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The above understanding along with having the discipline to save and learning how to properly invest the savings is key to a successful retirement. I splurge on things that I really want but I'm very frugal on everything else. And some of the categories I like to splurge on are major purchases (like the oversized house you mentioned) yet we are still able to save 38% of our gross income. Its not that hard once you decide you don't need to have the best of everything.
I admit, I stole the "you can have anything you want, but not everything" from Paula at Afford Anything - You Can Afford Anything ... Just Not Everything. What's It Gonna Be?. It's a good blog, especially for more extrovert type people who are turned off by uber frugality. I am a natural born saver, so I didn't ever consciously think about it from this point of view, but I now realize that natural born savers like me are the oddballs.
I will say, though, that some people really do have to make trade offs they rather wouldn't. For instance, people here in the Bay Area aren't getting the oversized house unless they are in the top 10% of earners locally (and maybe more like top 5%) and even then it may be a stretch. One thing Paula at Afford Anything said is that she consciously avoided high costs metros like New York & San Francisco in favor of average cost metros like Atlanta--and now Las Vegas--so that she could reach financial independence in her 30s.
high cost metro areas are a double edge sword .they are expensive , but they are expensive because of demand .
that demand usually goes with higher paying jobs and high property values .
many of our transplants leaving the tristate area are leaving in way better shape than those in lower cost areas .
for one thing selling a home here down the road usually brings a windfall . a 600k home that appreciates at 3% year is a whole lot more than a 150k home at 3% a year .
the other thing is higher wages lead to a life time of higher social security payments .
400,000 long island baby boomers and millennials said that is their plan . sell the home and relocate to cheapsville where they will be in far better shape .
OP: Why do you care how much or how little other people have?
It is none of your business what others do with their money, how they live their lives, how they spend their money, how they don't spend their money and exactly what they do with whipping cream in a can.
It is the business of tax payers when a person gets govt assistance of any kind. That is tax payer money. Some people have unexpected hard times (events), but not 40-50% of the population.
There are a few reasons, some good, some bad, many unavoidable:
1. Failure to plan. Tomorrow is an abstract thought to many. They don't understand that you can go from 18 to 67 in the blink of an eye. 67 was always so far away, until it's not.
2. Life gets in the way. Saving never became a habit. This is one of the worst one. If you're never in the habit, it doesn't happen.
3. Failure in education. No one teaches basic principals of spending, saving and credit. Left to fend for themselves, many don't know what they're doing and don't realize credit traps.
4. "Thinking like a poor person." This is one that is hard to beat. It's expensive to be poor. Payday loans, pawn shops, title loans, bad credit loans all penalize you by charging you more of what you don't have any of. You're on the debt treadmill, and it gets very hard to get off.
5. Access to capital is limited for the person of modest means. A poor person can sock away a few dollars here and there. At 1% interest. Then Uncle Sam takes a cut, then inflation takes a cut. The poor person sees a savings account as a negative interest item (and often it is.)
6. The days of corporate pensions are gone. You used to keep a job until you retire, and the company would pay you for it. Now, they just fire you when you get a gray hair, hire someone half your age, pay them half as much, and off you go. Outdated resume in hand, you dip into your savings until you find another job, with less pay, and you're now savings free.
7. Lack of healthcare. I'm not sure if ACA did much on this, but I've known many a family to be wiped out by illness, especially special needs children who age out of government programs. Taking care of disabled children is full time (cuts into the ability to work) and treatment programs are disproportionately expensive. Add to that declining health in the US (graying of America + obesity epidemic) and you have a few punches coming your way.
8. Pro-consumer attitude. We're taught to have the latest this or that. Companies bank on planned obsolescence of things. It's unheard of to still be using an original iPhone, much less a phone without a data plan. Part of that is consumerism, and part of that is every day reality (It's might be more difficult to work in modern society without internet or cellular access of some compared to thirty years ago.)
