Your financial health is greatly influenced by your decisions. If you make the wrong choices, you might end up with a less than stellar financial position. But if you know how to make the right decisions about your money, you can guarantee that it will be healthy and strong regardless of the economic situation that you will be encounter.
Paying attention to your financial situation is not far from maintaining a healthy physical body. If you want to keep your body in good shape, you have to be careful of your lifestyle choices. You have to watch what you eat. Food and drinks that are rich in vitamins and minerals You also have to make time for some exercise. It is also very important to get enough sleep to help you body recuperate after a stressful day.
When you have a healthy body, your immune system will be strong. Even if you are surrounded by people who are sick, your healthy body can fight off the viruses and bad bacteria. You do not have to worry about getting sick yourself.
The same is true for your finances. If you take care of your financial health, it can weather any economic event. Although you will still have a hard time, you have a better chance at surviving it compared to those with a fragile financial situation.
Of course, that brings us to another challenge: how can you keep your finances healthy?
Just like your physical health, the key is in your lifestyle. This time, it is all about the cost of living that you are trying to support. If there is one thing that you need to be mindful of, it is the lifestyle upgrades that you will subject yourself into.
According to the article published on CBSLocal.com, Millennial Millionaires are getting the reputation of being quite insecure. Apparently, they are the generation that is most likely to practice the phenomenon of “Keeping Up with the Joneses.” A survey from the UBS Investor Watch revealed that almost half of millennials feel pressured to keep up with the lifestyle upgrades of their peers. This is understandable because this generation is perceived to be quite competitive. This can be both good or bad. On a positive note, it fuels their drive to succeed financially. On a negative note, it makes them susceptible to making unnecessary lifestyle upgrades.
How “Keeping Up With The Joneses” can harm your finances
Let us get one thing clear. Getting a lifestyle upgrade is not really bad. It is actually a good thing. If you can afford it, that means your financial health is quite strong. However, a lifestyle upgrade becomes dangerous depending on the reason why you are getting one. If you are doing it to try and keep up with your peers, then it could compromise your financial future.
According to a study published on FederalReserve.gov, the rising income of the high-income levels fuels the frequency of borrowing in the middle and low-income levels. The paper that was published explored the idea of “keeping up with the Joneses” as the reason for this behavior. As the high-income levels increased their finances, those in the lower levels tried to keep up by upgrading their lifestyles – even if their own income did not increase as fast. The paper revealed that their analysis shows a relationship between debt payments and the rising incomes of the top percentile.
If this relationship is true and the phenomenon of “keeping up with the Joneses” is proven, then a lot of consumers are in deep trouble. They may be compromising their financial health.
Okay. So your neighbor bought a vacation home. That is great. Does that mean you should do the same? It might feel like it but that is not necessarily what you should do. If you want to upgrade your lifestyle for the sole reason that your neighbor just did it, that can be a recipe for disaster. This is an indication that your financial judgment is flawed.
The bottom line is, an unnecessary lifestyle upgrade may be something that they can afford while you cannot. Do not be quick to assume that you can follow what your colleagues or neighbors are doing because of these 4 reasons.
You are not necessarily earning the same money.
First of all, your income may be different. They may be earning more than you. They may be getting some windfall money that allowed them to afford that upgrade. Or they may have gotten a salary increase – you never know.
You do not have the same financial position.
Let us assume that you know for a fact that you earn the same amount each month, that does not necessary mean you have the same financial health. They may have more retirement funds or investments. If they have the extra money or emergency fund stashed somewhere, that is something that you should consider. That makes them more financially able to afford the lifestyle upgrade than you.
You have different financial requirements.
Even if you have the same income or level of savings, there is another reason why you should not “keep up with the Joneses,” your expenses may be different. You may have more medical or child care expenses than your neighbors or colleagues. The different financial needs mean you should not assume you can live the same lifestyle as what they have.
You have different financial goals.
Finally, if your income, savings level, and expenses are the same, you should consider this last reason to not get a lifestyle upgrade just because everyone around is doing it. You also have to consider your financial goals. Do you have plans to travel in the near future? That means you should put more extra money into your travel fund rather than get an upgrade to make you look good around your peer.
If any one of these are true, it is evident that the lifestyle upgrade is something that you cannot afford. At least, not at the moment. If you cannot afford it, the only way that you can proceed with the lifestyle upgrade is if you borrow money. Unnecessary upgrades that are financed by debt is really something that can ruin your financial health. This is the main reason why keeping up with the Joneses can harm your finances. If you are too concerned with appearances, you will be too wrapped up in that idea that you will not think about your financial situation. You will be focused on keeping up that you will not mind if you fall into debt because of it.
Smart ways to upgrade your lifestyle without breaking your finances
Of course, you should not assume that a lifestyle upgrade is bad or should never happen. You deserve some reward after all the hard work that you are doing. But you need to make sure that your lifestyle upgrade will not harm your financial health.
Here are some tips that you can follow.
Know the true definition of a lifestyle upgrade.
There is an interesting article published on FabulouslyBroke.com that defined a lifestyle upgrade. One is when you can make do with the cheaper option but you have chosen to spend more. The other is when you have made a decision to buy the expensive option because you know it will save you more money. The first one is all about your comfort and the other is all about practicality. Both of them makes sense – but you need to consider what is your priority. A lifestyle upgrade that will make you feel good should not involve debt. So think about how you will define the upgrade before you proceed with it.
Focus on quality over quantity.
Another way to make a smart choice about a lifestyle upgrade so it will not harm your financial health is to choose quality over quantity. You may have a lot of stuff but if none of them are really important, that will just be a waste of your money – even if they did not cost you a lot. It is better to own fewer possessions that are more costly as long as every piece is important and well-used.
Have a firm grasp of your future.
Lastly, you should always keep in mind your future financial stability before you decide on pursuing a lifestyle upgrade. You may be feeling comfortable right now but what about your future? Will you feel the same after a few years time? Will your upgrade be worth it in the end?
“Keeping up with the Joneses” can be hazardous to your financial health if you know that it will compromise your future and your goals. It is okay to reward yourself as long as you make sure it will not lead to financial problems and will not jeopardize the goals that you have set for yourself.