Keeping up with the Joneses is a never-ending battle. Don’t even try. I know it can be hard. My wife is going to be in the market for a new car later this year, and even though I know better, I find myself walking through parking lots and looking in driveways for ideas. It’s easy to get caught up in the Jones race.
However, if you look around, you’ll quickly recognize that the Joneses are setting a financial example of what not to do. Follow their lead and you could end up in a bad place. Here are a few examples:
- They are spending instead of saving. With roughly two-thirds of our economy powered by spending, Americans aren’t putting nearly enough money away. Earlier this year, personal savings hit a 10-year low of 2.4 percent. That’s plain pitiful. If you’re in your early 20s and just getting started, you can probably get away with saving 10 percent for retirement, but most people have a variety of goals that will require even more saving. So the Joneses and their 2.4 percent savings rate are a joke.
- They’re playing the “how much payment can you afford” game at the car dealer. Ever wonder how the Jones family affords that never-ending carousel of slick new vehicles? Maybe they can’t. Instead, much to the appreciation of their car salesman, they are stretching out car loans to the point where the payment is “affordable.” Every quarter, Experian produces a “State of the Automotive Finance Market” report. The latest indicated that the average new car loan was more than 69 months. You know how averages work, and that means there are lots of loans out there with terms longer than 69 months. Shoot for an un-Jones-like approach, something that’s affordable with a loan of no longer than five years.
- They can’t be bothered with life insurance. The Jones family apparently doesn’t need any stinking life insurance. Three kids, a big mortgage, a couple of car loans and a lot of underfunded financial goals wouldn’t even faze the survivor if the unthinkable happens. That probably sounds ridiculous, but according to LIMRA, one in three people indicate he or she doesn’t have enough life insurance. The Joneses are clearly skimping; you shouldn’t. Check out the life insurance calculator at usaa.com/life and see where you stand.
- They’ve got plastic in hand for the next emergency. In January, the Bankrate Financial Security Index survey reported that 61 percent of Americans surveyed would be unable to draw from savings to respond to a $1,000 unexpected expense. They’d be forced to borrow from family, sell stuff or break out the good old credit card. Another not-so-enviable trait of the Jones crew, but a boon for credit card companies.
Fear can be an enabler, and can motivate positive behaviors. In this case, I hope I’ve created a compelling argument against trying to keep up with the Joneses.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.