Why you don’t want to keep up with the Joneses

Even though it's tempting, trying to keep up with the Joneses is a recipe for financial disaster. Do this instead …

This is a guest post by “ESI” of ESIMoney.com.  Earn, save, and invest! 

You've likely heard the phrase “keeping up with the Joneses” (they were the ones we all emulated before the Kardashians came along and we decided we needed to keep up with them). 🙂

Just in case you haven't heard of the saying, I'll provide a couple definitions. Here's the first from Google:

Trying to emulate or not be outdone by one's neighbors.

And now one from the Cambridge Dictionary:

To always want to own the same expensive objects and do the same things as your friends or neighbors, because you are worried about seeming less important socially than they are.

However you define it, the idea of keeping up with the Joneses is that you spend as much as your neighbor so you appear to be at least as prosperous as he is. And it's a very bad idea.

Why is that? There are many reasons, but the big one is because the Joneses are a financial mess.

Financial Life of the Joneses

What sort of financial messes are the Joneses in? Well, quite a few. Assuming that the Joneses resemble the average American, here are the sort of people we're all supposed to want to keep up with…

The Joneses are terrible at saving:

In a 2015 survey, GOBankingRates.com found that 62 percent of respondents have less than $1,000 in a savings account. In fact, 28 percent said they have $0 saved. We recently asked the question again in a survey of more than 7,000 adults to find out how much Americans had in savings accounts in every state. The results aren't very encouraging. In most states, 30 percent or more of residents have no money in their savings accounts. And, more than 60 percent of residents in every state but six have less than $1,000 set aside.

The Joneses have too much debt:

Families haven't owed this much since the Great Recession. The Federal Reserve has found that high income families who carry a [credit card] balance owe more: $8,300 a year, on average. That's almost $1,500 in yearly debt costs.

The Joneses can't manage their money:

3 in 10 have a long-term savings plan. 2 in 3 adults don't have a budget. 33% don't pay their bills on time.

The Joneses have little saved for retirement:

The median retirement account balance for people 55-64 (who have retirement accounts) is $104,000. That might sound like a lot of money, but it could be gone in just a few years. What about those folks without retirement accounts? Their median balance is just $14,500. That’s up from $12,000 in the previous report, but it’s not even close to being enough for one year of retirement. If you have only $14,500 saved up at 65, then you are going to be in for a very long frugal retirement. Those households will be dependent on Social Security benefits and other public programs. One little emergency can screw up their finance and push them over the brink.

The Joneses buy homes they can't afford that lock them into a whole host of wealth-reducing expenses:

The reason why so many homeowners today are having a difficult time making ends meet goes way beyond mortgage payments. When you trade up to a more expensive home, there is pressure for you to spend more on every conceivable product and service. Nothing has a greater impact on your wealth and your consumption than your choice of house and neighborhood. If you live in a pricey home in an exclusive community, you will spend more than you should and your ability to save and build wealth will be compromised.

As a result of these poor money choices, the Joneses will accumulate little wealth:

The typical American heading toward retirement may be in for an unwelcome surprise given that these numbers aren’t likely to provide enough income during retirement. Social Security is only supposed to provide a safety net in terms of retirement income, yet a large proportion of retirees rely on it as the major source of their income. They do so in large part because their savings and investment accounts are insufficient to support their monthly living expenses.

Generally, the rule of thumb is that retirees should plan on tapping retirement saving to the tune of 4% annually. However, following that advice means that if you’re retiring with a $100,000 retirement nest egg, you’ll only be taking out $4,000 per year. If you combine that income with Social Security income — the average retiree receives $1,333 per month — then you’re talking about less than $20,000 per year in income. That’s unlikely to be enough to live on.

And they will likely struggle financially most of their lives:

According to the Social Security Administration, if you take any 100 people at the start of their working careers and follow them for the next 40 years until they reach retirement age, here's what you'll find:

• Only one will be wealthy
• 4 will be financially secure
• 5 will continue working, not because they want to but because they have to
• 36 will be dead
• 54 will be broke and dependent on friends, family, relatives, and the government to take care of them

So, anyone now want to be like the Joneses? I thought not.

Don't keep up with the Joneses — be the Smiths

Instead, let's be the black sheep of the Jones family. Better yet, let's be the arch-enemy of the Jones clan, known throughout time as the Smiths. 🙂

If you're reading this blog, it's likely you know the Smiths. You may even be a Smith.

The Smiths are the ones who develop a good income, spend less than they earn, and invest for the future.

They don't care about what the neighbors are driving, where they take vacations, or what latest electronics their kids own.

They have low debt, high savings, and an ever-growing net worth.

They are the Millionaires Next Door. Quiet. Unassuming. And becoming a bit wealthier every day until they are eventually financially independent.

So the next time you hear the phrase “keeping up with the Joneses”, feel free to offer your dissent. Tell the person using it that you don't want to be associated with the Joneses but instead are working to be a Smith.

That will likely raise some eyebrows and give you a nice chuckle.