Just take a look around…
You see your neighbor John Smith down the street just got a brand new Audi S6. He has a 4,000 sq. ft house, his wife doesn’t work, and he has three children in prestigious colleges. You’re not super close with John, but you occasionally talk to him when you see him walking in the neighborhood. You know John apparently works in sales for some tech company, but you’re not exactly sure what he does or how much money he makes. You look at his lifestyle and say to yourself, “Wow, that guy looks like he makes a lot of money and lives a pretty good life.” But, then you ask yourself “Does he really though?”
Welcome to the United States of America. Take a look around. Most people are in debt especially the middle class. The cars, the houses, the toys. The majority of people don’t own all of these things I just mentioned. If the primary bread winner of a household were to lose his or her job tomorrow, some of these things might be taken away. Most people either lease or buy a car with a loan. Now, remember a car “IS NOT AN ASSET.” The only time a car is an asset is if you have a very rare collectible car that has increased in value over the years and there were very few made. But, in reality the majority of cars are liabilities. What exactly do I mean by that? Well, when you go to sell your car, it will go down in value, not appreciate. A car is an expense and gets us from point A to point B. Now, let’s take a look at your home.
When someone goes and buys a home they’re going to put a down payment on a house. Most of the time this could be anywhere from 3% to 20%. Now depending on who you’re, income levels, veteran, etc it can vary. A person will usually take out a 15 year mortgage to a 30 year mortgage. Every month you pay more towards that mortgage and are building equity in your home. Great! Now, you don’t fully own your home until your mortgage is paid off, which for most people will take 30 years (typically). Now, if you stopped paying your mortgage and did not make your payments, the process of foreclosure will begin. Back to my main point, you don’t ever really own your home until the mortgage is fully paid off.
Now, why did I mention all of this above. Well, when I was growing up I saw many families around me in these big homes with fancy cars and thought they had it all. I’ve realized over the years that a lot of these people couldn’t even really afford any of the material items they appeared to have in their life. Now, there are those people that really can and are high level income earners. Great! But, majority of America is living in debt.
Growing up my dad always talked about debt and how there is good debt and bad debt. Bad debt is personal credit card debt, high car loan payments, etc. Good debt is real estate debt, and using leverage with it (example). Okay, I understood what he was talking about (kind of). My parents taught me the value of saving and investing my money into assets at a young age. Liabilities aren’t going to grow my net worth. I realized the nice car could wait. It’s only a luxury and at the end of the day doesn’t really make me happy. I’m sure many of you read the book, “The Millionaire Next Door.” It’s a book about your so called neighbor who’s a millionaire, but you would never guess he or she is. Now, at the age of 25, I’ve talked and met a lot of people thus far in my life. I know a personal family friend who owns thousands of shares of Apple stock which was bought back in the day when Apple first went public. This person who’s name I cannot say still lives in the house he grew up in which is fully paid off and buys old Mercedes cars because he really likes them. Wears and buys cheap clothes and personal items. You would look at this guy, and never guess he’s a multi-millionaire. But, he has no debt and is very happy with his life and spends money on the things that make him happy. He avoids keeping up with the Joneses.
I think in America a lot of society is caught up with keeping up with the Joneses and comparing themselves to what people are buying around them. That’s one of the worst things you can do and is a serious trap that could really hinder people. I want the new this, the new that. I want the new BMW 5 series so people think I have money, when I know deep down I really can’t afford the car. All it is is a material item that you think will make you happy and impress the people around you that you really don’t even care about. Now, don’t get me wrong I think it’s great to have nice things, and I’m not trying to preach it’s bad to have a nice car. But, don’t buy nice things just with the intention on impressing people or thinking you’re better than someone else because you have designer clothes and a luxury car. All it will get you is into an insecurity trap. I’m not someone here writing on how to live your life or telling you what you should or shouldn’t buy, but take a look around and realize most people don’t actually own the things in their life. Remember to spend money on the things in life that really bring you ultimate fulfillment and happiness!