The Joneses Live an Awesome Life:
The Joneses drive a fancy car and live in a big house. They belong to their local country club and take a couple expensive vacations every year. They go to most of the local concerts and sporting events. They go on many three-day weekend adventures. They shop most weekends and sign their kids up for a lot of expensive and time-consuming activities.
The Joneses seem like they live THE LIFE – how fun! However, the Joneses are broke. They live paycheck to paycheck and can barely pay their bills. Their credit card debt continues to climb and they’re house poor and car poor. Their net worth continues to go down when it should be going up. They often fight about money and time. They’re miserable! So why are you trying to keep up the Joneses?
It’s similar to the social media phenomenon. You’re only going to see the good things about people’s lives. They’re not going to share the big fight they had with their spouse about money. They’re not going to share that they paid for their expensive vacation with a credit card. What you see on social media is only a small part of a person’s life and appearances can often be deceiving.
By no means am I saying you shouldn’t have a nice car or a dream house or go on a vacation. I’m saying you need to live within your means to make it happen. It should be planned and part of your budget. If you can’t afford to buy a big house, then don’t do it. If you can’t afford the vacation your family has asked you to go on, then don’t go. You need to live YOUR life, not theirs. You’ll be much happier living the life you deserve without getting in over your head. Not living within your means is stressful and destroys the happy moments such as time with your family.
Here are some financial guidelines to follow to live YOUR life and not theirs:
- Pay yourself first. I recommend 15% of your pay deducted from your paycheck towards your retirement account before you even see it. If you decide 15% is too much based on your income and/or current lifestyle, make sure you still save something and have a plan to work up to the 15%.
- Make a budget and stick to it. This means comparing actual to budget at least monthly and if something isn’t part of your budget, then don’t buy it. If you have to use your credit card, it shouldn’t be part of your spending plan. There are many free tools out there to create a budget such as Everydollar or Mint. You can also reference my post on four of the top reasons you can’t stick to your budget.
- Have a financial plan that ties to your budget. This is more of a long-term plan such as saving for an emergency fund, saving for a down payment on a house, paying off credit cards, paying off student loans, saving for kids’ college, saving for medical costs of having a child, buying a new car, going on a dream vacation, etc… Your budget should include putting money aside for these various life goals and derived by what’s do-able and the timeframe in which you can carry out those goals (financial plan).
- Pay off credit card debt or any debt with an interest rate of more than 5% before going on vacation or buying anything new (house or car).
- Part of your financial plan should be saving for your kids college as soon as they’re born. This may mean cutting back on a couple of their activities but sometimes kids need a break to explore their own interests. Don’t let your kids start their adult life in debt! I recommend saving $200 per month per child and have it automatically taken from your bank account and deposited into a reputable 529 plan. Do NOT invest in an age-based fund. Be aggressive and let compound interest work for you. You have 18 years!
- Use CASH for grocery shopping, restaurants and entertainment. Only bring the amount allocated from the budget for that activity. This will keep you from overspending while you’re grocery shopping or having a night out. These are the categories we tend to overspend.
- Your house payment should be 25% or less of your take home pay. NEVER get advice from the bank on how much you can afford as you will end up in over your head.
- You shouldn’t buy a house until you have a 20% down payment to avoid the cost of private mortgage insurance. PMI is expensive so don’t waste your money. Be patient in saving up for the 20% and then you can use that money to buy new furniture instead.
- Your cars or motorized vehicles should not total more than 50% of your annual income. Never buy a brand new car and never lease. Plus you shouldn’t buy another car as long as you have a reliable one to get you around until you can pay cash for it.
- Have an emergency fund of at least 3-6 months of your expenses. This can easily be figured out once you create a budget and should be one of the first items in your financial plan. Think of it as a safety net should you lose your job.
If you stick with these guidelines, it means you’re living within your means. You may not own an expensive car and big house but your kids’ college will be paid for and you’ll be able to live a comfortable retirement. You won’t be stressed about money or losing your job because you’ll have a safety net. You’ll have a strong financial plan and you won’t even care about the Joneses! After all, they’re broke!