We all have that friend. That one who clogs up our Facebook feed with constant reminders about how luxurious their life is. If is isn't their million dollar home or their new Land Rover, it's their latest exotic vacation-which seems to happen every other week.
Keeping up with the Joneses is nothing new. But thanks to social media, our friends' lifestyles can be hard to ignore. The need to show off, the desire to have what others have, and the ease at which we can obtain credit, all contributes to the pressure we feel to keep up. It's a pressure felt globally, regardless of income bracket. Have you ever noticed how many celebrities have declared bankruptcy?
Regardless of what image we are trying to craft to our friends, if we are spending more than we are making, or we aren't saving, then we aren't keeping up with anyone. The good news is that there are logical explanations why your friends appear to have more than you. Here are five possible reasons:
Reason #1: They are living beyond their means
Sure you could take that vacation. Or, you could hire an extra nanny. Or, you can finally get that Harley Davidson you've always wanted. But is splurging on these items in your best financial interest? A lot of people max out their credit cards and lines of credit all for the opportunity to live large. Unfortunately (or fortunately) credit isn't hard to get. For many of us, it can help with large purchases like a house or car. Where we often get in trouble is when we lose track of our spending. If you can't pay your credit card balance off each month, then chances are you are living beyond your means.
So, what are some of the implications of over-using (or abusing) credit? Well, if you have large credit balances you may have difficulty qualifying for additional borrowing when you need it, whether it be a mortgage for a first home purchase or a refinance for renovations. Even if you do qualify to borrow more the interest rate you pay may be higher if you have been carrying large balances or have had any late payments. Over time, these higher interest costs add up. Also, if you have a bad credit history you may have difficulty leasing a car or renting a home as these often require a good credit history.
Reason #2: They are relying on a points system
Whether it's Air Miles, Starbucks, or a travel reward system on a credit card, there are more ways than ever to benefit from spending. Sometimes the perks can look so appealing that it's almost hard to remember that these points systems were set up to benefit the company - not the consumer. Having said that, some points systems are still a good deal. Especially if you plan to shop at a particular store anyway. For example, Shoppers Drug Mart's Optimum program may not benefit the occasional user, but if it's your sole choice for toilet paper, cat food, and lipstick, then you are likely to come out ahead. For travellers especially, there are no shortage of rewards programs. Some allow consumers to accumulate points to redeem for specific travel costs, while others offer upgrades to first class airline seats and hotel rooms. There are also plenty of cards that give consumers a percentage back on purchases.
Reason #3: They have generous parents
If you are wondering why your latest escape to Hawaii had as many grandparents as children on your flight, you're not imagining things. This is the era of multi-generational vacations; where the elders foot the bill, and everyone else benefits. And it's not just vacations that parents are helping with. It's also home buying. According to a study by Yconic, 32% of millennial home owners got help with the down payment from their parents. And among those who don't yet own a home, almost a quarter expect their parents to contribute to the down payment when the time comes.
Reason #4. They are renting
We often think homeowners must be wealthier than home renters. Or, we assume that people renting must be poor, or foolishly throwing their money away. However, this isn't always the case. With the rise of condo fees, costly repairs, poor interest rates, and escalating home prices, it's easy to see why those who rent have more money left over month-to-month. In some scenarios, you can build more wealth through investing the extra money you save each month compared to owning a home.
Reason #5: They saved
So maybe there are a few Joneses. Ones that did the right things, invested their money wisely, and can actually afford the toys they buy.
Building wealth isn't a complicated process, but it also isn't easy. They probably paid themselves first and saved money on a regular basis. They probably spent less than they earned, and made a few sacrifices along the way. Rinse. Repeat.
They probably had some help picking the right investments for their hard earned savings and did alright in the markets. And now, they can probably afford the lifestyle you see through the online window to their lives.
That doesn't mean you can't envy their success. Thankfully Facebook has an unfollow button, but as you click the button take these lessons to heart, and maybe you can join them as the envy of all their friends.
Tea Nicola is the Co-Founder and Chief Executive Officer of WealthBar, Canada's only full-service online financial advisor offering diversified portfolios of low-cost ETFs, insurance and financial advice. Passionate about personal finance, Tea is looking to change the way Canadians save by making investing smarter, more transparent, and at more than half the cost of traditional advisors.
Follow Tea Nicola on Twitter: www.twitter.com/WealthBar