producer, YOU DO NOT KNOW WHAT YOU ARE GETTING.

Here is an example.   A friend works for a large poultry producer, chickens raised in huge buildings, never see the light of day, eat whatever is given to them, etc.  When the "free range" craze took hold, their mega company recognized that they had to be in on it.  Apparently the association of poultry producers or something set the parameters on what constituted "free range" chickens.  This required their company to put wall openings into outdoor enclosures on some of their mega buildings so the chickens could come and go outdoors.   He says the chickens rarely ever go outdoors into these enclosures, and they are the same birds, eating the same stuff, etc.   They just charge the consumer a little more for "free range" chickens.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: mrteacher on January 15, 2016, 06:17:27 AM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

Sure, but it's also a health thing. Even eating out at a 'healthy' restaurant/sandwich shop is not going to compare to a from-home meal - assuming, of course, that you are cooking/preparing healthy meals.

The line for the microwave can get long where I work, too, so many days I'll bring a beast of a salad: lettuce, tons of chopped veggies, nuts, hard boiled egg, beans, etc.

+1. My BIL once made a statement about how he didn't like going out to restaurants unless he thought they could make a better meal than his wife and he could.

At the time, I didn't think much of it...but after I really, really got into healthy eating, I agreed with him, although by "better," I mean "healthier."

When we cook, which is every night except for the occasional leftover from the previous night's cooking, it's whole wheat this, fresh vegetable that, only canola or olive oil, cage-free eggs, organic meats, ocean-caught fish, etc etc.

I know exactly what goes into every meal, and I know it's about as healthy as food gets without growing it ourselves, rather than simply sourced from the cheapest ingredients on the shelf.

I never thought I'd become a health nut, food-wise, but yeah...I can still eat out when it's a family occasion, no problem, but I definitely don't miss it the 95% of the year when we aren't eating out. It's been an interesting change.

This is exactly how I feel.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Fastfwd on January 15, 2016, 06:36:06 AM
In my neighborhood I own one of the cheapest houses and according to stats Canada I am in the top 10% salary bracket. I think some of it is debt but mostly I think it is inherited money or foreign money. There are a lot of people in my area that came to Canada in the last few years and they have the biggest houses. Political stability attracts people from all over the world but mainly China and Middle east in my area.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Debts_of_Despair on January 15, 2016, 07:08:42 AM
Sometimes I think about the insane level of luxury I  could portray if I was dumb enough to spend everything I made.  Two leased SUVs, huge house, new clothes all the time, frequent vacations. If I was REALLY dumb and willing to incur credit card debt, I could take it to a completely different level.  My neighbors and coworkers will be so jelous when they see my new Rolex, courtesy of AMEX.  The minimum monthly payment is only $35!

Then I think about how I won't need to work a day past 55 (probably sooner) and how all these jokers will be working til they die and I instantly feel better and know that I'm making the better decisions.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: CATman on January 15, 2016, 08:30:31 PM
I created an account just to chime in on this one. First off, don't be fooled by what everyone else seems to have going for them. The truth is that there is often more going on behind the scenes than people let on.

I have a friend who graduated a year after me, but we ended up working at the same company and with almost identical salaries. However, I ended up working another job on the weekend just to pay the bills. He went out and bought a BMW, would go out to bars every weekend and take trips to Vegas 3-4 times a year. I finally asked him how he was doing it and come to find out that his parents had been paying for his student loans, his cell phone and numerous other bills.

Everyone out there is going to have a different story, but all mustachians know something others don't, we're playing the long game. I've talked to this same friend about my desire for FI and while I have plans to retire early he keeps the mindset that if he just had X (nicer car, a house, etc) that it's going to take his life to the next level. We've both been experiencing increased incomes, but while I've been trying to trim as many expenses as possible, he's adding more (buying a new motorcycle, more extravagant nights out, planning a big home purchase).

The goal of all this is not to bash on my friend, whom I love dearly. But it's to illustrate that while the rest of the world may seem to "have it all", keep in mind that most of them will be working much longer than the average mustachian to "keep it all". At the end of the day, you have to remind yourself that you're making the right decision for you and while you don't have all the shiny stuff to show for it, you do have comfort in the knowledge that you're investing in the future you want and it'll be here sooner because of all your decisions now.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: jengod on January 15, 2016, 08:49:30 PM
I created an account just to chime in on this one. First off, don't be fooled by what everyone else seems to have going for them. The truth is that there is often more going on behind the scenes than people let on.

I have a friend who graduated a year after me, but we ended up working at the same company and with almost identical salaries. However, I ended up working another job on the weekend just to pay the bills. He went out and bought a BMW, would go out to bars every weekend and take trips to Vegas 3-4 times a year. I finally asked him how he was doing it and come to find out that his parents had been paying for his student loans, his cell phone and numerous other bills.

Everyone out there is going to have a different story, but all mustachians know something others don't, we're playing the long game. I've talked to this same friend about my desire for FI and while I have plans to retire early he keeps the mindset that if he just had X (nicer car, a house, etc) that it's going to take his life to the next level. We've both been experiencing increased incomes, but while I've been trying to trim as many expenses as possible, he's adding more (buying a new motorcycle, more extravagant nights out, planning a big home purchase).

The goal of all this is not to bash on my friend, whom I love dearly. But it's to illustrate that while the rest of the world may seem to "have it all", keep in mind that most of them will be working much longer than the average mustachian to "keep it all". At the end of the day, you have to remind yourself that you're making the right decision for you and while you don't have all the shiny stuff to show for it, you do have comfort in the knowledge that you're investing in the future you want and it'll be here sooner because of all your decisions now.

(1) Hear, hear!
(2) Welcome, CATman.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Comar on January 16, 2016, 07:12:34 AM
Big hat. No cattle.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 16, 2016, 10:06:34 AM
I have a buddy that joined the Military at the same time I did. He was always a big spender when it came to trips, cars and women. He got out after 4 years because he said the Military doesn't pay much. He then went to school and got a really good job working in IT making six figures. He never understood why I decided to grind it out for 23 years and would poke fun at my frugalness. Just the other day I was talking to him after he took his young girlfriend on an extravagant 7 Country vacation. I'm always happy to hear about other peoples stories about how they spend their money but I have a short fuse when someone makes me feel like I'm not living my life right because I'm not spending my money on extravagant things.

Well he started poking fun about my car and where I live...I had enough and told him "I would never judge you just because you can't afford my lifestyle". He laughed his ass off and said "Dude...I make like $130K a year". So I said "Fine, quit your job and lets go travel for a year". I don't think it made much of a dent but he piped down pretty quick. Maybe it was a dick move on my end but sometimes I gets to me.

Before I retired from the Military I paid off all my debt including my house and had a little money saved for investments. Every now and then I wrestle with some of my inner demons to upgrade my lifestyle...which I could easily afford by most standards but instead I try to keep it under control and live a happy/healthy life.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheNick on January 16, 2016, 10:26:23 AM
Well he started poking fun about my car and where I live...I had enough and told him "I would never judge you just because you can't afford my lifestyle". He laughed his ass off and said "Dude...I make like $130K a year". So I said "Fine, quit your job and lets go travel for a year". I don't think it made much of a dent but he piped down pretty quick. Maybe it was a dick move on my end but sometimes I gets to me.

Haha...well played sir, sometimes people like this need smacked back to reality.  There is nothing better than a "rich" person with no significant amount of money in the bank get called out by a "poor" person with their finances in order.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: PaulMaxime on January 16, 2016, 11:57:12 AM
One thing to add to this discussion is that we are not all in the same stage of life.

Many of my co-workers are 20 somethings just starting out while I'm a 52 year old guy who's been working and saving for 30 years. Of course I have a nicer house than the person who's just out of college. If I didn't there would be something wrong.

Well some of my coworkers still live in their parent's basement. If you are still doing that at 52, then something IS wrong.



I agree with the first part of your statement BUT not that because your 52 if you dont have a nicer house there is something wrong.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: GetItRight on January 16, 2016, 02:16:54 PM
I think it's a mix of illusion and other circumstances, but generally spending more than they earn (debt).

You may be surprised how many people have family who buy/give them fancy new cars, house, pay their student loans, or otherwise do things that give them a huge head start. This was a surprise but helped me avoid the rat race mentality. Good for them that they are fortunate enough to have family willing and able to give that sort of help, but those are not my circumstances.

I find many people, even those given new cars and houses, complain about money and living paycheck to paycheck. I think a lot of people (most?) that appear rich are overextended and one hiccup away from a disaster. I've seen this type of thing blow up on people because they don't keep any cushion, even a $1k emergency fund or something for the minor bumps, then complain how they can't afford entirely predictable expenses on the order of a few hundred dollars.

Where I work I only know of two people aside from myself who seem to even remotely have it together. Debt yes, but not wasting money on luxury after frivolous luxury with the retirement plan being either die at work or win the lotto. Even the rich folk making a few hundred thousand seem to have a very thin cushion, but they show the obvious signs of spending more than they earn. I think it's mostly a mentality of consumer debt for luxuries is ok and burying their heads in the sand. That and an insane lack of understanding of what is necessity vs luxury.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 16, 2016, 07:53:41 PM
Well he started poking fun about my car and where I live...I had enough and told him "I would never judge you just because you can't afford my lifestyle". He laughed his ass off and said "Dude...I make like $130K a year". So I said "Fine, quit your job and lets go travel for a year". I don't think it made much of a dent but he piped down pretty quick. Maybe it was a dick move on my end but sometimes I gets to me.

Haha...well played sir, sometimes people like this need smacked back to reality.  There is nothing better than a "rich" person with no significant amount of money in the bank get called out by a "poor" person with their finances in order.

It's funny because you think people making more money than you are smarter...damn if I made more with my current mindset I could make some good changes.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: tobitonic on January 16, 2016, 08:32:17 PM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

Sure, but it's also a health thing. Even eating out at a 'healthy' restaurant/sandwich shop is not going to compare to a from-home meal - assuming, of course, that you are cooking/preparing healthy meals.

The line for the microwave can get long where I work, too, so many days I'll bring a beast of a salad: lettuce, tons of chopped veggies, nuts, hard boiled egg, beans, etc.

+1. My BIL once made a statement about how he didn't like going out to restaurants unless he thought they could make a better meal than his wife and he could.

At the time, I didn't think much of it...but after I really, really got into healthy eating, I agreed with him, although by "better," I mean "healthier."

When we cook, which is every night except for the occasional leftover from the previous night's cooking, it's whole wheat this, fresh vegetable that, only canola or olive oil, cage-free eggs, organic meats, ocean-caught fish, etc etc.

I know exactly what goes into every meal, and I know it's about as healthy as food gets without growing it ourselves, rather than simply sourced from the cheapest ingredients on the shelf.

I never thought I'd become a health nut, food-wise, but yeah...I can still eat out when it's a family occasion, no problem, but I definitely don't miss it the 95% of the year when we aren't eating out. It's been an interesting change.

This is exactly how I feel.

Hah, awesome. Always nice to connect with someone on the same wavelength here.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: YogiKitti on January 17, 2016, 02:46:39 AM
I agree with those who say the lifestyle is fueled by a lack of savings instead of debt. I ran into a friend who I haven't seen in a while. She was telling me all about her two week vacation to some amazing tropical location. Then she proceeds to comment on how one her friends is saving 10k a year. She was SHOCKED that anyone could possible do that! And this is coming from a DINK.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BlueHouse on January 17, 2016, 04:33:16 AM
At least you got something (positive and didn't inherit someone else's debt).

??  Except in very specific circumstances (prior arranged business deals, etc), it is impossible to inherit debt.  If an estate is in a negative worth position, you inherit nothing.
Yes, of course you're right. Merely trying to make a point that some peoples' woes look awfully good to others.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: soccerluvof4 on January 17, 2016, 06:09:00 AM
One thing I hear more and more of in my HCOL area is my friends (middle aged) saying how there parents paid for this for there kids and that etc.... I have notice ALOT of people in my area are really supporting there life styles of competing with the Jones by one way or another getting subsidized by old money and it does bug me a bit because this wont happen for me but when i see that they just seem to keep spending the way they do I jus think when the tap is shut off for some how are they ever going to stand on there own feet.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: MLKnits on January 17, 2016, 02:27:21 PM
Maybe everyone else knew about this than me, but I was overestimating a lot of people's vacation spending by comparing apples to oranges. I grew up with go-see-museums-in-Europe-style vacationing, which is legitimately hella expensive the way my parents do it (nice hotels, eating out for every meal, fancier seats on trains).

