The "everybody seems wealthy" illusion — is it really just all fueled by debt?

[nobodyspecial]

You guys are killing this post!

It died long ago.

It's not dead it's just resting, pining for the fjords etc etc

[dragoncar]

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". 

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? 

[aspiringnomad]

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.

[DollarBill]

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

[Cathy]

[...]

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 at ¶ 41 (quoting a secondary source).

[DividendMoney]

[...]

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 at ¶ 41 (quoting a secondary source).

[I'm a red panda]

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.

[zephyr911]

Have you ever heard of the transitive property?

Don't go dragging math into this conversation to confuse us!

[Think]

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. 

[JCfire]

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)

[zephyr911]

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.

[DollarBill]

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.

[dragoncar]

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.

[I'm a red panda]

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.

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.

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.

[libertarian4321]

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...

[DollarBill]

[dragoncar]

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"

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"

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.

[zephyr911]

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.~!

[Chris@TTL]

Interesting this thread was recently featured on the NYT.

I'd think that most of the display of wealth that doesn't make much sense to us Mustachian/FIRE folks is pretty simply just that it's...
...on display.

In other words, if we're in the process to FI, most of our wealth is not visible. It's in stocks, in bank accounts, in real estate investments elsewhere. Whatever the case may be.

Meanwhile, the Joneses next door don't have that sort of wealth invested. You see all their wealth on display: a bigger house, recent renovations, newer cars, fancier clothes. All that spending does come at a very real cost, though depending on your value of time.

Seeing it in front of your face (rather than buried in an investment account) certainly makes it more apparent. I'd think many of the same neighbors will start wondering about your wealth, even if you're in jeans a few years older and slightly worn, when you're at home on a Tuesday consistently when everyone else is working. Pandemic remote work excluded. :)

Ultimately, we should aim not to compare ourselves of course. Easier said than done, sometimes!

[Bloop Bloop]

I spend about $40k a year in net expenses (after tax adjustments) and I consider my lifestyle to be incredibly lavish.

The median Australian household has about $80k in disposable income of which they spend more than 90%, i.e. $72k.

So it's not just that "everyone seems wealthy". The truth is that everyone does live an extraordinarily wealthy, profligate life because they feel no need to save. After all, if you run out of money, the government bails you out - it applies to banks but it also applies to individuals. Fall into debt? Declare bankruptcy. Don't have a job? Get the dole. Retire without any savings? You get an extremely generous pension.

So I'd argue the "everyone seems wealthy" illusion is not an illusion. When the typical family can spend $70k+ per year, that is true wealth. The fact that people don't recognise this shows the insularity and spoiled nature of most western first class citizens.

[LWYRUP]

I know I've said this before, but where I live (prosperous DC suburb) I feel most people are pretty prudent and are saving at a decent clip, though below mustachian standards.  There are also a lot of people who make a crapload of money here (way more than me), so it makes it easier.  People are also very highly educated, and typically work very hard. 

[SwordGuy]

@georgec ,

I found this website chock full of useful information that might help you answer your question.   Much of the data dates to 2015/2016, but the overall distribution of wealth won't have changed all that much.

https://personalfinancedata.com/networth-percentile-calculator


There are other calculators on the website as well.

You may be quite surprised by how little wealth it takes to be doing better than most families.

[marty998]

Interesting this thread was recently featured on the NYT.

I'd think that most of the display of wealth that doesn't make much sense to us Mustachian/FIRE folks is pretty simply just that it's...
...on display.

In other words, if we're in the process to FI, most of our wealth is not visible. It's in stocks, in bank accounts, in real estate investments elsewhere. Whatever the case may be.

Meanwhile, the Joneses next door don't have that sort of wealth invested. You see all their wealth on display: a bigger house, recent renovations, newer cars, fancier clothes. All that spending does come at a very real cost, though depending on your value of time.

Seeing it in front of your face (rather than buried in an investment account) certainly makes it more apparent. I'd think many of the same neighbors will start wondering about your wealth, even if you're in jeans a few years older and slightly worn, when you're at home on a Tuesday consistently when everyone else is working. Pandemic remote work excluded. :)

Ultimately, we should aim not to compare ourselves of course. Easier said than done, sometimes!

I don't think I have an Influencer Career ahead of me posting pictures of a couple of rental properties I own.

Just not going to get as many clicks as the bikini babe doing a stupid yoga pose on a white sand beach.

[FireDAD]

I spend about $40k a year in net expenses (after tax adjustments) and I consider my lifestyle to be incredibly lavish.

The median Australian household has about $80k in disposable income of which they spend more than 90%, i.e. $72k.

So it's not just that "everyone seems wealthy". The truth is that everyone does live an extraordinarily wealthy, profligate life because they feel no need to save. After all, if you run out of money, the government bails you out - it applies to banks but it also applies to individuals. Fall into debt? Declare bankruptcy. Don't have a job? Get the dole. Retire without any savings? You get an extremely generous pension.

