Are you or someone you know ‘living beyond their means’?
If someone is ‘living beyond their means’, they are “spending more money than they can afford”1
Expanding further, this Washington Post article states: “You’re living above your means if you have more than enough income for the basics but you indulge in eating out, vacations, and overspending on clothes and cars at the expense of future needs such as having adequate retirement savings or being able to send your child to college without a boatload of debt.”2
Hmmm, I often indulge in eating out and vacations…
A recent survey of 25,000 American Adults revealed that “19% spend more than their income” and “36% spend about equal to their income”.3
That means more than half (55%!) are spending today at the expense of tomorrow.
A 2018 CIBC survey found that 32% of Canadian respondents nearing retirement (ages 45 to 64) have no savings at all. 4
Does this sound like you or someone you know?
Many of these people are in pretty tough financial positions, which can be exceptionally difficult to get out of.
But what about the people that are making decent livable wages, spending more than they should by choice?
Maybe you are ‘living beyond your means’ or have in the past. I know I did for a few years. Or maybe you know someone who is, although most hide it very well.
In fact, our true personal finances are rarely discussed among friends and family, which we need to change.
There are many reasons we ‘live beyond our means’, but let’s focus on three:
- Societal pressure like ‘Keeping up with the Joneses’
- Easy access to credit
- The influence of Marketing
Societal Pressure – ‘Keeping up with the Joneses’
We experience many forms of pressure within our society, including direct and indirect pressure from family, friends, neighbours, colleagues, and strangers.
‘Keeping up with the Joneses’ is a well recognized form of pressure to spend that we often place on ourselves.
For those not familiar with the term, Wikipedia states “Keeping up with the Joneses…[refers to] the comparison to one’s neighbour as a benchmark for social class or the accumulation of material goods. To fail to ‘keep up with the Joneses’ is perceived as demonstrating socio-economic or cultural inferiority. The phrase originated in a comic strip of the same name.”5
We’ve probably all experienced that desire to stay in-step with our neighbours, friends, family or colleagues at one time or another.
It can be as simple as keeping our lawns as green as our neighbour’s to much more expensive pursuits, like keeping up with their new car, house, big vacations, etc.
I’m certain social media is making it worse.
Few people post bad pictures of themselves, their dilapidated garage, or the rust on their car.
Everyone posts when they go on a great vacation, or buy a new car, house or gadget!
I remember a time I experienced the pressure to ‘keep up with the Joneses’. About 8 years ago, I started a new job that happened to coincide with needing a new car.
It was time to let go of my 10-year old Honda Civic, although in retrospect I probably could have given it a few more years.
My first week on the job, I was working out of the Los Angeles office. The parking lot was full of Mercedes, Lexus and BMW’s. Even the interns were driving BMW’s, although they likely couldn’t afford them!
I thought to myself, ‘I have a great new job, I can afford a nicer car, maybe now is the time to step up from my Honda Civic’
Fortunately, that thought only lasted for a few minutes. I ended up buying a new Honda Civic which I still have!
Editor’s note – Don’t buy a new car like I did! We’ll talk about that more in a future blog post!
The pressure we put on ourselves to ‘keep up with the Joneses’ can be pretty powerful. The more we understand it, and recognize that it’s within our own control will help us to avoid it.
Easy Access to Credit
Easy access to credit was as a factor in my own experience of ‘living beyond my means’. For me, it was a line of credit and credit cards.
Those are the most common, but easy access to credit is available in many ways, including mortgages, car loan/lease, overdraft, ‘buy now, pay later’ offers, the cell phone plan that ‘qualifies’ us for a new phone upgrade every 2 years, etc, etc.
Easy access to credit is definitely a major factor that enables us to ‘live beyond our means’. If we had no access to credit, or at least less of it, we would have to adjust our lifestyles and spending accordingly. We just wouldn’t be able to ‘live beyond our means’.
Take mortgages for example. Too often when we qualify for a $500,000 mortgage, we start hunting for a house that will cost somewhere around that amount, whether it’s truly in our best interest or not.
If we only qualify for $250,000, we wouldn’t be buying $500,000 houses!
I’m not saying credit is bad, far from it.
But it becomes a problem when we rely on it and use it excessively.
And we really do use it to excess.
In 2019, Canadian’s ‘average consumer debt [reached] $72,950’6
Average debt excluding mortgages (ie loans, lines of credit, credit cards, etc) was $23,496’7
That’s the average for each adult, NOT household. That means the average non-mortgage debt for a household with two adults is almost $50,000. Add back in mortgage debt and it’s almost $150,000!
I think we all need to take a hard look at how we use credit!
The Influence of Marketing
The constant barrage of Marketing for products and services is a really big one factor leading many to ‘live beyond their means’, that people often underestimate.
I think we can all recognize how effective Marketing can be in convincing a child they need something. How many times have you experienced a child seeing a commercial or online ad, then immediately asking for that toy?
We like to think we are not that susceptible as adults, but I think we still are, it’s just often much more subconscious.
Just the sheer number of ads we see must influence us, sometimes very directly as we often place an order after seeing the ad. That, and our brains ‘log’ it, influencing our purchases decisions later.
This Forbes article estimates “that most Americans are exposed to around 4,000 to 10,000 ads each day.”8
4,000 to 10,000!
Today more than any other time in history, we are bombarded with ads, on the radio, TV, podcasts, online, offline, outside on billboards, all over the place. Everywhere we turn we are exposed to some kind of marketing.
I haven’t had cable in 10 years. Does that mean I’m seeing less ads, since there are no commercials?
Even when I’m watching Netflix with no commercials, I’m still being exposed to an enormous amount of marketing, via product placement in TV shows and movies.
This Tech Crunch article reveals that “Product placement is an increasingly big business in the U.S., raking in some $11.44 billion in 2019…up from $4.75 billion in 2012.”9
2019’s Spiderman: Far From Home movie reportedly generated $56M in revenues just from Product placement.10
It wasn’t a coincidence that Peter Parker was wearing Nike sneakers and a Nike Jersey. Nike paid $5.5M10 for that.
I’m sure few of us consciously noticed the character was clad in Nike, and didn’t rush out to buy everything Nike. It certainly wasn’t as in your face as the can of Coke in this Netflix ‘Stranger Things’ scene:
But all of this branding in the background of movies and TV shows is collected in our minds, and can build the brand’s credibility for when we do make purchases.
Or at least, that’s what Nike and the other 49 brands10 featured in that Spiderman film are betting on.
So now that we’re more conscious of some of the factors that lead us to ‘live beyond our means’, how do we stop doing it?
There is no ‘magic bullet’ answer. It’s a combination of many things, which take a lot of focus and determination. But it’s not impossible by any stretch.
Here are some things we can do:
- Recognize and ignore societal pressure like ‘keeping up with the Joneses’
- Recognize and avoid the influence of marketing affecting our purchasing decisions, both consciously and unconsciously
- Try to reduce your exposure by blocking pop up ads, unsubscribing to retail and brand emails and social media posts
- Budget, budget, budget – we’ll talk more about this one in a future Doing More with Our Money post
- Re-think big purchases – do you really need it? Is there a less expensive version available?
- Be wary of credit and use it sparingly like my mortgage example, just because you qualify for $500,000 doesn’t mean you should use it
- Wherever possible, save up for the purchase and pay in cash instead of putting it on credit then paying it down
- Keep reading and applying the learnings from Doing More with Our Money
Thanks for reading, everyone!