As an adult I've been constantly around people who seem to think nothing of spending a week or ten days at a tropical resort, which boggled my mind. One of my friends goes on three cruises a year, and is constantly exhorting me to go on one.

Little did I know--never having looked into it--that those trips are actually in the $4-600 per person range, all-inclusive. All this time I've thought people were throwing away outrageous sums just to lay on a beach, when they're actually--quite Mustachianly, all things considered--been getting a week's food and accommodation, plus flights, for a price I would have assumed would barely cover the plane tickets.

I still probably won't go (I'd rather go see friends and family) but that put a hugely different spin on it for me.

(Of course, when it comes to hitting Starbucks every day, etc, that probably is either just debt or failing to save. Looking at my own past, it's incredibly easy to just hemorrhage money if you're not paying attention, and most people don't want to pay attention, I think.)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheNick on January 18, 2016, 08:00:13 PM
Little did I know--never having looked into it--that those trips are actually in the $4-600 per person range, all-inclusive. All this time I've thought people were throwing away outrageous sums just to lay on a beach, when they're actually--quite Mustachianly, all things considered--been getting a week's food and accommodation, plus flights, for a price I would have assumed would barely cover the plane tickets.

At my last job, the job I had worked my way through college with, I could sell unused vacation back to the company, and I made about 600 dollars a week take home...

I could take my vacation check, +600, then paid for a 600 dollar cruise, a 200 dollar round trip flight to get down south to a point of departure, and probably a bit more for alcohol on the cruise and paying to actually do stuff on the islands, like snorkeling, buying souvenirs, etc...all in all let's just say the flight and that other stuff ended up costing 500 bucks...that would be a -500 dollar week.

Or I could sell my vacation back for +600, show up and work for +600, and not go on that cruise for +600, and not spend money on all the other stuff for another 500...which compared to taking vacation/cruise put me +2300 ahead on the week.

I did this for years while I was in college...sacrificing vacations allowed me to get through debt free.  Meanwhile I watched other people going on fancy vacations while taking out student loans...so in the end its sort of like interest on student loans also gets added on to the cost of their vacations...so those cruises ended up costing them a lot more than the 4-600 dollar sticker price.  Of course if you have no debt, aren't living on credit, and that fancy vacation means you go from a 35% savings rate to a 30% savings rate its a totally different ball game...
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: big_slacker on January 18, 2016, 09:53:00 PM
That pic is pure gold! Stolen!

Although I'll say there is a fine line with social media. I share things that I think my family and friends will like to see of my life. Epic snowboard and bike pics, kids doing cute stuff and so on. No one wants to see pics of me doing command line on a router or my kids freaking out because I turned off handy manny before the credits were done rolling. I'm not faking with the intent of portraying a life that isn't true, but you're getting what I think is the good stuff.

OTOH there are the fakers who really seem to get a self worth boost for instance posting pics of trying on an acquaintance's rolex or snaking a test ride in a 911 and acting like they're ballin outta control. You might fool random 'friends' on the internet and get a few likes but your real friends know the deal and ultimately you're building a house of cards.

The only unfortunate thing about that as this thread mentions is someone else feeling they're not 'making it' due to the above.

Great thread!

Pretty much sums up social media
(http://media1.popsugar-assets.com/files/2014/09/08/967/n/1922507/e22d44998dc04895_thumb_temp_cover_file32304521410210684.xxxlarge/i/Instagram-vs-Reality.jpg)

I come across a lot of people on social media and their lives look like they have won last week's PowerBall.  However, I look closer and see a lot of holes in their story of wealth.  One guy for example, posts photos of stacks of cash, $1,000 shoes, $10,000 bar tabs, and I end up seeing his neighborhood and that he has an entry level luxury car for his car even though he posts videos of himself driving exotics. 

Many people have hundreds of friends on social media. If those friends have just one post of their yearly trip, you'd see a vacation everyday.   When viewing social media, we are constantly seeing people "have" "have" "have".  We don't see what they sacrifice as the person mentioned earlier about Friday nights on the couch.

I go to Disneyland pretty frequently and have had to train myself not to judge some larger families who are there with food, snacks, hats, souvenirs, etc.  I have to realize that they may have been saving for this vacation for 10 years and have lived a frugal life and this is their splurge.

I like the point that someone brought up priorities.

Some people live very frugally during day-to-day stuff and then splurge on higher end items or larger items. 

I do not buy video games, game consoles, nor do I care about DVDs, CDs, and electronics.  There are times that I am very thirsty and would love to get a drink or a snack, but I just wait until I get home to drink something or snack.

I'd love to purchase foods that aren't on sale at the grocery store or to purchase every ingredient in the recipe, but I don't. ($2 for that ingredient! is it really going to make that much of a difference, haha)

But my mountain bike is one of the best mountain bikes money can buy. 

Do I have the bike AND the car AND the foods AND the traveling AND this AND that?  No... I make a lot of small sacrifices.  At the end of the day, I probably spend the same though hahaha oops.

Daily starbucks = $50/mo
One massage = $ $60/mo
cut/style/nails = $100/mo

That's $210/mo on three items that are relatively common for women in Orange County.  $210/mo on top of a simple $300/mo car allowance, opens up new doors.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: soccerluvof4 on January 19, 2016, 05:48:02 AM
Great thread!

Pretty much sums up social media
(http://media1.popsugar-assets.com/files/2014/09/08/967/n/1922507/e22d44998dc04895_thumb_temp_cover_file32304521410210684.xxxlarge/i/Instagram-vs-Reality.jpg)

I come across a lot of people on social media and their lives look like they have won last week's PowerBall.  However, I look closer and see a lot of holes in their story of wealth.  One guy for example, posts photos of stacks of cash, $1,000 shoes, $10,000 bar tabs, and I end up seeing his neighborhood and that he has an entry level luxury car for his car even though he posts videos of himself driving exotics. 

Many people have hundreds of friends on social media. If those friends have just one post of their yearly trip, you'd see a vacation everyday.   When viewing social media, we are constantly seeing people "have" "have" "have".  We don't see what they sacrifice as the person mentioned earlier about Friday nights on the couch.

I go to Disneyland pretty frequently and have had to train myself not to judge some larger families who are there with food, snacks, hats, souvenirs, etc.  I have to realize that they may have been saving for this vacation for 10 years and have lived a frugal life and this is their splurge.

I like the point that someone brought up priorities.

Some people live very frugally during day-to-day stuff and then splurge on higher end items or larger items. 

I do not buy video games, game consoles, nor do I care about DVDs, CDs, and electronics.  There are times that I am very thirsty and would love to get a drink or a snack, but I just wait until I get home to drink something or snack.

I'd love to purchase foods that aren't on sale at the grocery store or to purchase every ingredient in the recipe, but I don't. ($2 for that ingredient! is it really going to make that much of a difference, haha)

But my mountain bike is one of the best mountain bikes money can buy. 

Do I have the bike AND the car AND the foods AND the traveling AND this AND that?  No... I make a lot of small sacrifices.  At the end of the day, I probably spend the same though hahaha oops.

Daily starbucks = $50/mo
One massage = $ $60/mo
cut/style/nails = $100/mo

That's $210/mo on three items that are relatively common for women in Orange County.  $210/mo on top of a simple $300/mo car allowance, opens up new doors.






^+1 I totally agree!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 20, 2016, 01:11:05 PM
Fun thread... I've mentioned before that I feel kinda the opposite around here.  I don't see crazy displays of wealth even though I know people are making good money.  Maybe my circles are just less status oriented (I've heard Silicon Valley itself is the opposite but don't live there anymore so don't see it)

Edit: or maybe it's just because people spend so much on their expensive house that would be considered modest in most other locales
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 20, 2016, 02:15:10 PM
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.

There are actually only about 120 million HOUSEHOLDS in the US, so it's 1/12.


I think it's a combination of a lot of things. Inheritance is a big part; many people inherit $1 million or more and you have no idea about it. This can easily make up a lifetime's worth of saving for the average worker. In addition gifts from living parents are common. More than a quarter of young home-buyers have their parents pay the downpayment (source: https://www.washingtonpost.com/realestate/need-a-hand-to-buy-a-home-a-gift-toward-the-down-payment-can-help/2014/09/04/3cd8301a-eda0-11e3-92b8-52344c12e8a1_story.html). Then of course some people just make more than you. Even $10k more in disposable income can fund several nice vacations per year. Finally debt plays a part as well, and most people don't save very much unless they make a very high income.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 20, 2016, 02:38:58 PM
To everyone mentioning parental help or inheritance, doesn't that imply the parents were good savers?  Has there been a delay of consumerism from the 50s to today?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 20, 2016, 02:48:49 PM
To everyone mentioning parental help or inheritance, doesn't that imply the parents were good savers?  Has there been a delay of consumerism from the 50s to today?

Not really. Some people were good savers and some weren't, just like today. Some of the parents inherited themselves, and also get the huge headstart. That's why the talk about a housing crisis because boomers are dying doesn't make sense. Most of them will leave the house to their kids, who get a $1M boost (an entire lifetime's worth of saving for a Mustachian) just by being born to the right set of parents. Just owning a home in the Bay Area, LA, or NYC at this point gets you near to being a millionaire. Most of those homes are going to be inherited by the kids.

Take a look at this:

http://www.joshuakennon.com/how-much-money-does-it-take-to-be-in-the-top-1-of-wealth-and-net-worth-in-the-united-states/

The cutoff for being in the top 1% of wealth is $9 million. So roughly 1 in 100-200 (less than 100 because parents often have multiple kids) is going to be inheriting $9 million or more. Maybe 1 in 10 will get more than $1 million when all is said and done (in HCOL areas it's probably more like 1 in 5). These amounts fund a lifetime of extravagant spending, and there's no way you'd know if they're just a co-worker.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: cats on January 20, 2016, 03:44:34 PM
I'm assuming that if you are on this board you are at least thinking about retiring.  Many Americans do not really think about retirement that hard.  Of the ones that do, many accept that they will be working to 65-70.  Retiring at 55 or 60 is considered "early" these days.  In contrast, quite a few posters on this board seem to be aiming for a much earlier retirement date.  I'd say tetiring at 50 is "late" by the standards of many MMM posters.

My husband and I are planning to be "done" by 40.  That does require some "sacrifices" relative to average American spending.  We own one older car and we don't use it that much.  We live in a small apartment and if/when we buy a house, it will probably be small also.  We don't have a gym membership, don't shop at the fancy grocery store, check out DVDs from the library rather than going to the movies or having a cable subscription, etc. etc.  We're quite happy with all of this and don't feel our lifestyle is "poor" at all, but...the fact is that it's what we need to do to make OUR goal (FI by 40) achievable.  If we didn't have that goal, we could easily free up several thousand dollars a month and direct that money to more flashy locations.

Some friends recently told us they didn't see how a family of 3-4 could get by on just one income in our area unless that one income earner was really raking in the $$$.  We were pretty surprised as we currently are quite happily living off less than half of the smaller of our two incomes, and we make about the same amount of money as this couple, so unless adding a kid into the mix will more than double our expenses...we *could* manage on one income (and still be saving a respectable amount for retirement by "normal" standards).  They aren't super flashy, but they do seem to have a lot of little money sinks that we don't and I guess that's how they afford them...they accept the idea that you "need" a second income and that it's "normal" to work to 65.  If my husband and I felt the same way we could easily spend what they spend and still pat ourselves on the back for being financially responsible.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BTDretire on January 20, 2016, 05:55:58 PM
For example, my brother in law works in Chicago and spends $10 a day easy on lunch.

I have been thinking about that lately. I bring lunched to work everyday and it's the trouble of preparing it, transporting another bag on the bus and then lining up for the microwaves. It costs me probably around 5$ to bring my lunch. 20 days of work per month and the difference between 5$ lunch and 10$ prepared meal is just 100$ per month. Not a big item in my budget and a lot of convenience for the decade or so of work I still have to do before retirement. Maybe I am being too frugal.

 MMM would say, $100 a month is $18,000 in 10 years and $55,000 in 20 years with 7% growth rate.
But if you bring that $5 down to $2.50 you'll have $110,000 in 20 years.
  It's a little bit at a time that grows to be retirement money.         
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: okits on January 20, 2016, 06:05:06 PM
To everyone mentioning parental help or inheritance, doesn't that imply the parents were good savers?  Has there been a delay of consumerism from the 50s to today?