9. Dependent sandwich. There are many working now who are supporting their parents (who either didn't save, had pensions wiped out in the bust, or for whatever reason are now broke.) They didn't get the planned inheritance and now have a double whammy in that they have to support the parents in their old age. Add to that the younger generation, still living at home with little to few good job prospects. Double points if the child has a kid out of wedlock, now being raised in the same household. That's one provider for parent, child, grandchild.
10. Catastrophic event. Your savings / 401 / etc are there if you have an emergency. What if you have two? Or three? I don't mean concert ticket emergency, I mean your spouse was hit by an uninsured drunk driver and is in the hospital. She can't work now. You can blow a healthy retirement plan in one hospital stay. And we didn't even touch rehab, vocational training, etc. You saved and the savings came in handy, but they're gone now. Once they're gone, it's a devil of a time to get them back.
high cost metro areas are a double edge sword .they are expensive , but they are expensive because of demand .
that demand usually goes with higher paying jobs and high property values .
Having lived in a variety of places, I think the "middle" is best. Even if a 500k home doubles in value ...if you couldn't save a penny past that because expenses are so high you are not exactly in fabulous shape for retirement. Not to mention having all your equity in one building is about as far from a diversified portfolio as you can get!
We're seeing an explosion of population growth in mid-sized areas and an accompanying boost in the economies there (chicken/egg) and I think it is largely that reason. The "rust belt", cities like Buffalo, are seeing a huge influx of people from larger cities. Research triangle of NC (where I am now) is the same.
I admit, I stole the "you can have anything you want, but not everything" from Paula at Afford Anything - You Can Afford Anything ... Just Not Everything. What's It Gonna Be?. It's a good blog, especially for more extrovert type people who are turned off by uber frugality. I am a natural born saver, so I didn't ever consciously think about it from this point of view, but I now realize that natural born savers like me are the oddballs.
I will say, though, that some people really do have to make trade offs they rather wouldn't. For instance, people here in the Bay Area aren't getting the oversized house unless they are in the top 10% of earners locally (and maybe more like top 5%) and even then it may be a stretch. One thing Paula at Afford Anything said is that she consciously avoided high costs metros like New York & San Francisco in favor of average cost metros like Atlanta--and now Las Vegas--so that she could reach financial independence in her 30s.
That's oversimplistic; most frugal burger flippers can't buy a house. If they could have the house, they would be able to have more than just the house,
Ever watch hoarders? They often have storage units because their primary home is already full of stuff and they can't get rid of it.
My dad was a little like that. In his case he could never part with stuff he felt connected to his family members who had died, primarily their furniture. My grandmother had a 6000 sq ft. mansion full of antique furniture, knick-knacks, etc... My dad only had a 1br apartment. So he stored her stuff. We tried to have an intervention with him... but he literally could not part with the stuff. To him I think to sell or give it away would have been like losing his parents all over again.
He always thought either he or his kid(s) would get rich and have a place big enough to put all that stuff. And that we would want it if we did. Nope.
In my experience, hoarders tend to be secretive and don't like to be watched.
on the other hand taking a look at some of the polls done on mister money mustache or the early retirement forum you have loads of people who have saved quite a bit . they are way above the norm ,so if you really want to ,there is always a way .
I've never met a millionaire burger flipper. At my workplace, the home ownership rate is zero and the median employee age is about 40..
People simply do not pay themselves first. Always pay yourself first 10-15% , then live off the rest. The habit was never formed for many people. If the "rent is too high", or the mortgage for that matter you are living outside your means.
I think denial and procrastination (I'll start tomorrow) play into this. I was told not taught how to save. Because of that, I spent my paychecks. It took me a long time to change my way and create a saving habit. Now I don't think about it, I think about other ways to save money. Sure I wish my house was bigger or nicer, but I can afford it without worry. A lot of people I know are drowning in debt behind the scenes because they have more than they can handle.
Rule #1 of rent slavery:
The Rent Eats First
Hmmm, I was going to post an image but somehow, ALL of the "The Rent Eats First" images that were online two months ago...have disappeared!
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