So I'd argue the "everyone seems wealthy" illusion is not an illusion. When the typical family can spend $70k+ per year, that is true wealth. The fact that people don't recognise this shows the insularity and spoiled nature of most western first class citizens.

I am in a similar boat. I spend about $50k a year and I feel like I'm living like a king, just so much excess. I live in a VHCOL area though. I recently went back to my hometown which is mostly impoverished area of the Midwest USA and the differences were striking. In that environment I felt my lifestyle was excessive and no one was pretending to be rich like they do here.

[GreenToTheCore]

...
most of our wealth is not visible. It's in stocks, in bank accounts, in real estate investments elsewhere.
...
You see all their wealth on display: a bigger house, recent renovations, newer cars, fancier clothes.

I feel like these are two different versions of "wealth".
It reminds me of something I read on our forum a while ago: Do you want to have a million dollars or spend a million dollars?

[EngineerOurFI]

I feel like there are a few factors:

• Yes, some people just are borrowing from their future to fuel today.  $70,000 cars on $70,000 salaries and replacing the cars every 2 years. In debt up to their eyeballs and if they don't get a raise or a bonus or some overtime this quarter they won't be able to get the credit cards to a number they can cash flow to maintain their perpetual balances.
• Others are maybe not as bad off as you think because sure they enjoy their cars, but they eat at home and don't vacation and do all of their own home repairs - it can be a matter of trade-offs.  For close friends you may have a better picture of all of their trade-offs, but for many folks you only casually know they might advertise fancy vacations and yet you won't see that they do their own car maintenance, home repairs, clean their own home (no maids), do their own pest control and lawn service, etc.
• Some people have a lot of family support.  This may be monetary in terms of $$ for down payment on house, no student loans, tons of support to move/start first job out of college, living at home for first 1-2 years after college, staying on parent's cell phone/netflix/health insturance plans, etc.......or it may be non-monetary such as free daycare for kids age 0-5.
• Most people simply *are not saving*.  If you look at average 401k balances, that shit is depressing.  Most people *might* contribute to 401k just to get the match and that's it.  If they lose their job they immediately pull from 401k due to no savings.
• Imagine what luxurious life you would lead if you didnt save an extra 10% per year, you had $15k in free childcare, and/or no student loans.

[Bloop Bloop]

I feel like there are a few factors:

• Yes, some people just are borrowing from their future to fuel today.  $70,000 cars on $70,000 salaries and replacing the cars every 2 years. In debt up to their eyeballs and if they don't get a raise or a bonus or some overtime this quarter they won't be able to get the credit cards to a number they can cash flow to maintain their perpetual balances.
• Others are maybe not as bad off as you think because sure they enjoy their cars, but they eat at home and don't vacation and do all of their own home repairs - it can be a matter of trade-offs.  For close friends you may have a better picture of all of their trade-offs, but for many folks you only casually know they might advertise fancy vacations and yet you won't see that they do their own car maintenance, home repairs, clean their own home (no maids), do their own pest control and lawn service, etc.
• Some people have a lot of family support.  This may be monetary in terms of $$ for down payment on house, no student loans, tons of support to move/start first job out of college, living at home for first 1-2 years after college, staying on parent's cell phone/netflix/health insturance plans, etc.......or it may be non-monetary such as free daycare for kids age 0-5.
• Most people simply *are not saving*.  If you look at average 401k balances, that shit is depressing.  Most people *might* contribute to 401k just to get the match and that's it.  If they lose their job they immediately pull from 401k due to no savings.
• Imagine what luxurious life you would lead if you didnt save an extra 10% per year, you had $15k in free childcare, and/or no student loans.

You left off a significant one, which is that quite a few people are just rich, by most people's measures, and can afford nice things and still save a reasonable proportion of their savings.

Even if only 1 in 8 or 1 in 10 households are like this, our selectivity bias can easily make us think this is "everyone", particularly when augmented by some households in those categories you mentioned who are social climbing.

[Laura33]

I feel like there are a few factors:

• Yes, some people just are borrowing from their future to fuel today.  $70,000 cars on $70,000 salaries and replacing the cars every 2 years. In debt up to their eyeballs and if they don't get a raise or a bonus or some overtime this quarter they won't be able to get the credit cards to a number they can cash flow to maintain their perpetual balances.
• Others are maybe not as bad off as you think because sure they enjoy their cars, but they eat at home and don't vacation and do all of their own home repairs - it can be a matter of trade-offs.  For close friends you may have a better picture of all of their trade-offs, but for many folks you only casually know they might advertise fancy vacations and yet you won't see that they do their own car maintenance, home repairs, clean their own home (no maids), do their own pest control and lawn service, etc.
• Some people have a lot of family support.  This may be monetary in terms of $$ for down payment on house, no student loans, tons of support to move/start first job out of college, living at home for first 1-2 years after college, staying on parent's cell phone/netflix/health insturance plans, etc.......or it may be non-monetary such as free daycare for kids age 0-5.
• Most people simply *are not saving*.  If you look at average 401k balances, that shit is depressing.  Most people *might* contribute to 401k just to get the match and that's it.  If they lose their job they immediately pull from 401k due to no savings.
• Imagine what luxurious life you would lead if you didnt save an extra 10% per year, you had $15k in free childcare, and/or no student loans.