For living parents, they could be broke or indebted helping their kids, or senior citizens still working just to give money to their adult children.  Not sure about the role life insurance might play, but maybe some have whole life policies in place that provide a windfall to their kids?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheNick on January 20, 2016, 06:12:49 PM
The cutoff for being in the top 1% of wealth is $9 million. So roughly 1 in 100-200 (less than 100 because parents often have multiple kids) is going to be inheriting $9 million or more. Maybe 1 in 10 will get more than $1 million when all is said and done (in HCOL areas it's probably more like 1 in 5). These amounts fund a lifetime of extravagant spending, and there's no way you'd know if they're just a co-worker.

Its probably a heck of a lot lower than that.  Like you said...you have to account for multiple kids, plus chances are its not even all going to their kids to begin with...charities, churches, friends, family other than kids, etc, all might get something.  That is not even mentioning that your peak net worth for many people won't be the day you die...most people tend to spend it down for various reasons in retirement.

Its a bit dated at 2003, but I found this article...would be interesting if anyone has any more up to date statistics.

http://money.cnn.com/2003/11/25/retirement/inheritance/

   Inheritance�                % of population�
   $0�                                     91.9%�
   $1 - $25,000�                     4.3%�
   $25,000 - $50,000�     1.1%�
   $50,000 - $100,000�     0.1%�
   More than $100,000�     1.6%�
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 20, 2016, 07:09:48 PM
The cutoff for being in the top 1% of wealth is $9 million. So roughly 1 in 100-200 (less than 100 because parents often have multiple kids) is going to be inheriting $9 million or more. Maybe 1 in 10 will get more than $1 million when all is said and done (in HCOL areas it's probably more like 1 in 5). These amounts fund a lifetime of extravagant spending, and there's no way you'd know if they're just a co-worker.

Its probably a heck of a lot lower than that.  Like you said...you have to account for multiple kids, plus chances are its not even all going to their kids to begin with...charities, churches, friends, family other than kids, etc, all might get something.  That is not even mentioning that your peak net worth for many people won't be the day you die...most people tend to spend it down for various reasons in retirement.

Its a bit dated at 2003, but I found this article...would be interesting if anyone has any more up to date statistics.

http://money.cnn.com/2003/11/25/retirement/inheritance/

   Inheritance�                % of population�
   $0�                                     91.9%�
   $1 - $25,000�                     4.3%�
   $25,000 - $50,000�     1.1%�
   $50,000 - $100,000�     0.1%�
   More than $100,000�     1.6%�

It should be obvious your numbers are way off. The average American house is ~$200k. If your numbers were right only 1 in 100 Americans would even inherit a house.

My numbers were off the cuff and may not be spot on either. It's difficult to find data that is on Millenials rather than Boomers. Millenials will get a proportionally higher inheritance due to inflation and economic growth. Heres what i found:

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.metlife.com/assets/cao/mmi/publications/studies/2010/mmi-inheritance-wealth-transfer-baby-boomers.pdf&ved=0ahUKEwjlmrPZ37nKAhXksYMKHc0tAMEQFgg1MAc&usg=AFQjCNFQNA1vYh7qH3AObjIlAQGAimL-eA&sig2=FZWYcpk-ULdraYaAuch4Ig

Wow that link looks long. Hope it works. Metlife study showed the median inheritance of Boomer households in the top 10% of wealth is $350k, average is $1.5 million. This obviously understates the amount because not all high wealth households receive a large inheritance.

http://www.demos.org/blog/1/21/14/reality-wealthy-inherit-ungodly-sums-money

That link has the top 1% of households by wealth inheriting an average of $2.7 million. That's understated for the same reason as the first, and also, some of these households stand to inherit more money in the future. As the title states, rich kids inherit ungodly sums of money. If they end up being your coworker, you're going to have a tough time keeping up.

Also, people in their 70s and 80s tend to be net savers according to research. This is much moreso for the typical rich person, because they have large amounts of passive income to live off of. And $9 million is the cutoff for the 1%, so most 1%ers have much more than that.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: nobodyspecial on January 20, 2016, 10:13:41 PM
But only economists care about the large scale average.  There are a lot of cities where essentially all middle class family homes bought in the 1960s/70s is now worth lottery winning money.

Back in the 90s I knew graduates in London who decided at age 21 they wouldn't need to worry about a career because their parent's suburban London house was worth >£1M

Friends in SF have lead a world traveler/artist lifestyle into their 40s on the back of knowing their college professor parents 1960s house is now  >$10M

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheNick on January 20, 2016, 10:34:03 PM
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.metlife.com/assets/cao/mmi/publications/studies/2010/mmi-inheritance-wealth-transfer-baby-boomers.pdf&ved=0ahUKEwjlmrPZ37nKAhXksYMKHc0tAMEQFgg1MAc&usg=AFQjCNFQNA1vYh7qH3AObjIlAQGAimL-eA&sig2=FZWYcpk-ULdraYaAuch4Ig

Nice link, this one had a lot of good data in it.  Mainly...it claims...

About three-quarters expect either no inheritance or less than $100,000, and 97% expect either no inheritance or less than $1 million. page 9

21% of those born 1946–1964 had no surviving parent in 2007. page 7

So 4 out of 5 boomers still have a living parent meaning they probably haven't seen their inheritance yet, and 3% of them expect to inherit a million.  In other words 21% of 3%, or 0.63% of Boomer's have inherited a million at this point.  Pretty low odds your neighbor is a total failure with money and just inherited a fortune.  If those inheriting 9 million+ are even 1/10th as numerous as those inheriting 1 million plus your boomer neighbor would be about 1 in 1600.

Even if the average house is 200k the average family size of the boomer generation was larger...so its probably getting split on average 3 ways, and that is assuming the house was paid off to begin with, there was no reverse mortgage or home equity loan or anything of the sort, the house wasn't sold to pay for a nursing home, or the family house wasn't simply sold so they could downsize to a condo or apartment.

Millenials will get a proportionally higher inheritance due to inflation and economic growth.

The above factors could lead one to conclude that the Boomers might be less likely than previous birth cohorts to leave bequests to succeeding generations.  page 14

Us younger generations actually stand to inherit less since most of our parents did a crappy job preparing for retirement compared to their parents and statistically will live longer :P

Plus we are less likely to have received inheritance from our parents yet since our parents are more likely to be alive.  Your odds of a friend/neighbor/coworker younger than the boomer generation being an inheritance millionaire at this point are ridiculously slim.

I think its just easy to assume people inherit a lot more than they do because most the time when someone has a family member that dies and they get left some inheritance, they immediately run out and spend it on a new car or vacations or something.  But that is just it, they spend it all, its not like they are inheriting millions and just spending a little while setting the rest aside for a retirement.

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Squirrel away on January 21, 2016, 02:37:06 AM
But only economists care about the large scale average.  There are a lot of cities where essentially all middle class family homes bought in the 1960s/70s is now worth lottery winning money.

Back in the 90s I knew graduates in London who decided at age 21 they wouldn't need to worry about a career because their parent's suburban London house was worth >£1M

Very true, it almost makes me wish I wasn't estranged from my own parents as their homes are worth a combined fortune.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 21, 2016, 07:52:00 AM
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.metlife.com/assets/cao/mmi/publications/studies/2010/mmi-inheritance-wealth-transfer-baby-boomers.pdf&ved=0ahUKEwjlmrPZ37nKAhXksYMKHc0tAMEQFgg1MAc&usg=AFQjCNFQNA1vYh7qH3AObjIlAQGAimL-eA&sig2=FZWYcpk-ULdraYaAuch4Ig

Nice link, this one had a lot of good data in it.  Mainly...it claims...

About three-quarters expect either no inheritance or less than $100,000, and 97% expect either no inheritance or less than $1 million. page 9

21% of those born 1946–1964 had no surviving parent in 2007. page 7

So 4 out of 5 boomers still have a living parent meaning they probably haven't seen their inheritance yet, and 3% of them expect to inherit a million.  In other words 21% of 3%, or 0.63% of Boomer's have inherited a million at this point.  Pretty low odds your neighbor is a total failure with money and just inherited a fortune.  If those inheriting 9 million+ are even 1/10th as numerous as those inheriting 1 million plus your boomer neighbor would be about 1 in 1600.

Even if the average house is 200k the average family size of the boomer generation was larger...so its probably getting split on average 3 ways, and that is assuming the house was paid off to begin with, there was no reverse mortgage or home equity loan or anything of the sort, the house wasn't sold to pay for a nursing home, or the family house wasn't simply sold so they could downsize to a condo or apartment.

Millenials will get a proportionally higher inheritance due to inflation and economic growth.

The above factors could lead one to conclude that the Boomers might be less likely than previous birth cohorts to leave bequests to succeeding generations.  page 14

Us younger generations actually stand to inherit less since most of our parents did a crappy job preparing for retirement compared to their parents and statistically will live longer :P

Plus we are less likely to have received inheritance from our parents yet since our parents are more likely to be alive.  Your odds of a friend/neighbor/coworker younger than the boomer generation being an inheritance millionaire at this point are ridiculously slim.

I think its just easy to assume people inherit a lot more than they do because most the time when someone has a family member that dies and they get left some inheritance, they immediately run out and spend it on a new car or vacations or something.  But that is just it, they spend it all, its not like they are inheriting millions and just spending a little while setting the rest aside for a retirement.

I don't really put much stock in the "expectations" of inheritance, since we have no idea how accurate the estimates are.

My "1 in 10 households inherit a million" may be too generous. However, numbers show the top 10% of wealth households have already inherited a median of $350,000, with many who still have surviving parents so they stand to receive more. And despite possible decreased savings rates among boomers, simple inflation and economic growth ensures that Millenials will inherit a lot more than they did. $1 million will be worth a lot less in 2020 than it was in 1990. And some people own assets that will increase in value over time.

Now let's consider that those households who stand to inherit are usually the same ones who have parents wealthy enough to provide assistance while they're living. Paying college tuition and living expenses, getting first/last/security paid off when moving into a new apartment, and assistance with a down payment on a house are fairly typical of wealthy families. I know lots of friends/coworkers/acquaintances who have gotten at least one of these, many all three. All will boost lifestyle by allowing the children to use their money for something else. When you're paying all of that yourself and don't stand to inherit much, it becomes much more difficult to keep up with that lifestyle.

And again, that is one factor. Running up debt and/or not saving much is certainly an even bigger one. Also some people just get paid more than you (generic you) do.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 21, 2016, 12:02:39 PM
Bb8, you can't have it both ways.  Either parents were good savers who leave a house to kids (who will likely sell it off to split the proceeds, thereby increasing supply which is hypothesized to lead to a crash)  or parents were not good savers, cash-out refinanced a lot and the kids MUST sell because equity is so low.  They can't be huge spenders AND leave a lot to their kids except in  very high earning circumstances
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Albert on January 21, 2016, 12:18:16 PM
Bb8, you can't have it both ways.  Either parents were good savers who leave a house to kids (who will likely sell it off to split the proceeds, thereby increasing supply which is hypothesized to lead to a crash)  or parents were not good savers, cash-out refinanced a lot and the kids MUST sell because equity is so low.  They can't be huge spenders AND leave a lot to their kids except in  very high earning circumstances

It's not that black and white. My parents (not in US), particularly my mother, are fairly free with their money which coupled with their modest pensions don't leave them with much cushion. However they haven't been completely careless either and their primary house and rental property (both debt free) are together worth about half a million. Short of some true emergency they'll never sell and me and my sister will inherit it some day. It will probably take me another 7-8 years to catch them in net wealth...
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 21, 2016, 12:40:06 PM
Bb8, you can't have it both ways.  Either parents were good savers who leave a house to kids (who will likely sell it off to split the proceeds, thereby increasing supply which is hypothesized to lead to a crash)  or parents were not good savers, cash-out refinanced a lot and the kids MUST sell because equity is so low.  They can't be huge spenders AND leave a lot to their kids except in  very high earning circumstances

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").

I'm saying regarding the crazy expensive lifestyles you see others living without matching incomes, some of it is because those people received inheritances or other parental assistance, a lot of it is just people not saving much and/or using debt to fund it, and some of it is that there are others who have higher incomes than you do.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Pooplips on January 21, 2016, 01:17:02 PM
Comment to follow
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Psychstache on January 21, 2016, 02:06:14 PM
Bb8, you can't have it both ways.  Either parents were good savers who leave a house to kids (who will likely sell it off to split the proceeds, thereby increasing supply which is hypothesized to lead to a crash)  or parents were not good savers, cash-out refinanced a lot and the kids MUST sell because equity is so low.  They can't be huge spenders AND leave a lot to their kids except in  very high earning circumstances

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").

