How our homes influence our lives
Despite my background being in investment management, a lot of what I do today in my work with individuals, couples and families is around psychology. One of the most common things I see is the ‘keeping up with the Joneses’ syndrome. A lot of my waking hours are taken up thinking about it. I think about it because every day I see the damage that it does to people’s lives. I want to write about what I think is the root cause.
And there is one thing that I keep coming back to. And it’s housing. Our decision on what house to live in has financial implications that can reverberate through the rest of our lives.
In the US, the size of an average home has increased by 62% since 1973, whilst the average amount of living space per person in a new home has almost doubled. I don’t know what the figures would be for Cayman but I suspect significantly higher.
Not only has there been a huge shift towards bigger homes but the expectations of what should be in those homes has changed. Marble countertops, professional grade appliances, home gyms, cinemas, wine cellars. Marketers have done a very good job of convincing us that things that were previously only for the super-rich are now normal for everyone.
When we choose the house we want to live in we are (subconsciously) choosing how we want to live all parts of our lives. We are influenced very heavily by the level of affluence we see around us, in the houses around us, on our road and in our neibourhood. Where we live can influence:
- The features, upgrades and improvement we put in our homes
- The cars we drive
- The holidays we take
- The schools we send our children to
- The clothes we wear
- The restaurants we eat in
- The wine we drink
- The watches we wear
The list could go on and on.
In the book “Stop Acting Rich – How to Live Like a Real Millionaire”, author Thomas J Stanley looks at the difference between real millionaires and ‘aspirationals’. He defines a real millionaire as someone with more than a million dollars in investments, and that doesn’t include equity in a property. He writes:
“I believe the greatest detriment to building wealth is our home/neibourhood environment. If you live in a pricey home and neighborhood, you will act and buy like your neighbors. In other words, human beings have an innate tendency to act and be like those around them – to fit in – and even to compete (in a neighbourly way, of course). The type of home we live in and where we choose to live often takes the greatest toll on our financial wealth and from it, all other perils flow.”
The problem is that it’s easy to look around you at other people living in big houses and driving nice cars and assume that they are the real thing.
Unfortunately, the ‘real millionaires’ (defined as those with investments, not including the equity in their home, of over $1 million) tend to be invisible. They live in neighbourhoods beneath their economic means. They buy used cars for cash and keep them for years. They eliminate debt quickly. Because they don’t advertise their wealth they have little influence over others. It’s hard to know who they are.
In my experience, unwise housing choices often lie at the core of households that struggle with money. The problem is that it’s easy to rationalize the large investment in a house as wealth building. But what tends to happen is that an over-investment in a home means there is no plan for retirement or kids college fees or for an emergency. The family home is the retirement plan, the college plan and the emergency plan. Sadly, in reality it’s more of a hope than a plan. And it can cause a lot of stress, and it doesn’t make us happy. It doesn’t make us happy because we get on the ‘hedonic treadmill’. Despite having more things and nicer stuff, our happiness returns to a base level. We quickly become used to it all and stop getting pleasure from it. And then of course, we buy new things.
“The man is richest whose pleasures are cheapest.”
So if you are thinking about buying a house, building a house, or reconsidering the house you are in now, I encourage you to think hard about where you choose to live and how much space you choose to take up. A good rule of thumb would be to try and keep your housing costs (including bills) to less than 30% of your income.
Click here for a great article about why a smaller house might actually make you happier.
And remember that true happiness in life comes from freedom not from stuff. In his book, Thomas Stanley writes that most self-made millionaires cite the freedom, security and independence as the most important advantages of their wealth.
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