You left off a significant one, which is that quite a few people are just rich, by most people's measures, and can afford nice things and still save a reasonable proportion of their savings.

Even if only 1 in 8 or 1 in 10 households are like this, our selectivity bias can easily make us think this is "everyone", particularly when augmented by some households in those categories you mentioned who are social climbing.

I would also add to this our self-segregation into our own economic spheres.  Even being in the US puts me in a relative wealth bubble compared to the rest of the world.  I work a nice, professional job, which means every day at work, I am surrounded by a bunch of UMC professionals and well-paid support staff.  At home, I live in a "nice" neighborhood with fellow UMC professionals, because of course we all want good schools for our kids and good commutes.  So every day, I am surrounded by people who are just like me.  That means that if I am in the top 5% of wealth in the US, I am surrounded by other people who are also in the, say, top 2-15%.  So I feel average.  Heck, maybe I even feel below average, because I stretched myself financially to buy a house I could barely afford to get into the "best" school district and make sure my kids had the "right" friends and all that; if you're in the top 5%, but every day you're surrounded by people in the top 1%, then yeah, you're going to feel poor, even though the reality is that you are one of the richest people on earth. 

If you want to feel less poor, get out of your wealth bubble.  Start noticing all of the invisible people you interact with but don't pay attention to because they're not driving shiny new cars or being profiled in the NY Times.  Spend time physically in other areas outside your own neighborhood or country.  Live somewhere where you're not surrounded by all the ShinyPrettyFancy things -- because, yeah, those are tempting, and when you're around them all the time, they start to feel like a totally normal expectation rather than the super-expensive privilege they are.

Best decision I ever made for my own mental health was to choose to live in a neighborhood where the median income is well below ours -- where we share the similar consumption levels, even though our income is much higher.  We didn't look for the "best" school -- those rankings are entirely correlated with socioeconomic status anyway -- but rather looked for the school that had good scores and results despite having a much more mixed student body.  I don't spend one second looking around and wondering how the guy down the street can afford to take his 4th vacation of the year or buy his third Audi in six years, because people here just don't live like that.

[Bloop Bloop]

I think Laura33 makes some good points. Another way to "reset" your frame of mind when thinking about wealth is to remember that most important things in life (health, contentedness, love) are free. Many of them even have an inverse correlation with money.

For example, here in Australia many parents send their children to private schools which cost $30k per year per child. As far as I can tell all they ever do is teach children how to be snobs and how to be spoon-fed. If your children are smart they can get into an elite school for free and if they are not smart, well tuition is a lot cheaper than a private school.

Likewise I don't see the point of living in an upscale suburb with houses that cost $2m-$3m (which is the trendy thing to do here in Melbourne) because it just leads to social isolation. Yes, there are fantastic services but even our average suburbs here can have great services and amenities and parks.

So now instead of thinking "geez how can they afford $30k per child per year to go to an elite school" I think "gee I'm glad I'm not wasting $30k a year on alcohol/cigarettes/private schools".

[Schaefer Light]

Best decision I ever made for my own mental health was to choose to live in a neighborhood where the median income is well below ours -- where we share the similar consumption levels, even though our income is much higher.

That makes perfect sense to me.  I felt a lot better about my lifestyle choices when I lived in a cheaper zip code.  Now that I live in a place where houses start at $500k and there's a Tesla in every other driveway, I feel poor (even though I know I have much more in savings than the average American).

[ender]

If you read case studies here regularly you start to see how easy it is to go from $50k to $100k in spending. Or vice versa, though it's harder to go down. Even the outward appearance might look pretty similar.

You could even buy brand new cars every 5-10 years and spend 2x or 3x as much as another family doing the same. We bought a brand new car 4 years ago for $16.5k. Because we bought the basic model. Another family could easily have spent 2x that on the same car at a much higher trim level.

Many expenses are similar. Food costs - just read through case studies. People routinely are spending $1k+ a month on food and most of us here spend way less but make full home cooked meals.

The list goes on.

And that's not even accounting for people like @Laura33 who choose to live in an area predominately inhabited by folks who have different incomes, where you don't even "have to" keep up at all with neighbors in any sense.

Those of us regulars are more in tune with our spending/saving habits and have already micro-optimized much of them.