Keeping Up with the Joneses

As an advisor, I still question whether some of my clients have learned from the economic turmoil of the past several years. I am amazed at the financial decisions some are still perpetrating today. Tell me if you still see scenes like this: A neighbor down the street just purchased an expensive foreign sedan. A few days later you see a major appliance delivery truck unloading the latest HD television to the same family. You find out later that no one won the lottery, received a raise or promotion or was left a significant inheritance.  

How do you respond? Do you wonder how they’re going to pay for all that debt? Do you feel like you are missing out on something or like you’ve failed in life because you don’t possess the same materialistic things?

I will bet that if truth be told that family is barely making it. So why do they do it? Some people need expensive items to feel good about themselves. Others need to show off and fulfill a psychological need to be seen as better off then they really are despite the costs. Their attitude is that they want it now and will think about paying for it sometime in the future. 

Are any of your clients guilty of trying to keep up with the Joneses? If you answered “yes” to that question, there are solutions. Moreover, we have a responsibility to help our clients be disciplined enough to avoid getting caught in the trap of materialism, or to get them out of the trap if they’re already in it. Here are some things to do now that will help your clients stop trying to keep up with the Joneses — and hopefully, eventually, will help them become the Joneses.

1. Pay off credit cards.   
   We live in a disposable society and we want instant gratification. We see it now, we want it now and so we put it on a credit card. Encourage your clients to ask themselves this question: “If I can afford to purchase something and I have the cash to buy it, why wouldn’t I pay in cash?” Why would anyone use a credit card instead, when they are going to be charged interest? By using cash, you avoid possible interest payments, as well as the habit of using plastic. Pay off your credit card with the highest interest rate first, then proceed to the next highest until you are debt-free. Most people only need to keep two major credit cards at their disposal. The rest can be cut up.
2. Push to save and invest more. 
   Given the grim economic outlook, spending money on status symbols for the sake of showing off should be a thing of the past. If you have clients that drive a Hummer, but have nothing in their retirement accounts, encourage them to re-evaluate their priorities. A good rule of thumb is to have at least six to 12 months of income saved in an emergency savings account. Encourage clients to pay themselves first by saving at least 5 to ten percent of their monthly income. Remind them that if they spend more than what they earn, no matter what expensive possessions they have, their net worth is more than likely zero. It is not how much you make, but how much you save that counts.
3. Cut down your spending. 
   Many people are surprised by how much money they can save by monitoring their spending. Investigate how and where your clients are spending money. Do they really need all three hundred channels on the Dish Network? Is it necessary to purchase HDTV for more viewing clarity? Do they have to stop at Starbucks for a $5 morning coffee? Is it possible to cook at home a bit more than dining out? While your clients are thinking of ways to save, they should consider contacting their credit card company to see if a lower interest rate can be negotiated. Also, encourage them to take sometime to write a daily budget and monitor their activities. You’ll be able to see where, with a little discipline, they can save even more money. 

In today’s world, success is too often measured by what kind of car you drive. Remind your clients that the true measure of success is the size of their bank account and their overall net worth. More often than not, many people fail miserably because they fail to save and invest. More people than ever before have declared bankruptcy, are living paycheck to paycheck or are retiring with barely enough income to live comfortably. So, instead of trying to prove to people that you’ve got it going on, try paying off all of your credit card debt, increasing your savings and investments and cutting down your monthly expenses on material things. Soon enough, people may just be trying to keep up with you.