Although I would hope that the 3 families that Money Magazine featured are extremities in the typical middle class neighborhood, I am quite certain that their attitudes are all too pervasive.
Read the entire article for the sad state of their affairs. Here are some excerpts that you might want to take note of:
Robert Frank, an economist at Cornell University and author of Falling Behind, calls the desire to match what the neighbors spend, remodeling project for remodeling project, lavish party for lavish party, "luxury fever."Nice to know a real economist agrees with me.
Not only can it prompt you to spend beyond your means, but it can also lead you to a false sense of how you are doing financially.
In reality, moving to Wallingford hasn't improved the Stein's finances. In fact, despite a seemingly comfortable combined income of $132,000, their cash flow is a little bit worse than before because they have a bigger mortgage and higher property taxes.
All told, their house payments now run $32,000 a year, up from $22,000 in Wayne. Their other big expenditure: $26,000 a year for a full-time nanny for their three children, Eva, 3, and twins Neve and Lila, 2. Then there are all the myriad costs of a young and growing family, from diapers ($70 a month) to groceries ($800).
They now owe nearly $39,000 on five different cards, including nearly $1,200 on an American Express account with an interest rate of 30.21 percent. The minimums alone run the family $700 a month.
The result is that the Steins live mostly from paycheck to paycheck, saving very little.Yet, they feel they can afford a full time nanny and pay him/her $26k a year.
Still, Marni's plan to solve her family's financial problems is not to cut spending and pay down the debt. Her idea involves going further into debt so that she and her husband can get additional training to help boost their income.And that is why she will fail.
Marni is working on a Ph.D. that will add $18,000 in student loans to the Steins' balance sheet by the time she finishes next year. Stuart plans to take a $5,000 management course. "I don't think watching our expenses will be enough," says Marni. "The only way we really could be better off is if we make more money."It won't matter if you make a million a year if you are spending a million and a half. After they get professional advice on how to get their finances on track, here is what they plan to do:
They plan to apply for a $42,000 home-equity loan - that's 40 percent more than the planners suggested - to wipe out their remaining credit card balances and to pay for Stuart's career training and a new fence around their yard.And this is why they will never be financially secure. They will never make enough money.
Dave, 39, teaches fourth grade in Wallingford's elementary school. Emily, 38, is vice president of strategic affairs for the National Venture Capital Association. Together their annual income is $250,000.
what really diverts cash from their savings kitty is the cool stuff they like to buy...recently bought an $800 custom-made, handcrafted board. He has three guitars, plus a fourth...they bought a trampoline and a swing set for the backyard. Emily, nearly a black belt, spends about $3,400 a year on karate lessons for herself and the boys. Dave prefers yoga classes ($1,200 a year).This spend-thrift attitude is going to make broke debtors out of their kids, too, with their lack of parenting:
The Mendells would also like to finish their basement ($30,000), and Emily wants to trade in the family's minivan for a Mercedes M-Class ($40,000). Then there were the separate vacations Dave and Emily took to Costa Rica over the past year and the family trip to the Grand Canyon (total for travel: nearly $8,500).
Emily, who says she has a problem saying no to her kids, admits some of it is spent on impulse purchases for the boys, who regularly return from trips to Target with a new toy. "When we're at the mall and they ask me to buy something, what do I say? 'We can't afford it'?" asks Emily. "We can."Yet they don't think they spoil them.
Should we be enjoying our life more?Yes, so long as you are okay with working for the rest of your natural life. So after their advising session what will they do?
The Mendells have pledged to boost their retirement savings. "I thought we were on the right path," says Emily. "But we've got a lot more saving to do than I thought." They say that they are also committed to cutting back on their spending but haven't decided how. Meanwhile, Emily is still shopping for a Mercedes.They are failing themselves, and their children. They recognize the problem but refuse to do anything about it. They must have that Mercedes. They do not see the long term consequences of their actions. Their children will learn good money management by watching their wealthy parent's utter failures. Bankruptcy, foreclosure, repossession is in their future. Their $250k income will not last forever, and when they stumble, they will fall off a sheer cliff.
Read about them in the article, they are the only ones with some sense.