I'm saying regarding the crazy expensive lifestyles you see others living without matching incomes, some of it is because those people received inheritances or other parental assistance, a lot of it is just people not saving much and/or using debt to fund it, and some of it is that there are others who have higher incomes than you do.

Must've been watching Star Wars: The Force Awakens while posting   ;)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: G-dog on January 21, 2016, 02:09:23 PM
Bb8, you can't have it both ways.

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").


Must've been watching Star Wars: The Force Awakens while posting   ;)

"these aren't the droids you're looking for"
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 21, 2016, 02:19:32 PM
Bb8, you can't have it both ways.

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").


Must've been watching Star Wars: The Force Awakens while posting   ;)

"these aren't the droids you're looking for"

G-3PO: you got it

Bb8, you can't have it both ways.  Either parents were good savers who leave a house to kids (who will likely sell it off to split the proceeds, thereby increasing supply which is hypothesized to lead to a crash)  or parents were not good savers, cash-out refinanced a lot and the kids MUST sell because equity is so low.  They can't be huge spenders AND leave a lot to their kids except in  very high earning circumstances

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").

I'm saying regarding the crazy expensive lifestyles you see others living without matching incomes, some of it is because those people received inheritances or other parental assistance, a lot of it is just people not saving much and/or using debt to fund it, and some of it is that there are others who have higher incomes than you do.

Yeah, so parents can only "assist" in two circumstances: they are using debt to fund the assistance or they saved a bunch of money with which they can assist.  If the former, then the answer to this thread is "yes, it is fueled by debt," if the latter, the answer is "no, the baby boomers saved a bunch of money and are transferring it to their children, thereby moving consumption from the 60s-90s to today"
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 21, 2016, 02:58:35 PM
Bb8, you can't have it both ways.

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").


Must've been watching Star Wars: The Force Awakens while posting   ;)

"these aren't the droids you're looking for"

G-3PO: you got it

Bb8, you can't have it both ways.  Either parents were good savers who leave a house to kids (who will likely sell it off to split the proceeds, thereby increasing supply which is hypothesized to lead to a crash)  or parents were not good savers, cash-out refinanced a lot and the kids MUST sell because equity is so low.  They can't be huge spenders AND leave a lot to their kids except in  very high earning circumstances

You're not addressing any point I made (I'm assuming you meant "bb11" by "bb8").

I'm saying regarding the crazy expensive lifestyles you see others living without matching incomes, some of it is because those people received inheritances or other parental assistance, a lot of it is just people not saving much and/or using debt to fund it, and some of it is that there are others who have higher incomes than you do.

Yeah, so parents can only "assist" in two circumstances: they are using debt to fund the assistance or they saved a bunch of money with which they can assist.  If the former, then the answer to this thread is "yes, it is fueled by debt," if the latter, the answer is "no, the baby boomers saved a bunch of money and are transferring it to their children, thereby moving consumption from the 60s-90s to today"

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Bolshevik Artizan on January 21, 2016, 04:31:01 PM

Not really. Some people were good savers and some weren't, just like today. Some of the parents inherited themselves, and also get the huge headstart. That's why the talk about a housing crisis because boomers are dying doesn't make sense. Most of them will leave the house to their kids, who get a $1M boost (an entire lifetime's worth of saving for a Mustachian) just by being born to the right set of parents. Just owning a home in the Bay Area, LA, or NYC at this point gets you near to being a millionaire. Most of those homes are going to be inherited by the kids.

The cutoff for being in the top 1% of wealth is $9 million. So roughly 1 in 100-200 (less than 100 because parents often have multiple kids) is going to be inheriting $9 million or more. Maybe 1 in 10 will get more than $1 million when all is said and done (in HCOL areas it's probably more like 1 in 5). These amounts fund a lifetime of extravagant spending, and there's no way you'd know if they're just a co-worker.

A very intelligent post indeed. I knew a guy in Toronto who inherited four homes from a Polish immigrant mother and never worked. By his late 40s he was a drunken, weed smoking dickwad who was 800k in debt and had to sell one of the houses (the best one) to fund his no-work, all-play lifestyle. I lost contact with him (ie he left our hood, he was an ass) two years ago but presumably he has continued living off rent, smoking weed, drinking and getting in to debt. I agree with everything you have written BUT do not underestimate lifestyle inflation by the heritors. My cousin was the same - inherited US$5m fifteen years ago and now she is in social housing in the UK - she spent THE LOT in ten years...


Bolshewik
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 21, 2016, 10:25:48 PM

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)

rolleyes!  Inherited wealth that is passed onto children was by definition saved since it was not spent  If the kids parents has mortgaged the house and spent the equity, the kids would not have an inflated lifestyle
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 22, 2016, 11:57:55 AM

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)

rolleyes!  Inherited wealth that is passed onto children was by definition saved since it was not spent  If the kids parents has mortgaged the house and spent the equity, the kids would not have an inflated lifestyle

Sure they technically had the capability to spend even more than they did. But if I inherit a $1 million dollar portfolio, then spend the passive income from it so that I die with exactly $1 million in it (adjusted for inflation if you want), you would say I saved money?

I would think saving is spending less than you earn. Not when you're given a large amount up front and then spend 100% of your income the rest of your life, just not the principal.

Anyway, I'm not sure the point of this particular nitpick. Lots of people are advantaged by inheritance and parental assistance, and it allows them to outspend what you'd think they have based on their income from their day job. Label that however you want.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 22, 2016, 12:28:33 PM

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)

rolleyes!  Inherited wealth that is passed onto children was by definition saved since it was not spent  If the kids parents has mortgaged the house and spent the equity, the kids would not have an inflated lifestyle

Sure they technically had the capability to spend even more than they did. But if I inherit a $1 million dollar portfolio, then spend the passive income from it so that I die with exactly $1 million in it (adjusted for inflation if you want), you would say I saved money?

I would think saving is spending less than you earn. Not when you're given a large amount up front and then spend 100% of your income the rest of your life, just not the principal.

Anyway, I'm not sure the point of this particular nitpick. Lots of people are advantaged by inheritance and parental assistance, and it allows them to outspend what you'd think they have based on their income from their day job. Label that however you want.

The "this particular nitpick" was started by you in response to my conjecture that consumption has been moved forwards in time when wealth is passed on to children.  Your responses were "not exactly" and "incorrect."  But I like how you try to portray me as the nitpicker.

As to your examples above, yes if I inherit $1 million and don't spend it then I've saved it.  From an accounting perspective, Inheritance is recorded the same as any other income. 

If I inherit $900k, earn $100k at my job, and spend $100k, my savings rate is 90%, not zero.  If I spend 900k, my savings rate is 10%, not 100%. 

Are you trying to say that inheritance unspent does NOT count as savings, but inheritance spent DOES count as spending?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 22, 2016, 10:33:07 PM

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)

rolleyes!  Inherited wealth that is passed onto children was by definition saved since it was not spent  If the kids parents has mortgaged the house and spent the equity, the kids would not have an inflated lifestyle

Sure they technically had the capability to spend even more than they did. But if I inherit a $1 million dollar portfolio, then spend the passive income from it so that I die with exactly $1 million in it (adjusted for inflation if you want), you would say I saved money?

I would think saving is spending less than you earn. Not when you're given a large amount up front and then spend 100% of your income the rest of your life, just not the principal.

Anyway, I'm not sure the point of this particular nitpick. Lots of people are advantaged by inheritance and parental assistance, and it allows them to outspend what you'd think they have based on their income from their day job. Label that however you want.

The "this particular nitpick" was started by you in response to my conjecture that consumption has been moved forwards in time when wealth is passed on to children.  Your responses were "not exactly" and "incorrect."  But I like how you try to portray me as the nitpicker.

As to your examples above, yes if I inherit $1 million and don't spend it then I've saved it.  From an accounting perspective, Inheritance is recorded the same as any other income. 

If I inherit $900k, earn $100k at my job, and spend $100k, my savings rate is 90%, not zero.  If I spend 900k, my savings rate is 10%, not 100%. 

Are you trying to say that inheritance unspent does NOT count as savings, but inheritance spent DOES count as spending?

It really is irrelevant to the OP. But if someone says they saved up a million dollars, then no I don't think they're implying they just inherited it. Nor would I consider an heir a "saver" just because they haven't spent their entire big inheritance. But again, what does it matter? Either way they got help that a lot of people may not have.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 23, 2016, 01:44:11 AM

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)

rolleyes!  Inherited wealth that is passed onto children was by definition saved since it was not spent  If the kids parents has mortgaged the house and spent the equity, the kids would not have an inflated lifestyle

Sure they technically had the capability to spend even more than they did. But if I inherit a $1 million dollar portfolio, then spend the passive income from it so that I die with exactly $1 million in it (adjusted for inflation if you want), you would say I saved money?

I would think saving is spending less than you earn. Not when you're given a large amount up front and then spend 100% of your income the rest of your life, just not the principal.

Anyway, I'm not sure the point of this particular nitpick. Lots of people are advantaged by inheritance and parental assistance, and it allows them to outspend what you'd think they have based on their income from their day job. Label that however you want.

The "this particular nitpick" was started by you in response to my conjecture that consumption has been moved forwards in time when wealth is passed on to children.  Your responses were "not exactly" and "incorrect."  But I like how you try to portray me as the nitpicker.

As to your examples above, yes if I inherit $1 million and don't spend it then I've saved it.  From an accounting perspective, Inheritance is recorded the same as any other income. 

If I inherit $900k, earn $100k at my job, and spend $100k, my savings rate is 90%, not zero.  If I spend 900k, my savings rate is 10%, not 100%. 

Are you trying to say that inheritance unspent does NOT count as savings, but inheritance spent DOES count as spending?

It really is irrelevant to the OP. But if someone says they saved up a million dollars, then no I don't think they're implying they just inherited it. Nor would I consider an heir a "saver" just because they haven't spent their entire big inheritance. But again, what does it matter? Either way they got help that a lot of people may not have.

No one is making the bold argument or denying the underlined argument.  The point you seem to be missing is that at some point someone saved that money. So we may see kids living beyond their means now but if not debt fueled, it's the result of delayed consumption from past generations
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: bb11 on January 25, 2016, 02:11:36 PM

Incorrect. For one, wealth is often passed down multiple times. Example:

Joe saves up and buys a house. Joe gets old and dies. House goes to his daughter. She gets old, dies. Proceeds from the house sale are split up amongst her two children. They use some of that money to each buy a house (Joe's house was in a prime area because the population of their city was smaller back then, so lower land values). Both of them pass their house to their kids, and use the rest of their inheritance to pay for the kids' college. The kids now don't need to pay a mortgage payment and had all of their college completely paid for, despite neither their parents nor their grandmother saving any money. The OP sees the two of them using their incomes to fund large vacations, while the OP has to pay down a mortgage and student loans. Confusion results. ;)

rolleyes!  Inherited wealth that is passed onto children was by definition saved since it was not spent  If the kids parents has mortgaged the house and spent the equity, the kids would not have an inflated lifestyle

Sure they technically had the capability to spend even more than they did. But if I inherit a $1 million dollar portfolio, then spend the passive income from it so that I die with exactly $1 million in it (adjusted for inflation if you want), you would say I saved money?

I would think saving is spending less than you earn. Not when you're given a large amount up front and then spend 100% of your income the rest of your life, just not the principal.

Anyway, I'm not sure the point of this particular nitpick. Lots of people are advantaged by inheritance and parental assistance, and it allows them to outspend what you'd think they have based on their income from their day job. Label that however you want.

The "this particular nitpick" was started by you in response to my conjecture that consumption has been moved forwards in time when wealth is passed on to children.  Your responses were "not exactly" and "incorrect."  But I like how you try to portray me as the nitpicker.

As to your examples above, yes if I inherit $1 million and don't spend it then I've saved it.  From an accounting perspective, Inheritance is recorded the same as any other income. 

If I inherit $900k, earn $100k at my job, and spend $100k, my savings rate is 90%, not zero.  If I spend 900k, my savings rate is 10%, not 100%. 

Are you trying to say that inheritance unspent does NOT count as savings, but inheritance spent DOES count as spending?

It really is irrelevant to the OP. But if someone says they saved up a million dollars, then no I don't think they're implying they just inherited it. Nor would I consider an heir a "saver" just because they haven't spent their entire big inheritance. But again, what does it matter? Either way they got help that a lot of people may not have.

