Most of my posts recently have been about stock, option trading and my internet ventures, so I decided that it is about time I write an article on the subject of personal finance.
This post is about how people in the modern world including myself who has accepted living beyond our means as normal. I’ve only recently in the last 2 to 3 years tried to be more aware of whether my spending is putting me into a situation where I will regret in the far future. In the last year or so, I have drastically reduced spending on material things that I do not need and it has made a difference in my savings, and thank goodness for that as I was laid off recently and the savings is going to come in handy. If I didn’t catch myself with the over spending and going for broke attitude of living I would literally be “up sh*ts creek without a paddle” right now with no savings. Just before I was let go from work I was also beginning to attack and pay down my credit card debt, but that plan has been put on hold until I find another job and I will just have to make the normal payments until things get a little better.
I was reading a magazine that I bought in a coffe shop in downtown Toronto where I used to work a while back about a senior financial executive name John who’s annual income was $800,000 after tax here in Canada means he is left with $440,000 to live on. This man had a 6000 square-foot house in one of the prestigious neighbourhoods of Toronto and get this….had a $1.5 million mortgage. The upkeep cost alone on the house was $150,000 per year. He had 4 kids and private school for them came to a total of $70,000 and he also had a cottage near the lakes north of Toronto which had a maintenance cost of $40,000 per year. Next is his and her (wife) lease payments which amounted to $30,000 for their Mercedes and Jaguar respectively. For all the items listed above there was insurance cost and that per annum came to $25,000. Let’s not forget the spending of $75,000 on fancy clothes for a family of six and the dining out twice a week a Toronto’s finest restaurants that had a yearly cost of $30,000. Monthly grocery bills at the finest supermarket came to $1200 a month and Christmas vacation in Bermuda came to $25,000. There are much more exuberant expenses but from the ones listed above you can already see where this is going. Just added it up, he is pretty much spending almost everything he makes and more.
One day John walks into the multi-billion dollar financial company he worked for and was told that he was to laid off. The stock market crashed and he was out of work now. He thought to himself how is he and his family going to survive. He eventually decided to sell their home and move into a rental property still in an affluent neighbourhood, but he also decided to keep their children in private school which did not make sense at $70,000 a year.
John wanted to keep his membership at the country clubs which totoal $8000 per year and he also kept the cottage which he felt was a ideal social setting for the elite. It is obvious that he is still trying to keep up the image with these illogical decisions. He did however, gave up the yearly expensive vacation.
John eventually found a new job at a much smaller brokerage firm that gave him some sense of security, but he and his family still remains financially stressed and he continues to pay off the big debts that he has accumulated while he was unemployed for 2 years.
During those 2 years the people he was associated with were talking about him, and his whole ordeal was played out in public. Despite what happened to John, he is still struggling to keep his kids in private school and with tuition, uniforms, books and school trips he is having a hard time keeping up. He feels that his kids deserve the same atmosphere as his rich and wealthy peers.
He is just another example of a family trying to keep up with the Joneses and over stretching themselves all for the sake of keeping up the appearance of wealth.
All over the world the story above is being played out. Does John sound like you or someone you know?
Are you or someone you know spending everything you earn and more to keep up the appearance of wealth?
The truth is I was once exactly like John at one point in my life although not as extreme, but I stopped many many years ago, when I realized it wasn’t worth it to drive the right car, have the big perfect house and a cottage by the lake if it meant that I was going to be in debt for the remainder of my life and have that weigh on my mind or stress my family. The fact of the matter is a lot of people you know out there are still to this day making middle income, but spending like they are Donald Trump. Just calculate your networth, this will give you a wake up call and if this is you, STOP, REFLECT, THINK and ACT to get yourself back into a more financially manageable life.
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