Why your $80,000 car doesn't impress me any longer
The majority of research finds that expensive luxury cars are owned by those with higher levels of income, not necessarily by those who are wealthy.
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I'll admit it - once upon a time, I was a total sucker for what I now realize is nothing more than pseudo-affluence.
I gushed over nice looking, expensive cars. In high school, when I saw some impeccably maintained BMW M-series or Porsche rolling down the street, I'd look. And maybe gawk. I'd take in the sound of the engine note like a true "connoisseur".
To say that I was just "impressed" was an understatement. The truth was, in my mind, I immediately connected what I considered to be a logical web of dots in my head about not just the car, but the person driving the car.
I wanted the expensive car. I wanted to drive the car. But more than that, I wanted a lifestyle that would allow me to have such an expensive piece of machinery. I wanted the life, not the car.
"That guy must be filthy rich," I often thought to myself. I wanted the LIFE as much as the car.
But hey, I was in freaking high school! My understanding of the real world was as sound as Kanye West's understanding of tact and grace. I had very little income, hardly any expenses and worked at a grocery store after school and on the weekend for money. At this point in my life, anyone who could afford an energy drink had a leg up on me.
Honestly, what the hell did I know about the reality of money and driving stupid-expensive cars?
Most rich people don't drive stupid expensive cars
Then, I read The Millionaire Next Door, and it changed my life.
I now know that most wealthy people tend not to drive around in expensive vehicles. They also aren't wearing $5,000 watches, $1,500 designer suits and living in large McMansions in well-to-do areas of the city. This is why they are wealthy.
Let me say that again: this is why they are wealthy!
Instead, the "real rich" drive 10-year old Honda Civics or Toyota Camrys. Seriously. An Experian Automotive study found that 61% of wealthy people drive Toyotas, Hondas and Fords. They also live in "normal" communities with the rest of us and very often look for sales on their clothes and shop at "regular" stores like JC Penney and even Target. They tend not to shop Lord and Taylor, Neiman Marcus, Talbots or other expensive establishments.
Truly rich people do not blow through money like your typical $80,000 car owner might.
For example, the late Stop Acting Rich author Thomas Stanley wrote that the median price that millionaires pay for their cars is a meager $31,367. On his blog, he argued that luxury brand automakers are largely supported by the pseudo-affluent - those who spend quite a bit of money but have very little REAL WEALTH to show for it.
And so, your stupid expensive car just doesn't impress me.
I don't care about the car. I never have. Instead, I cared about the life. But if that life is fraught with debt and complication, then I don't even want that after all.
- It does not impress me that you've racked up significant debt to drive around in a vehicle that costs more than some people make in a year.
- It does not impress me that you believe your vehicle represents a status symbol and imparts upon you some pathetic sense of superiority.
- It does not impress me that you want to feel wealthy by driving around in a car that you believe the wealthy drive.
- It does not impress me that you want to be "one of them".
This shit doesn't impress me because, well, I'd like to retire before I hit 60. Actually, I retired at 35 - BMW-free. I don't want stuff. I want freedom.
High income does not necessarily imply "wealth"
It is prudent to briefly discuss the difference between a high income and wealth because this difference cuts directly to the heart of the matter. In short, those with high incomes do not necessarily possess a high net worth - or wealth.
The truth is that the majority of research finds that expensive luxury cars are owned by those with higher levels of income, not necessarily by those who are "wealthy", or rich. Income is much different than wealth. When we use the term "wealth", we are referring to how much you are worth - in other words, what you have to show for yourself. Think investments, home equity, real estate, savings, etc.
Those with a high income but relatively low net worth prefer to spend the large majority of yearly earnings on things like big homes, expensive cars, clothes, and jewelry. They do not save. They do not get ahead. Their high-consumption lifestyles are killing their chances of building an investment nest egg that we all need to comfortably retire. From a financial perspective, these people are not worth very much. They are neither rich nor wealthy.
Where is their money going? Much of it is used to fund a high-consumption lifestyle. Spending money on expensive things because they earn significant amounts of money and believe they can afford the "nicer things in life" (read: they believe that they are rich). Things like $80,000 BMWs, or $25,000 Rolex watches, or 3,500 square feet homes with big yards and granite counter tops in ritzy areas of the country. Expensive dinners. High priced alcohol.
Their high incomes lull them into a false sense of wealth.
Think you can avoid falling into the pseudo-affluence trap and live your dream life? Find out.
In truth: these people are NOT wealthy because they spend the majority of their income.
Readers of the book "The Millionaire Next Door" will know what I am talking about. People who rake in $500-grand a year but only have $200,000 in investments. Yeah, these people.
Let's switch gears and talk about the real rich.
In contrast, our nation's rich people - people with significant net worth - save the majority of earned income. They do not buy expensive cars or big homes. They choose to live reasonably!
The real rich aren't rich because of their incomes. Instead, they are rich because they save.
They dress just like the rest of us. They shop at the same stores you and I shop at and enjoy saving a buck just like we do. This impresses me.
This level of wealth, enabled by a reasonable lifestyle, is what impresses this humble early retirement blogger.
This is what I want. And, this is also what my wife and I have worked so hard to achieve.
Today, when I see a Porsche struttin' down the road, I pity the driver. Is there a chance that the driver is already retired with a gigantic nest egg, making that car easily affordable? Sure, it's possible. But, it's also not likely. The Porsche, or BMW, or Mercedes, or Jaguar is usually just the beginning of what these high-income individuals spend money on.
We see evidence of over-consumption everywhere. For example, I used to work with a guy who drives Audis and collects absurdly expensive watches (in the neighborhood of $10k a pop) });. A couple weeks ago, I noticed a mid-30's woman loading up her kids into her $60,000 Infiniti SUV. The weekend before that, a well-maintained red Ferrari sat in the gym parking lot as its owner worked out.
At one point in my life, all this expensive machinery would have impressed me. But once I understood the reality of how true wealth interacts with expensive purchases, I came to realize something important:
The large majority of these people are in debt. Debt doesn't impress me. So many of these people need a high income just to maintain their high-consumption lifestyle. There is nothing enviable about finding yourself in a position where a high-income job is required just to make ends meet.
I do not want these cars because they are financial nightmares, notoriously inefficient and a drain on my ability to quit the rat race. I realize now that drivers of expensive vehicles are generally not in a good financial position. Contrary to my petty high school thought process, these people are typically not truly rich. Instead, they lead destructive high-consumption lifestyles through a high income.
In the end, I've learned that rich people are not rich because of high yearly incomes or reckless consumption. Instead, they are rich because they save. They invest. They live responsibly. They are, in a word, sensible.