No one is making the bold argument or denying the underlined argument.  The point you seem to be missing is that at some point someone saved that money. So we may see kids living beyond their means now but if not debt fueled, it's the result of delayed consumption from past generations

Okay fair enough. Then I suppose my point is it's not a trend of 50-60's related consumption being delayed until today, it's just a tendency for some people to die with savings, which will always happen. In a capitalist society with our inheritance laws this money can pool and compound over time, resulting in rather large amounts.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 25, 2016, 02:22:16 PM
No one is making the bold argument or denying the underlined argument.  The point you seem to be missing is that at some point someone saved that money. So we may see kids living beyond their means now but if not debt fueled, it's the result of delayed consumption from past generations

Not necessarily, right?  I'll likely inherit a paid-for house, is that considered "savings"?  I don't think you'd considered someone who spent every dime of their paycheck, and included in that spending was paying off a mortgage over 30 years, as having "saved" anything, but then they die and will the property down, that's not really the fruits of "savings".
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: deeshen13 on January 25, 2016, 02:37:30 PM
Paying down principle on an appreciating asset is definitely "savings".
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 25, 2016, 02:52:08 PM
Paying down principle on an appreciating asset is definitely "savings".

Yup, buying the house is consumption.  Paying off the loan is savings. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 25, 2016, 03:01:15 PM
So when you guys calculate your savings rate, you are including your mortgage payments, or even the part going to principle, as savings?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: honeybbq on January 25, 2016, 03:31:06 PM
So when you guys calculate your savings rate, you are including your mortgage payments, or even the part going to principle, as savings?

Personally, I do. I contribute about $1500/month extra to the mortgage. Plus the amount to principal if I am calculating my 'savings rate'. But I really don't calculate that very often because I really don't care what it is at this point in my life.

I'm more interested in my estimated net worth, which I calculate all the accounts, plus the zillow amount of my home less my outstanding mortgage.

I live in a HCOLA where the houses appreciate 10% a year, so I am confident that I can get within 3% of my zillow estimate of my house at any given second. If I lived in rural Missouri, I might have a different approach.

Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 26, 2016, 09:49:14 AM
I do not count my house in my savings nor in my net worth.  As long as I'm living in it, it doesn't have value as far as I'm concerned. I don't count anything else I've bought in my net worth.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DividendMoney on January 26, 2016, 10:12:52 AM
I do not count my house in my savings nor in my net worth.  As long as I'm living in it, it doesn't have value as far as I'm concerned. I don't count anything else I've bought in my net worth.

At the bare minimum, your house has the value of the equivalent rent you would need to pay to live in a similar property.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 26, 2016, 10:17:10 AM
I do not count my house in my savings nor in my net worth.  As long as I'm living in it, it doesn't have value as far as I'm concerned. I don't count anything else I've bought in my net worth.

At the bare minimum, your house has the value of the equivalent rent you would need to pay to live in a similar property.

It would cost a lot more to rent a similar property than to pay my mortgage, so I don't think that's true.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aspiringnomad on January 26, 2016, 10:27:19 AM
I do not count my house in my savings nor in my net worth.  As long as I'm living in it, it doesn't have value as far as I'm concerned. I don't count anything else I've bought in my net worth.

This comes up very often here, but IMO it's a bit silly not to count your house as an investment and principal payments as savings. The spending part is what you pay in interest (i.e., the cost of money borrowed), maintenance, taxes, HOA if applicable, etc. Principal is not spending because presumably you will get it back (and perhaps more) when you sell it. Now, depending on your local housing market, you may not get it back in full, but unless you have some kind of special insight into the future, you shouldn't be calculating your future net worth based on the idea that your house will be worth nothing when you sell it. A very clear example of why that approach is problematic: is someone with a 10-year or 15-year mortgage less frugal than someone with a 30-year mortgage of the same value? Of course not. What about someone who makes additional payments to the mortgage every month, as many on here do? Regular principal payments should not be counted as spending any more than those extra payments are counted as spending, because they are fungibly the exact same thing. I understand that counting all housing payments as spending makes some folks feel more conservative in their approach to wealth building or maybe they are using it as some kind of jedi mind trick to encourage a higher savings rate. That's fine, but it's no less arbitrary than not counting 401k contributions or than just knocking 100k off your networth, just because why not? Works for some people, but I think it runs counter to the analytical, fact-based approach to FIRE that people on this forum should aspire to.

Lastly, given the historical returns of the housing market (appreciation of about ~3% a year), buying a house is no more consumption than buying a bond is consumption. The interest you pay on your mortgage, if you have one, is consumption (i.e., you are "consuming" the time value of money). The often significant transaction costs are consumption (i.e, you are consuming the services of realtors, mortgage brokers, and local government services via the taxes you might pay). Maintenance costs, which also can be quite significant, are obviously consumption. But unless you live in a car, a boat, or a trailer, the house itself is no more consumed than any other appreciating asset is "consumed."
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DividendMoney on January 26, 2016, 10:35:56 AM
I do not count my house in my savings nor in my net worth.  As long as I'm living in it, it doesn't have value as far as I'm concerned. I don't count anything else I've bought in my net worth.

At the bare minimum, your house has the value of the equivalent rent you would need to pay to live in a similar property.

It would cost a lot more to rent a similar property than to pay my mortgage, so I don't think that's true.

You have to live somewhere.
Let's look at it another way.

If you sold your house, how much would 4% of the net proceeds cover in rent?
Per your previous comment, your answer should be $0.00 because you state your home has no value.  But, we know that's not true.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: deeshen13 on January 26, 2016, 10:57:15 AM
I do not count my house in my savings nor in my net worth.  As long as I'm living in it, it doesn't have value as far as I'm concerned. I don't count anything else I've bought in my net worth.

This comes up very often here, but IMO it's a bit silly not to count your house as an investment and principal payments as savings. The spending part is what you pay in interest (i.e., the cost of money borrowed), maintenance, taxes, HOA if applicable, etc. Principal is not spending because presumably you will get it back (and perhaps more) when you sell it. Now, depending on your local housing market, you may not get it back in full, but unless you have some kind of special insight into the future, you shouldn't be calculating your future net worth based on the idea that your house will be worth nothing when you sell it. A very clear example of why that approach is problematic: is someone with a 10-year or 15-year mortgage less frugal than someone with a 30-year mortgage of the same value? Of course not. What about someone who makes additional payments to the mortgage every month, as many on here do? Regular principal payments should not be counted as spending any more than those extra payments are counted as spending, because they are fungibly the exact same thing. I understand that counting all housing payments as spending makes some folks feel more conservative in their approach to wealth building or maybe they are using it as some kind of jedi mind trick to encourage a higher savings rate. That's fine, but it's no less arbitrary than not counting 401k contributions or than just knocking 100k off your networth, just because why not? Works for some people, but I think it runs counter to the analytical, fact-based approach to FIRE that people on this forum should aspire to.

Lastly, given the historical returns of the housing market (appreciation of about ~3% a year), buying a house is no more consumption than buying a bond is consumption. The interest you pay on your mortgage, if you have one, is consumption (i.e., you are "consuming" the time value of money). The often significant transaction costs are consumption (i.e, you are consuming the services of realtors, mortgage brokers, and local government services via the taxes you might pay). Maintenance costs, which also can be quite significant, are obviously consumption. But unless you live in a car, a boat, or a trailer, the house itself is no more consumed than any other appreciating asset is "consumed."

Good summary.  I've  never struggled with accounting for a house; it doesn't need to be made unduly complicated:

Your Income Statement:
Principle - Savings
Interest, insurance, taxes, maintenance - Expenses

Your Balance Sheet:
Market value of house - Asset
Mortgage - Liability
M.V.- Mort.  = Equity
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 26, 2016, 11:01:55 AM
Quote
If you sold your house, how much would 4% of the net proceeds cover in rent?

Do you do this for every possession you own?  I could sell my clothes, my wedding ring, my car, my dog.  These things are all assets, though not as much as my house.

Until I sell it, I don't count it.

The question was "So when you guys calculate your savings rate, you are including your mortgage payments, or even the part going to principle, as savings?"  My answer was "nope".

I see my house as an expense. I plan to live there until I die, or if I move, I'd be trading it for another house- so I'm not going to be cashing out on it. It isn't an investment, it isn't savings. It is a place to live that I purchased.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DividendMoney on January 26, 2016, 11:28:05 AM
Quote
If you sold your house, how much would 4% of the net proceeds cover in rent?

Do you do this for every possession you own?  I could sell my clothes, my wedding ring, my car, my dog.  These things are all assets, though not as much as my house.

Until I sell it, I don't count it.

The question was "So when you guys calculate your savings rate, you are including your mortgage payments, or even the part going to principle, as savings?"  My answer was "nope".

I see my house as an expense. I plan to live there until I die, or if I move, I'd be trading it for another house- so I'm not going to be cashing out on it. It isn't an investment, it isn't savings. It is a place to live that I purchased.

So, I assume you have an interest only mortgage?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 26, 2016, 11:55:00 AM
Quote
If you sold your house, how much would 4% of the net proceeds cover in rent?

Do you do this for every possession you own?  I could sell my clothes, my wedding ring, my car, my dog.  These things are all assets, though not as much as my house.

I don't for most things, because they aren't worth anything material.  I do have three cars, so I figure one of the three could be sold off if I needed the cash, so I mentally add a little bit for that (~$10k) but overall, everything I own (outside of cars and house and wedding/engagement rings) would struggle to bring $5k total, so it isn't worth considering them.  Dog in particular might be more of a liability ;) 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 26, 2016, 11:58:09 AM
The only reason to calculate "savings," besides bragging rights, is to determine your time to retirement. 

Let's say you earn $10k/mo net, have a $3k mortgage ($1k to principal) and spend $2k otherwise.  In this respect, you have two options:

Count principal as savings.  Savings rate is 60% meaning 16.6 years to retirement (again assuming cash for simplicity).  You still have a mortgage payment, but it goes away after 15 years, so you don't need to save enough to sustain that payment indefinitely.  The payment also does not increase with inflation

Count principal payment as an expense.  Savings rate is 50% meaning 25 years to retirement (in cash).  But wait, if you retire in 25 years, you will only have 5 years (or less) on the mortgage.  You will have saved TOO LONG because you overestimated your retirement expenses.

You can correct this (and some do) by doing a separate calculation for pre-retirement and post-retirement expenses.  For example, you know you need 25 time your expenses, minus the mortgage, after 30 years, thereby assuming a paid off house in retirement.

But this is needlessly complicating the savings rate->retirement estimation.  If you include your principal payment in savings, you IMPLICITLY account for the fact the your mortgage will eventually go away, thereby lowering your expenses in retirement.

I think either way you get the same result-- it's just that the math is more convoluted when you count principal as expense.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 26, 2016, 12:02:44 PM
Quote
If you sold your house, how much would 4% of the net proceeds cover in rent?

Do you do this for every possession you own?  I could sell my clothes, my wedding ring, my car, my dog.  These things are all assets, though not as much as my house.

I don't for most things, because they aren't worth anything material.  I do have three cars, so I figure one of the three could be sold off if I needed the cash, so I mentally add a little bit for that (~$10k) but overall, everything I own (outside of cars and house and wedding/engagement rings) would struggle to bring $5k total, so it isn't worth considering them.  Dog in particular might be more of a liability ;)

Sure, I'd do this for everything I own if it weren't so time consuming.  If I have a good pair of shoes, it's one pair of shoes I don't need to buy anytime soon.  As mentioned, the house is likely the highest percentage of NW and my shoes are so insignificant as not to be worth the time to add up.  However, if I owned a $1 million yacht or even a $30k car, I'd definitely be wondering if I could rent the yacht for cheaper by investing the proceeds.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kaspian on January 26, 2016, 12:14:27 PM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Rollin on January 26, 2016, 12:25:16 PM
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.

What is the difference between debt and leverage?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Ftao93 on January 26, 2016, 12:29:16 PM
2 examples:

1 person I work with, hard worker, tons and tons of hours, very high position/salary (actual #'s are not known to me, but are clearly in multiple 6 figures).   He works really, really hard.  He found out last year that he has a disease that will most likely kill him within 5-7 years.  His attitude has shifted vastly, and he will be headed for disability in 6 weeks.

one of his lieutenants is in a similar position.  2 high incomes, 2 kids.  Big house, big cars, constant worry over money.  She brings in a starbucks (venti of course) nearly every day, but tosses half of it.

