The Illusion of Wealth
Today I want to talk about what I like to call The Illusion of Wealth, and why you should not compare yourself too harshly against the luxurious lifestyles other people appear to be enjoying.
In Canada, a recent survey revealed that 30% of our population admitted to being $400 away from financial ruin. Meaning, if they needed to scrape up $400 today for an emergency – NOT on credit cards – they wouldn’t be able to.
You might fall into that category, and maybe developing new, safer financial habits is one of the reasons you’re here on the Pennywise Playbook. People can get into financial trouble for all kinds of reasons through no fault of their own. Shit happens to good people. You get fired or laid off. You get sick or your roof is leaking and needs to be replaced today. So you turn to credit cards to cover it, you can’t afford to pay off the balance, and the interest builds and builds.
Credit cards have their place in our financial strategies, of course. You can actually come out ahead if you’re clever with cash back or points credit cards. But every financial guru worth his or her salt will tell you that living off plastic with fake money you don’t actually have is ruining your financial potential. DON’T DO IT.
I believe strongly in acknowledging your own value and making the kind of money you deserve with your skills, experience, and education. But that said, if you aren’t making Mad Cash that you can throw around I also believe in living beneath your means.
Yes, you read that right.
We talk about living within our means a lot when it comes to budgeting, but I always like to make sure I am saving for a rainy day (illness, furnace breakdown, unexpected job loss), retirement, travel, and large household purchases/projects. I do not count those savings in my consideration of how much money I have to spend. I pay myself first and then I work with what’s leftover and live within those means. It’s some of the best advice I ever received (thanks Mum and Dad!). Frankly, I just sleep better at night knowing I’m not living from paycheck to paycheck with no safety net. Or worse, living off plastic and only paying the minimum payments. That’s a treadmill you won’t easily be able to dismount.
One of the most important adulting lessons I learned in my 20s was understanding the difference between wants and needs. Acknowledging and living by that distinction is key to personal financial success AND mindful contentment. Because for many of us, it’s in our nature to want more than what we have. We want what the other girl has. Even though if you look closely enough, you’ll probably find that what the other girl has was financed on credit and her illusion of wealth and success is just smoke and mirrors and expensive lipstick.
That’s one thing I’ve realized so clearly in the past couple of years: it’s a dangerous phenomenon, but the rise of credit card use has blurred the line between wealth and poverty and has created a whole whack of problems in the process.
You used to be able to tell the rich people from the poor people because the rich people wore better clothes, had more expensive purses, drove nicer cars and had bigger, more luxurious houses. The poor people didn’t have any of those things because they didn’t have the money. And by that I mean the literal cash in hand.
Household debt is at all-time highs in North America. Low mortgage interest rates have meant people are buying homes they won’t be able to afford if the interest rates rise even a little bit. They lease expensive cars in the same way. So they look rich but aren’t. And they’re taking on massive mortgages, buying expensive cars and clothes and financing weddings and vacations on credit cards to compete with the other people who look rich. And everyone’s in debt up to their eyeballs. Because we all want what the other girl’s got.
What is wrong with this picture?
I am by no means holding myself up as some pinnacle of financial savvy, but I must say that I am proud of myself for living beneath my means. My fiance and I bought a house we could afford in a less desirable end of town. It has a stigma because the neighbourhoods around us are patchy – some gorgeous pockets and some not-so-nice areas. But we got a great, solid bungalow on a huge lot with lots of trees on a quiet street – for $50-75k less than we would have paid for the same size house on the same size lot on the other side of town.
I did feel a twinge of embarrassment at first when people would ask where we bought our house. I’d say the name of the neighbourhood and people would go “Oh. Congratulations.” Not “Ooooh, that’s nice!” But guess what? I’m going to have my mortgage paid off way faster.
But I digress.
Point being, I know a friend of a friend who just bought a big house she definitely can’t afford on the other side of town. I know for a fact she still has tens of thousands of dollars in student loan and consumer credit card debt, and put the bare minimum down on her mortgage. Her family has two cars and they buy expensive clothes, eat out at restaurants weekly and take sunny vacations every year. So she looks richer than me. “Better off.” But let me tell you right now: she’s not.
And that’s what I mean by credit blurring the definition of wealth. Credit creates an illusion of wealth. Saving and living beneath your means creates real wealth.
So before you get down on yourself for not looking like you have as much as the other girl, step back for a moment and consider whether that’s actually true.
Food for thought, my Pennywise friends!