Now, I’m not going to lie: I HATE LOSING. Just ask my girlfriend. She let’s me win at least 90% of the time just because she knows how much I hate losing. The other 10% she stomps on me in a failed attempt to keep my ego in check. However, the Joneses are someone that you have to let win. Because if you’re competing against the Joneses and winning, you’re really losing. We’ve all heard the phrase “keeping up with the Joneses”, but most of us probably don’t understand just how much of an impact this rat-race still plays in our lives.
I strongly believe that no matter how frugal you are, you still care what others think. I remember in high school there were those “goth” kids who wore black clothes and black eyeliner, and “didn’t care what other people thought of them.” They rejected the mainstream standards of appearance, yet they still had their own appearance standards and judged each other. They still spent money buying nice black clothes, wearing chains, getting piercings, and buying that eyeliner. If you truly did not care what others thought you would buy all of your clothes used and fill your home with non-matching furniture.
No matter how strongly I feel that purchasing luxury cars is a waste of money, that doesn’t mean that I don’t envy the guy driving one down the highway. I know that roughly 80% of luxury cars are purchase by non-millionaires, but that doesn’t make me want one any less. The key is controlling the urge to compete with Mr. Jones and his nice car. If you haven’t seen the movie The Joneses (pictured above), you should check it out. It’s a fun play on the Joneses concept, but it also makes you think about the materiality of our lives.
Though I am young and have plenty of time “to figure things out”, I am hoping to establish the goals and routines of successful people while I have the most time to benefit from them. One of the ways that I personally can help to keep the Joneses from winning is to calculate my “real working wage”, as laid out in Your Money or Your Life. To do this, you need to look at what your job is really paying you for your life. Think of the time and monetary expenses related to your work. Do you commute to work? Add those hours to the hours related to your job. Do you eat out more? Do you put on weight, which will eventually lead to health problems, because you’re too busy? Do you have to treat yourself with vacations or shopping-sprees to get through the week? All of these are costs that you likely wouldn’t have if you weren’t working in the rat race.
The other tool that is important when fighting off the Joneses is knowledge of compounding interest. Knowledge of your real working wage and the possible investment returns on your money are a double whammy for fighting off The Joneses.
To show you an example of how this works, let’s think about purchasing a new car. Let’s say the monthly payment on this car is $500. For someone who is earning $50k per year, this car might be costing you 40 hours of your life each month. Not only is it costing you 40 hours per month now, but it’s costing you three years in the future. If I instead invested this $500/mo for 5 years and earned just 8% of my investments I would have over $500,000 at age 65. Now, it’s hard to tell that far out, but I would estimate that this would allow you to retire at least three years earlier than if you decided to purchase the new car.
When you think of how you’re trading away your working hours today and how you’re delaying your financial freedom in the future, it’s hard to frivolously waste money. Now, I am not advocating that you stop spending money or don’t enjoy life. I would never advocate that at all. I spend money to go to the movies, take vacations, and watch hockey games. However, every purchase, particularly big purchases, should be evaluated using a similar thought process to ensure that your spending aligns with your goals.