Me:  50k a year.  I didn't start saving until a few years ago, like...NOTHING.  we have paid off scooters and a motorcycle, all of which could be traded in for a bus pass if we had to (actually we both get bus passes for work!).  I put just shy of 30% away before I get it into 401k.  I vowed to pay for everything in the future with cash, and we want to save 10-12k a year toward a house payment for a few years.  If we can't get a reasonable house with that at the time (Denver is HUGELY overpriced at the moment) then we will likely invest it and hide under a rock.

We still have a nice vacation every year, just try to keep it reasonable, pay almost all cash, and anything that goes over on a card, pay it off before interest accumulates.  "But how do you pay for all that?"  I save up!

We do go out to eat (and my drinks) more often than we should.  I shamed myself last month by spending like $200 on utter crap, which could have gone to much better places.  I don't mind enjoying life, and money spent on travel isn't wasted, but our expenses are very low.

Many of you are 100x more efficient than this, so I'm not sure how people think it's OK to have a monthly income of 10k and somehow worry over $$.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 26, 2016, 12:31:54 PM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

You can only count paying off tv debt as an expense if you ignored the expense when you bought the tv.  Personally, I count a tv purchase as an expense when I pay with my credit card.  It lowers my net worth by incurring the debt.  When I pay off the card (from income) it increases my net worth by reducing my liability.   If you count it as an expense both times, you are accounting wrong and may God have mercy on your soul


Edit: if you want to consider the debt payment an expense and ignore the purchase of the tv that's fine, it's just really counterintuitive.  I don't need to feel guilty about buying anything until I finally pay off the debt incurred to purchase them!

To clarify the above, debt payment itself isn't "saving."  Rather, using your cash flow to pay off debt rather than the buy things is saving.  This is analogous to the fact that buying stocks isn't "saving" in itself, rather using your income to purchase stocks instead of buying things is saving.  Whether you direct your income to debt payoff or stock purchases, you are increasing your net worth.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 26, 2016, 12:34:54 PM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

I completely disagree with this.  I wouldn't consider interest payments to be savings.  However, a principal payment is definitely a form of savings.  If you sell your home, you should receive this money unless your home has depreciated in value, which isn't that different from any other investment. 

Let's say last month I had 500k in equity towards my home and today I make a 50k payment.  Now I have 550k in equity.  Why wouldn't you consider this savings?  Instead of putting this 50k in the market I'm simply investing in residential property. 

It's weird you seem to equate a television with a house.  Over time, homes tend to appreciate in value.  Maybe not at the same rate as the stock market, but they are almost always worth more 03 years down the road.  Televisions do not.  No one would consider a television an investment vehicle. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 26, 2016, 12:39:23 PM
Quote
If you sold your house, how much would 4% of the net proceeds cover in rent?

Do you do this for every possession you own?  I could sell my clothes, my wedding ring, my car, my dog.  These things are all assets, though not as much as my house.

Until I sell it, I don't count it.

The question was "So when you guys calculate your savings rate, you are including your mortgage payments, or even the part going to principle, as savings?"  My answer was "nope".

I see my house as an expense. I plan to live there until I die, or if I move, I'd be trading it for another house- so I'm not going to be cashing out on it. It isn't an investment, it isn't savings. It is a place to live that I purchased.

What about a rental property?  I make principle payments towards my rental property each month.  In x years the rental property will be paid for and I will owe it free and clear.  Same as my primary residence.  I can sell my house anytime I want to just like I can sell my rental property.  It's an asset.  It may not perform as well as other types of investments but it still is.  if you don't believe it is then you have no business owning a home or investing in any rental properties. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on January 26, 2016, 06:28:49 PM
GAH!

Forgive my pedantry, but it's "princiPAL".

A principle is an idea or a tenet, one you might hold dearly, or live by. Principal is the non-interest portion of your mortgage payment.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 26, 2016, 06:50:43 PM
GAH!

Forgive my pedantry, but it's "princiPAL".

A principle is an idea or a tenet, one you might hold dearly, or live by. Principal is the non-interest portion of your mortgage payment.

I know that.  It's called typing quickly on your iPhone. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aspiringnomad on January 26, 2016, 10:52:20 PM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

Ha, you need to revisit/take Accounting or Econ 101. By your very faulty logic, when I sell my real estate holdings and slow travel the world at FIRE, the duration of my mortgages and any additional principal payments I made are both immaterial...maybe I should just burn the principal returned - it was spent money after all.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 27, 2016, 07:48:10 AM
if you don't believe it is then you have no business owning a home or investing in any rental properties.

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 08:00:37 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

Ha, you need to revisit/take Accounting or Econ 101. By your very faulty logic, when I sell my real estate holdings and slow travel the world at FIRE, the duration of my mortgages and any additional principal payments I made are both immaterial...maybe I should just burn the principal returned - it was spent money after all.

If I buy a car, make the payments on it, pay it off, and then sell it and take the $5k I make on the sale and go on vacation, is that savings?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aspiringnomad on January 27, 2016, 08:14:28 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

Ha, you need to revisit/take Accounting or Econ 101. By your very faulty logic, when I sell my real estate holdings and slow travel the world at FIRE, the duration of my mortgages and any additional principal payments I made are both immaterial...maybe I should just burn the principal returned - it was spent money after all.

If I buy a car, make the payments on it, pay it off, and then sell it and take the $5k I make on the sale and go on vacation, is that savings?

If you still can't tell the difference between a steeply depreciating asset like a car and an appreciating asset like real estate, then I guess I see why this is confusing to you.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 08:22:31 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

Ha, you need to revisit/take Accounting or Econ 101. By your very faulty logic, when I sell my real estate holdings and slow travel the world at FIRE, the duration of my mortgages and any additional principal payments I made are both immaterial...maybe I should just burn the principal returned - it was spent money after all.

If I buy a car, make the payments on it, pay it off, and then sell it and take the $5k I make on the sale and go on vacation, is that savings?

If you still can't tell the difference between a steeply depreciating asset like a car and an appreciating asset like real estate, then I guess I see why this is confusing to you.

If I bought into the market 3 weeks ago before it tanked, is it not an investment?  Is the house I bought in 2008 that's down about 15% from my original sales price an investment or not?


No, my issue is not a lack of understanding, the issue is you can't say paying off debt A is saving but debt B is spending based solely on speculation of what the value of the underlying asset is going to do.  I personally don't think that paying off one's house is saving.   
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DividendMoney on January 27, 2016, 08:24:31 AM
if you don't believe it is then you have no business owning a home or investing in any rental properties.

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.


I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward.
This will give you access to cash for investing and still allow you to keep the same 'expense' for a place to live. 

PM me with address to send my offer to purchase and rental contract agreement.

Deal?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 27, 2016, 08:25:37 AM

If you still can't tell the difference between a steeply depreciating asset like a car and an appreciating asset like real estate, then I guess I see why this is confusing to you.

If all your real estate has appreciated, you are lucky. Real estate depreciates too.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: argonaut_astronaut on January 27, 2016, 08:49:58 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

Ha, you need to revisit/take Accounting or Econ 101. By your very faulty logic, when I sell my real estate holdings and slow travel the world at FIRE, the duration of my mortgages and any additional principal payments I made are both immaterial...maybe I should just burn the principal returned - it was spent money after all.

If I buy a car, make the payments on it, pay it off, and then sell it and take the $5k I make on the sale and go on vacation, is that savings?

If you still can't tell the difference between a steeply depreciating asset like a car and an appreciating asset like real estate, then I guess I see why this is confusing to you.

I think it is worth pointing out that real estate doesn't always appreciate. I read an article (somewhere) that suggested that home prices are tied to average income and interest rates. Interest rates have been falling since 1980 and incomes have risen with inflation means that housing prices have gone up. The overarching point of the article was that to most people the price of a house is set by the monthly payment.

As an example, say an average person can afford to pay $1000 per month toward housing. With interest rates at ~4% they can afford a $200K mortgage with 30 years at $955/month (excluding taxes/insurance for simplicity). If interest rates rise to 8% then that same family can only afford a $130K mortgage. Interest rates play across the entire market, so if every middle class family can afford $70K less then the real estate market will depreciate.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: BTDretire on January 27, 2016, 09:30:30 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extol it to others as such is delusional.
  I don't count my paid off house in my networth.
I can't spend it, it has a cost, insurance, maintenance, and taxes.
But it does give us place to live, and we need a place to live.
 Only my invested financial assets can either, generate spendable income or be spent directly.
I do consider my home a small insurance policy, probably for my wife, because if our investment plan
fails near the end, she can do a reverse mortgage and get a few more years income.
The house probably appreciates a little more than it costs in, insurance, maintenance, and taxes.
So, I guess it is a slightly growing insurance policy.
 But, to each, there own way of think about there home.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: cube.37 on January 27, 2016, 09:57:05 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

^This. Paying off debt is not saving. Sure, it'll increase your networth, but it's not saving.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kaspian on January 27, 2016, 10:03:23 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

^This. Paying off debt is not saving. Sure, it'll increase your networth, but it's not saving.

It's funny how people believe in "good debt" now.  So cute!  :)

"By the way, recent surveys have indicated that young homebuyers today don’t consider mortgages to be ‘debt’. Did I ever mention this won’t end well?"   http://www.greaterfool.ca/2016/01/26/unloved/ (http://www.greaterfool.ca/2016/01/26/unloved/)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: ender on January 27, 2016, 10:08:40 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

^This. Paying off debt is not saving. Sure, it'll increase your networth, but it's not saving.


Plenty of people plan on retiring to a lower cost of living area - in those cases, paying down a mortgage early is a form of saving - because you actually will reclaim the additional mortgage principal when you downsize.

In this situation, paying more on your mortgage is an investment of sorts, just one with a lower expected return and minimal volatility than the market (at current mortgage rates).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 10:09:41 AM
A house is an asset, part of your net worth.  It may appreciate in value or depreciate.  Paying off debt (including a mortgage) isn't saving.  It's paying for something you already bought--no different than paying off a credit card balance for a new TV.  If someone needs to tell themselves paying off the mortgage is "saving" in order to self-motivate, I can fully understand that.  ...But to extoll it to others as such is delusional.

^This. Paying off debt is not saving. Sure, it'll increase your networth, but it's not saving.


Plenty of people plan on retiring to a lower cost of living area - in those cases, paying down a mortgage early is a form of saving - because you actually will reclaim the additional mortgage principal when you downsize.

In this situation, paying more on your mortgage is an investment of sorts, just one with a lower expected return and minimal volatility than the market (at current mortgage rates).

Paying down a mortgage is a way of building equity, or acquiring an asset, or building wealth.  I just don't think it meets the definition of "Saving".
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kaspian on January 27, 2016, 10:21:01 AM
Paying down a mortgage is a way of building equity, or acquiring an asset, or building wealth.  I just don't think it meets the definition of "Saving".

Exactly!  But unless you're buying a property solely to rent, real estate (or its payments) does not fall under "investment", it falls under "housing expense".  If you seriously believe you're going to make money when you later sell your property, that falls under "real estate speculation".  (Same as gold, silver, antiques, comic books, etc.)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DividendMoney on January 27, 2016, 10:28:49 AM
Paying down a mortgage is a way of building equity, or acquiring an asset, or building wealth.  I just don't think it meets the definition of "Saving".

Exactly!  But unless you're buying a property solely to rent, real estate (or its payments) does not fall under "investment", it falls under "housing expense".  If you seriously believe you're going to make money when you later sell your property, that falls under "real estate speculation".  (Same as gold, silver, antiques, comic books, etc.)

Same as investing in the stock market... or, is that considered saving?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 10:33:39 AM
Paying down a mortgage is a way of building equity, or acquiring an asset, or building wealth.  I just don't think it meets the definition of "Saving".

Exactly!  But unless you're buying a property solely to rent, real estate (or its payments) does not fall under "investment", it falls under "housing expense".  If you seriously believe you're going to make money when you later sell your property, that falls under "real estate speculation".  (Same as gold, silver, antiques, comic books, etc.)

RE is a little unique because it is an expense you basically HAVE to incur.  You need a place to live, and unless you have someone else willing to support you, that's going to cost money.  So any analysis on money made or lost on RE need to be balanced against what you would have had to pay anyways (and you can net that with the tax benefit of I/T writeoffs), and theoretically against the opportunity cost of the money you could have invested had you not bought RE (which may be near $0 if you live in a place with high rent prices). 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aspiringnomad on January 27, 2016, 10:48:03 AM
Oy vey, where are all the engineers and finance minded folks? I had thought this forum was more precise in applying definitions and calculations than the population at large, but I guess not.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 10:53:16 AM
Oy vey, where are all the engineers and finance minded folks? I had thought this forum was more precise in applying definitions and calculations than the population at large, but I guess not.

