Why Emulating the Affluent Is a Terrible Way to Make Spending Choices

I’m going to boil this down for you into a simple question.

Would you rather appear wealthy or be wealthy?

The reality is that, for most people in America who earn something reasonably close to the average American income, you have to choose between the two. There simply aren’t enough dollars present to be able to do both.

Unfortunately, the reality is that a lot of Americans choose to appear wealthy rather than actually being wealthy. Seventy-six percent of Americans live paycheck to paycheck. At least 31% of Americans have no retirement savings and no pension plan at work, and many more have very little saved in their accounts.

Where does that money go, then? It goes into bigger houses. It goes into shiny cars. It goes into things that give the appearance of wealth.

Here’s the thing, though: Those things that we think of as indicators of wealth – the shiny car, the big house – are actually pretty poor indicators of wealth.

First of all, to afford those things with the average American income requires debt – and a lot of it. If the average American family, which earns around $60,000 a year, is living in a $300,000 or $400,000 house, they’re in mortgage debt up to their ears. The same thing is true if the average American family is driving two or three shiny new cars around – the sticker value of two new cars adds up to nearly a full year of salary for the average family and that typically means debt, too.

The reality is that the external trappings of wealth that I mention aren’t actually signs of wealth; more often, they’re signs of debt. When I see a big house and a shiny car in the driveway, my reaction isn’t to think that the family is wealthy, but that the family is indebted.

Here’s another problem: Most of our ideas of what wealth looks like come from mass media, which is primarily designed to sell you stuff. Products are constantly being sold by showing beautiful people with expensive clothes using expensive products. Even “normal” people usually look gorgeous and healthy in advertisements. Add into that the false reality of reality television, of television drama, and of “celebrity life” that makes up so much of what the media portrays that isn’t pure advertisement and you’re left with a really skewed picture of normal and a skewed picture of wealth, too.

The things that many people think of when they think of extreme wealth, like wine cellars and Bugattis in the driveway and a home straight out of Architectural Digest, are actually pretty rare even among the people that can afford them. Take a look at billionaire Warren Buffett’s home in Omaha, Neb., which would sell for about $250,000 today. It’s very modest, something that almost anyone could potentially live in.

The thing is, there are no actual visual cues of what reasonable, non-billionaire wealth looks like. You can’t “see” evidence of a person’s wealth unless they’re so exorbitantly rich that they can buy things that no average person could possibly acquire even with all the bank financing in the world.

That doesn’t mean that there aren’t cues for wealth. There are. They’re just not right on the surface. If you want some cues for genuine wealth, you might want to look for these things instead. Some of these come straight from “The Millionaire Next Door,” a great guide for this kind of advice.

Authentically wealthy people are often involved in the community. They tend to be involved in community organizations and, sometimes, local politics. They often sponsor floats in parades, sponsor sports teams, and are always present at community events. Go to community events and look for people you see consistently and you’re on the right track.

Authentically wealthy people often own notable and long-lasting businesses in the community. They’ve put in untold amounts of hours and effort over the years to build a business that has a great reputation in the local community and has stuck around for a long time. Who owns the local bank? Who owns the most reputable car dealership? Who owns the most reputable auto repair place? Those people have usually built genuine wealth.

Authentically people tend to use well-made but not flashy things. They tend to drive late-model used Toyotas and Hondas and take care of them. Their home is well built and well maintained. They wear nice but not flashy clothes. Their focus is on reliability in the things that they buy, not flashiness.

In other words, the guy that owns a successful local business, lives in a nice but not exorbitant and well maintained home, and drives late model used cars from reliable manufacturers is much more likely to actually be wealthy than the person who lives in a big new house and drives a brand new Cadillac Escalade.

The real question is, why do wealthy people make those choices? It’s simple. Authentic, lasting wealth is grounded in frugality, not heavy spending.

All of the things that authentically wealthy people do are things that are designed to maximize the “bang for the buck.” They’re not getting the absolute best thing that they could possibly afford for their money. Instead, they’re getting the thing that serves their needs quite well and serves those needs reliably.

They don’t need a giant house straight out of Architectural Digest. Instead, they need a well-made house of appropriate size. Maybe if they were a billionaire, they might have an Architectural Digest home, but that can wait.

They don’t need a Bugatti or even a BMW in the driveway. Instead, they need a car that will reliably get them where they need to go in some small degree of comfort.

They don’t need a $5,000 suit. They just need well-made clothing that looks good.

Those choices – and many, many others like them – aren’t flashy, but they are cost effective. They don’t scream wealth at others (and that’s by design, as that’s a type of attention they don’t want to attract), but instead it subtly encourages wealth.

These things maximize the value of every dollar spent on it, which means that the extra money – the difference between a Toyota and a BMW, the difference between a more modest home and a McMansion – can be used for investing and building lasting wealth. Over time, that money turns into financial independence, freeing those people from any sort of financial pressure in life.

It’s frugality, in other words. It’s spending less than you earn, and here we see some choices that are geared toward the “spending less” portion of the equation.

So, what can you take home from all of this?

First of all, emulating the kind of affluence you see on television or in many of the upper middle class neighborhoods in your area is a ticket to debt rather than success. The people in that neighborhood might be earning a little more than the average American salary, but that rarely makes the leap to owning a $300,000 home and having two brand new cars in the driveway. When you see that, most of the time you’re seeing a family that’s soaking in debt and is dealing with the stress of that debt.

Second, you are far better off being the wealthiest person in your neighborhood than the least wealthy. If you take this route, you’re not surrounded by people who are spending more than you and the pressure on you to “keep up” is much lower. Buy a nice house in a lower cost neighborhood rather than a lower-end house in a really expensive neighborhood and you’ll find it much easier to build wealth.

Finally, remember that much of what you see on television is designed to convince you to buy things. In the real world, wealthy people don’t usually buy the things you see “wealthy” people buying on television. They’re also often not as Photoshopped and perfectly made up as you see on television or in magazines.

Don’t try to emulate the affluent that you see on television or even in your own neighborhood. Doing so is a recipe for running into financial trouble, as that entire image of affluence is one that’s built on marketing and debt. If you chase that, you’ll wind up with debt, too.

Spend like a real wealthy person instead. Buy things because of their lasting value, not because of their flashiness.

Over the long run, you’ll be very glad you did.

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Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.