As a finance person, I AM applying a precise definition:  "keep and store up (something, especially money) for future use."  I don't get how sending money to someone else to pay a debt meets the strict definition of "keep and store up."  Your problem is that you are confusing "investing" with "saving". 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kaspian on January 27, 2016, 11:01:01 AM
The equation goes something like:

(Sale value of house) + (cost you would have spent renting) - (purchase cost of house downpayment and all mortage payments) - (maintenance) - (property taxes) - (6% lost opportunity cost of down payment, all mortagage payments, maintenance, and property taxes)

After inflation, most people don't actually come out much (if any) ahead on the sale of their property in the long run.  It's the lost opportunity cost which is conveniently neglected by most.  If you buy a house for $200K and sell it 20 years later for $340K, it may look good on paper, but not necessarily the case once you factor in what you would have made with the money parked elsewhere.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: FenderBender on January 27, 2016, 12:00:04 PM
Some people are also a lot more comfortable living close to the edge

living close to the edge defines many people such that living anywhere else is completely unfamiliar and so uncomfortable.  for them to have money is not them so they spend the money to get back to the real them which is someone who is broke. 

it is disappointing that living with stress becomes such the norm that most people can't handle the minute they have any cash windfall they find a way to spend it because having it is just too uncomfortable.

 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 27, 2016, 12:02:38 PM
Oy vey, where are all the engineers and finance minded folks? I had thought this forum was more precise in applying definitions and calculations than the population at large, but I guess not.

As a finance person, I AM applying a precise definition:  "keep and store up (something, especially money) for future use."  I don't get how sending money to someone else to pay a debt meets the strict definition of "keep and store up."  Your problem is that you are confusing "investing" with "saving".

Savings is money you don't spend.  Debt payoff is not an expenditure - the money was already spent.  Likewise OF COURSE investments are savings.... We don't consume the assets we buy.

Consider that almost everyone on this web site is either paying off debt or investing aggressively..  Are you saying we don't save any money here?
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 12:44:23 PM
If you buy a house for $200K and sell it 20 years later for $340K, it may look good on paper, but not necessarily the case once you factor in what you would have made with the money parked elsewhere.

Correct, but there also may (or may not) be a non-trivial lifestyle cost in terms of quality of life for those 20 years.  For instance, I would not live in an apartment for 20 years to save money on not having a house, that's a lifestyle hit not worth it to me.  You would also have to correct for rent increases; my mortgage payment is not going to change over the next 20 years (property taxes likely will) but rents will likely increase over time.  One of the key factors in buying versus renting is locking in your "shelter expense" for a long term.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 12:47:55 PM
Oy vey, where are all the engineers and finance minded folks? I had thought this forum was more precise in applying definitions and calculations than the population at large, but I guess not.

As a finance person, I AM applying a precise definition:  "keep and store up (something, especially money) for future use."  I don't get how sending money to someone else to pay a debt meets the strict definition of "keep and store up."  Your problem is that you are confusing "investing" with "saving".

Savings is money you don't spend.  Debt payoff is not an expenditure - the money was already spent.  Likewise OF COURSE investments are savings.... We don't consume the assets we buy.


To be admittedly pedantic, I would argue that you do your investments WITH savings.  Your investments themselves AREN'T savings.  You SAVE money and then with it you PURCHASE investments. 

Quote
Consider that almost everyone on this web site is either paying off debt or investing aggressively..  Are you saying we don't save any money here?

No, I'm saying that paying off debt isn't savings, and I'm saying you save money to make investments.  Again, it's a pedantic distinction, but especially the part about debt repayment not being savings, it's a distinction.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: TheOldestYoungMan on January 27, 2016, 12:58:15 PM
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

The problem with this saving vs. spending discussion re: mortgage payments is that you're all answering different questions.

I include my house payment as an expense, because for decades after retirement I will have to have cashflow to cover that debt payment.  I also include the rents I receive from the rent of extra rooms as income, and forecast a reasonable amount of rents in the future as residual income for retirement.

It's an exercise in forecasting, and you want to use the best data you can.  As long as you are being self-consistent about it, it's all going to be fine.

You're like the people that want to insist that physics doesn't suck, it blows.  It honestly doesn't matter what convention you are using as long as you are applying it consistently.

The folks who don't think of their house as an asset are doing the exact same thing you are, as long as they aren't also counting their housing as an expense.

Likewise the folks who think of their house as an asset are doing the exact same thing, as long as they're factoring in their housing expense.

As long as your equation comes up with the answer that "I need to save a lot more than I spend" it's all good.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 27, 2016, 01:21:02 PM

The problem with this saving vs. spending discussion re: mortgage payments is that you're all answering different questions.


The question asked was this "So when you guys calculate your savings rate, you are including your mortgage payments, or even the part going to principle, as savings?"


Seems to me the answer is either Yes or No, and it is going to vary by person.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on January 27, 2016, 01:31:39 PM
For barely five figures down, we're paying less for PITI+maintenance on our house than we would pay for a 2BR or even a nice 1BR in our town. The monthly savings are greater than 4% or even 7% annually on our equity. And it'll be a rental someday.

I count principal payments as savings. If increasing NW dollar for dollar isn't enough, then see above.

However, my $.02: it really doesn't matter if YOU do or not, as long as you apply one consistent methodology to all your tracking and forecasting, and make any appropriate mathematical adjustments.



...............and again: princiPAL. ;)
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Kaspian on January 27, 2016, 01:45:10 PM
If you buy a house for $200K and sell it 20 years later for $340K, it may look good on paper, but not necessarily the case once you factor in what you would have made with the money parked elsewhere.

Correct, but there also may (or may not) be a non-trivial lifestyle cost in terms of quality of life for those 20 years.  For instance, I would not live in an apartment for 20 years to save money on not having a house, that's a lifestyle hit not worth it to me.  You would also have to correct for rent increases; my mortgage payment is not going to change over the next 20 years (property taxes likely will) but rents will likely increase over time.  One of the key factors in buying versus renting is locking in your "shelter expense" for a long term.

Your mortgage payment could indeed increase dramatically depending on the type of lending rate you've subscribed to.  Not even in the fine print most of the time--an institution could up a variable rate from 3% to 10% pretty much any time it chose to.  And that has happened to people before.

But your main point is bang-on!  Especially if you have kids or enjoy the space, a bigger place with a nice backyard is totally worth it--whether you come out ahead of renting or not.  Home ownership is emotional for lots of people.  In the same way, I'd rather own a guitar than rent one.  :) 

But it's when people see their houses as piggybanks rather than a place to live that huge issues arise.  You can't treat it as you would a liquid asset.   Lots of people in Detroit were told 15 years ago their home was a good financial investment.  Ask them how that whole "savings" scheme worked out. 
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 27, 2016, 02:36:42 PM
You guys are killing this post!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: ender on January 27, 2016, 02:42:10 PM
Quote
Consider that almost everyone on this web site is either paying off debt or investing aggressively..  Are you saying we don't save any money here?

No, I'm saying that paying off debt isn't savings, and I'm saying you save money to make investments.  Again, it's a pedantic distinction, but especially the part about debt repayment not being savings, it's a distinction.

Ok, so are you "happy" if someone says they are investing their savings by paying off their mortgage vs investing their savings in the stock market?

It feels like you are being intentionally pedantic about the word choice here, to the point you'd rather be "right" than use terminology which is more commonly understood.


Though, I will say, my pedantic weak link in financial terms is "compound interest" applied to making money investing in the stock market. It's not at all compound interest unless you have bonds paying out interest that is reinvested, it's normally compounded annual growth and/or reinvestment of dividends. Anyways.. :)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Chris22 on January 27, 2016, 02:57:51 PM
Quote
Consider that almost everyone on this web site is either paying off debt or investing aggressively..  Are you saying we don't save any money here?

No, I'm saying that paying off debt isn't savings, and I'm saying you save money to make investments.  Again, it's a pedantic distinction, but especially the part about debt repayment not being savings, it's a distinction.

Ok, so are you "happy" if someone says they are investing their savings by paying off their mortgage vs investing their savings in the stock market?

No, one doesn't "invest in paying off" they "retire debt". 

Quote
It feels like you are being intentionally pedantic about the word choice here, to the point you'd rather be "right" than use terminology which is more commonly understood.

I'd argue no one "understands" paying off debt as savings.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on January 27, 2016, 02:58:35 PM
You guys are killing this post!
It died long ago.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: nobodyspecial on January 27, 2016, 03:52:09 PM
You guys are killing this post!
It died long ago.
It's not dead it's just resting, pining for the fjords etc etc
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 27, 2016, 04:47:23 PM
Quote
Consider that almost everyone on this web site is either paying off debt or investing aggressively..  Are you saying we don't save any money here?

No, I'm saying that paying off debt isn't savings, and I'm saying you save money to make investments.  Again, it's a pedantic distinction, but especially the part about debt repayment not being savings, it's a distinction.

Ok, so are you "happy" if someone says they are investing their savings by paying off their mortgage vs investing their savings in the stock market?

No, one doesn't "invest in paying off" they "retire debt". 

Quote
It feels like you are being intentionally pedantic about the word choice here, to the point you'd rather be "right" than use terminology which is more commonly understood.

I'd argue no one "understands" paying off debt as savings.

Have you ever heard of the transitive property? 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: aspiringnomad on January 27, 2016, 04:55:28 PM
Oy vey, where are all the engineers and finance minded folks? I had thought this forum was more precise in applying definitions and calculations than the population at large, but I guess not.

As a finance person, I AM applying a precise definition:  "keep and store up (something, especially money) for future use."  I don't get how sending money to someone else to pay a debt meets the strict definition of "keep and store up."  Your problem is that you are confusing "investing" with "saving".

When you pay down principal, you "keep and store up (something, especially money) for future use" in the form of equity. What happens to the amount of that equity vis a vis the market is just as immaterial as what happens to index funds you've invested in. Look, I'm not arguing in favor of home ownership at all - I agree with Kaspian that there are opportunity costs people neglect to account for when deciding whether to buy or rent - I am simply arguing for an accurate, fact-based accounting system from which to calculate savings. Why some can't seem to grasp it boggles my mind.

It's obvious by this point that you won't believe me, but perhaps you'll take MMM's word for it? If so, see: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

In particular, the box titled "Joe's Spending" and the first line reading "Interest portion of his $2500 mortgage payment: ($2000)" (emphasis mine). The obvious implication is that the principal portion does not count towards spending, and thus counts towards savings.

Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 27, 2016, 06:53:43 PM
Oy vey, where are all the engineers and finance minded folks? I had thought this forum was more precise in applying definitions and calculations than the population at large, but I guess not.

As a finance person, I AM applying a precise definition:  "keep and store up (something, especially money) for future use."  I don't get how sending money to someone else to pay a debt meets the strict definition of "keep and store up."  Your problem is that you are confusing "investing" with "saving".

When you pay down principal, you "keep and store up (something, especially money) for future use" in the form of equity. What happens to the amount of that equity vis a vis the market is just as immaterial as what happens to index funds you've invested in. Look, I'm not arguing in favor of home ownership at all - I agree with Kaspian that there are opportunity costs people neglect to account for when deciding whether to buy or rent - I am simply arguing for an accurate, fact-based accounting system from which to calculate savings. Why some can't seem to grasp it boggles my mind.

It's obvious by this point that you won't believe me, but perhaps you'll take MMM's word for it? If so, see: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

In particular, the box titled "Joe's Spending" and the first line reading "Interest portion of his $2500 mortgage payment: ($2000)" (emphasis mine). The obvious implication is that the principal portion does not count towards spending, and thus counts towards savings.
I hate to stick my nose in this but I agree with counting the equity in your house...which is also "Real Property"...which is as considered a Capital Asset. If you sell a capital asset for more than you bought it then it's a capital gain. If it's less than you bought it then it's a capital loss.

https://en.wikipedia.org/wiki/Capital_asset (https://en.wikipedia.org/wiki/Capital_asset)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Cathy on January 27, 2016, 07:08:21 PM
[...]

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.


I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward. ...

There's actually a reported Alberta case where some guy persuaded his "friend", Mr. Hajduk, to enter into almost that exact transaction. Mr. Hajduk later sued his former friend. His basic argument was that the transaction was unfair, but the Court was not too sympathetic:

                   It is inherent in the notion of enforceability of bargains that the exchange of values need not be an exchange of equivalents. In other words the parties are free to make good bargains and bad bargains, and the transaction does not cease to be a bargain because it is very profitable to one of the parties to it.
Hajduk v. Gabourie, 2014 ABQB 177 (https://www.canlii.org/en/ab/abqb/doc/2014/2014abqb177/2014abqb177.html) at Ά 41 (quoting a secondary source).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DividendMoney on January 28, 2016, 07:18:38 AM
[...]

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.

Given the strength of Iowajes opinion on the matter, I'm surprised that he hasn't taken me up on the offer yet.  :)

I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward. ...

There's actually a reported Alberta case where some guy persuaded his "friend", Mr. Hajduk, to enter into almost that exact transaction. Mr. Hajduk later sued his former friend. His basic argument was that the transaction was unfair, but the Court was not too sympathetic:

                   It is inherent in the notion of enforceability of bargains that the exchange of values need not be an exchange of equivalents. In other words the parties are free to make good bargains and bad bargains, and the transaction does not cease to be a bargain because it is very profitable to one of the parties to it.
Hajduk v. Gabourie, 2014 ABQB 177 (https://www.canlii.org/en/ab/abqb/doc/2014/2014abqb177/2014abqb177.html) at Ά 41 (quoting a secondary source).
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 28, 2016, 08:17:48 AM
if you don't believe it is then you have no business owning a home or investing in any rental properties.

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.


I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward.
This will give you access to cash for investing and still allow you to keep the same 'expense' for a place to live. 

PM me with address to send my offer to purchase and rental contract agreement.

Deal?

No. My neighborhood doesn't allow rentals.

I don't understand why it bothers you so much that some people keep track of their accounting in a different way than you do.  When I no longer have a mortgage payment, I'll be able to save money- because I can essentially live "free" in a home already paid for- with a rental that would never happen. So buying is better in that respect, because eventually it will allow me to save money. But the money towards the house is a PURCHASE. It's not savings. I'm spending the money to buy something that I now own. Just like I do when I get a new pair of jeans or a dinner plate. That thing cost me money. After I bought it, it still has value. I could later transfer it to someone else and exchange money for it.  But selling a house is no different than selling any of my other possessions. It may be worth more than I paid. It may be worth less. I don't know until the sale happens, so counting on it as "savings" is foolish, IMO. I actually did sell a dinner plate for twice what I paid- great investment. There is almost no way my house will sell for twice what I paid. The last house I sold sold for less than what I paid.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on January 28, 2016, 09:59:50 AM
Have you ever heard of the transitive property?
Don't go dragging math into this conversation to confuse us!
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: Think on January 28, 2016, 10:18:15 AM
if you don't believe it is then you have no business owning a home or investing in any rental properties.

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.


I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward.
This will give you access to cash for investing and still allow you to keep the same 'expense' for a place to live. 

PM me with address to send my offer to purchase and rental contract agreement.

Deal?

No. My neighborhood doesn't allow rentals.

I don't understand why it bothers you so much that some people keep track of their accounting in a different way than you do.  When I no longer have a mortgage payment, I'll be able to save money- because I can essentially live "free" in a home already paid for- with a rental that would never happen. So buying is better in that respect, because eventually it will allow me to save money. But the money towards the house is a PURCHASE. It's not savings. I'm spending the money to buy something that I now own. Just like I do when I get a new pair of jeans or a dinner plate. That thing cost me money. After I bought it, it still has value. I could later transfer it to someone else and exchange money for it.  But selling a house is no different than selling any of my other possessions. It may be worth more than I paid. It may be worth less. I don't know until the sale happens, so counting on it as "savings" is foolish, IMO. I actually did sell a dinner plate for twice what I paid- great investment. There is almost no way my house will sell for twice what I paid. The last house I sold sold for less than what I paid.


A home is vastly different than a pair of jeans.  You have to know this.  You can't rent out your jeans and you lose money on jeans.  If you took out a loan for a pair of jeans costing 100 you couldn't even expect to receive 100 when you sell, let alone appreciation.

Many people diversify their portfolios with real estate.  Not with jeans.

If you don't believe real estate is an investment, then you have to apply that same rule to rental properties. 

Have you heard of equity?  Equity in real estate is actually not that different than equity in a house. 
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: JCfire on January 28, 2016, 10:19:22 AM
Forget fueled by debt, alot of it can be adequately explained as "fueled by not saving so much".  If I had a savings rate of 5% instead of 50%, I'd be on a fairly typical retirement track and I would appear massively more wealthy/spendy than I currently appear, because alot of that extra spending would be on highly visible luxuries (travel, car, etc)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on January 28, 2016, 10:33:26 AM
Forget fueled by debt, alot of it can be adequately explained as "fueled by not saving so much".  If I had a savings rate of 5% instead of 50%, I'd be on a fairly typical retirement track and I would appear massively more wealthy/spendy than I currently appear, because alot of that extra spending would be on highly visible luxuries (travel, car, etc)
Yeah, that too. I had a period of $120K+ gross and minimal savings... I don't even have expensive tastes, just little things that added up. It's wild.
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 28, 2016, 11:42:26 AM
if you don't believe it is then you have no business owning a home or investing in any rental properties.

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.


I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward.
This will give you access to cash for investing and still allow you to keep the same 'expense' for a place to live. 

PM me with address to send my offer to purchase and rental contract agreement.

Deal?

No. My neighborhood doesn't allow rentals.

I don't understand why it bothers you so much that some people keep track of their accounting in a different way than you do.  When I no longer have a mortgage payment, I'll be able to save money- because I can essentially live "free" in a home already paid for- with a rental that would never happen. So buying is better in that respect, because eventually it will allow me to save money. But the money towards the house is a PURCHASE. It's not savings. I'm spending the money to buy something that I now own. Just like I do when I get a new pair of jeans or a dinner plate. That thing cost me money. After I bought it, it still has value. I could later transfer it to someone else and exchange money for it.  But selling a house is no different than selling any of my other possessions. It may be worth more than I paid. It may be worth less. I don't know until the sale happens, so counting on it as "savings" is foolish, IMO. I actually did sell a dinner plate for twice what I paid- great investment. There is almost no way my house will sell for twice what I paid. The last house I sold sold for less than what I paid.


A home is vastly different than a pair of jeans.  You have to know this.  You can't rent out your jeans and you lose money on jeans.  If you took out a loan for a pair of jeans costing 100 you couldn't even expect to receive 100 when you sell, let alone appreciation.

Many people diversify their portfolios with real estate.  Not with jeans.

If you don't believe real estate is an investment, then you have to apply that same rule to rental properties. 

Have you heard of equity?  Equity in real estate is actually not that different than equity in a house.
In financial economics, capital refers to any asset used to make money, as opposed to assets used for personal enjoyment or consumption. This is an important distinction because two people can disagree sharply about the value of personal assets, one person might think a sports car is more valuable than a pickup truck, another person might have the opposite taste. But if an asset is held for the purpose of making money, taste has nothing to do with it, only differences of opinion about how much money the asset will produce. With the further assumption that people agree on the probability distribution of future cash flows, it is possible to have an objective Capital asset pricing model. Even without the assumption of agreement, it is possible to set rational limits on capital asset value.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 28, 2016, 02:01:47 PM
if you don't believe it is then you have no business owning a home or investing in any rental properties.

I own a home so I have somewhere to live.  Just like I own clothes so I have something to wear.

I could sell my clothes too, but I don't count them as savings.


I will pay you cash, the amount owing on your mortgage for your home and you can continue paying me rent in the amount of your current mortgage payment plus your taxes and insurance costs for a place to live. I'll even take on the capital expenditure costs going forward.
This will give you access to cash for investing and still allow you to keep the same 'expense' for a place to live. 

PM me with address to send my offer to purchase and rental contract agreement.

Deal?

No. My neighborhood doesn't allow rentals.

I don't understand why it bothers you so much that some people keep track of their accounting in a different way than you do.  When I no longer have a mortgage payment, I'll be able to save money- because I can essentially live "free" in a home already paid for- with a rental that would never happen. So buying is better in that respect, because eventually it will allow me to save money. But the money towards the house is a PURCHASE. It's not savings. I'm spending the money to buy something that I now own. Just like I do when I get a new pair of jeans or a dinner plate. That thing cost me money. After I bought it, it still has value. I could later transfer it to someone else and exchange money for it.  But selling a house is no different than selling any of my other possessions. It may be worth more than I paid. It may be worth less. I don't know until the sale happens, so counting on it as "savings" is foolish, IMO. I actually did sell a dinner plate for twice what I paid- great investment. There is almost no way my house will sell for twice what I paid. The last house I sold sold for less than what I paid.

First, you never live "free" in a house you paid for-- there's always opportunity cost for the cash, and conversely imputed rent regardless of whether your HOA actually allows rentals.

Second, Volatility does not turn an investment into an expenditure.  I even disagree with others that negative return turns an investment into an expense.  Look at the institutions that bought negative rate bonds in europe.  This can be reasonable in the face of deflation.

No, an investment is something you do because you expect it will give you monetary advantage.  If you expect paying off your loan is giving you an advantage over the cash sitting in checking, you are certainly investing that cash. 

To reiterate, you don't have to count it as savings of you don't want... But in that case you have to ignore the original purchase of the home as an expense.  You can't double count it as a $300k expense in year one, then a $1.5k (or whatever) monthly expense thereafter.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: I'm a red panda on January 28, 2016, 02:10:25 PM
Quote
First, you never live "free" in a house you paid for-- there's always opportunity cost for the cash, and conversely imputed rent regardless of whether your HOA actually allows rentals.

Which is why I said "free" and not free.

Quote
No, an investment is something you do because you expect it will give you monetary advantage.
So the house isn't one. Because I don't expect that it will. The only expectation I have for it is that it gives me a place to live.

Quote
To reiterate, you don't have to count it as savings of you don't want... But in that case you have to ignore the original purchase of the home as an expense.  You can't double count it as a $300k expense in year one, then a $1.5k (or whatever) monthly expense thereafter.
I don't track my expenses, only the amount of money I don't spend (savings; which I compare against my salary to determine my savings rate. Expenses are meaningless to me.).  But if I did- I would only record it as I spent it- as that is the money going out. Unless you pay cash, a house doesn't cost $300k one year and then $1.5k monthly. It more likely costs $80k one year, and then $1.5k monthly.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: libertarian4321 on January 28, 2016, 02:36:43 PM
I'm glad to see this discussion of paying off the mortgage versus "investing," because I think it needed a fresh take, er brawl, after the 374 similarly inconclusive threads on the subject...
Title: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: DollarBill on January 28, 2016, 03:50:50 PM
(https://s-media-cache-ak0.pinimg.com/736x/da/3a/3a/da3a3aa1f116cfc216c7ca6d80c06df9.jpg)
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: dragoncar on January 28, 2016, 04:39:55 PM
Quote
First, you never live "free" in a house you paid for-- there's always opportunity cost for the cash, and conversely imputed rent regardless of whether your HOA actually allows rentals.

Which is why I said "free" and not free.


That's also why I said "free"

Quote
Quote
No, an investment is something you do because you expect it will give you monetary advantage.
So the house isn't one. Because I don't expect that it will. The only expectation I have for it is that it gives me a place to live.

Living "free" in a house is a "monetary advantage"

Quote
Quote
To reiterate, you don't have to count it as savings of you don't want... But in that case you have to ignore the original purchase of the home as an expense.  You can't double count it as a $300k expense in year one, then a $1.5k (or whatever) monthly expense thereafter.
I don't track my expenses, only the amount of money I don't spend (savings; which I compare against my salary to determine my savings rate. Expenses are meaningless to me.).  But if I did- I would only record it as I spent it- as that is the money going out. Unless you pay cash, a house doesn't cost $300k one year and then $1.5k monthly. It more likely costs $80k one year, and then $1.5k monthly.

Ok, so you don't track expenditures, you track cashflows.
Title: Re: The "everybody seems wealthy" illusion — is it really just all fueled by debt?
Post by: zephyr911 on February 02, 2016, 01:55:09 PM
I'm glad to see this discussion of paying off the mortgage versus "investing," because I think it needed a fresh take, er brawl, after the 374 similarly inconclusive threads on the subject...
Excuse me sir, I reached a conclusion on the subject long ago. The inability of the benighted masses to see the light of my reasoning is truly N.M.F.P.~!