Behind Closed Doors: The Real Story of the Joneses
Over the past few decades, I have met with many individuals and couples to discuss their personal finances. Often, those who appear to be well-off are struggling, while those who seem to be living modestly are thriving. Let me introduce you to three fictional couples, all named Jones, to illustrate the diverse realities behind financial appearances.
Indiana and Marion Jones
What you see:
Indiana (52) and Marion (50) Jones live in a $1,000,000 house, belong to the country club, and each drive newer luxury cars. They take two or three big vacations each year and usually dress like they’re out on a date. They eat out regularly and enjoy material goods as the “finer things in life.”
What you don’t see:
Their household income is $275,000 per year and they save 3% into a 401(k) account with a balance of $212,000. Their savings account balance is $4,200. They owe $600,000 on their house, have a car loan of $35,000, a monthly car lease payment of $600, and owe $50,000 on their boat. They owe $12,000 on a credit card from their last vacation that they are working to pay off. They never formed good savings habits and have always taken a short-term view with spending vs saving. Instant gratification has always won and because of this, current savings pattern may make it challenging to meet typical retirement goals without meaningful changes. They have wealthy friends and live in a neighborhood full of rich people who do rich people things.
To even think about retirement, they would likely need to evaluate and adjust their spending and savings habits over time.
Mark and Bridget Jones
What you see:
Mark (53) and Bridget (54) Jones live in a $500,000 house in a nice neighborhood. Bridget drives a four-year-old Chevy Suburban and Mark drives a six-year-old Toyota. They like to take one nice vacation each year plus a couple of long weekends where they visit out-of-state friends.
What you don’t see:
Mark and Bridget have household income of $200,000 per year and they contribute 13% per year to a 401(k) account with a balance of $1,150,000. They owe $150,000 on their mortgage and have no other debt. They keep $80,000 in their emergency fund and contribute $1,000 per month to this account to help save for large upcoming expenses. They regularly pack their lunches and limit eating out for dinner to two to three times per month.
Mark and Bridget would not consider themselves wealthy, but they have a solid financial foundation. Based on their current savings behavior, they may be better positioned than many peers for retirement.
They did not start out as good savers but picked up the pace about 10 years ago. They resisted the urge to increase their lifestyle when their income increased and instead saved and invested the extra income.
Desmond and Molly Jones
What you see:
Desmond (52) and Molly (52) Jones live in a $350,000 house in a tidy neighborhood. Desmond drives a five-year-old Chevy pickup and Molly drives an eight-year-old minivan. Both vehicles look brand new. They own a 26-foot camper trailer they use for most of their vacations. They eat out occasionally but prefer inviting friends over for a home-cooked meal.
What you don’t see:
Desmond and Molly have a household income of $150,000 per year and they contribute $25,000 to a work 401(k) account with a balance of $1,050,000. They have a taxable investment account with a market value of $350,000 and an invested health savings account with a $45,000 balance. Their emergency fund has $60,000 and they contribute $750 per month into this account to save for large purchases or emergencies. Any bonuses they receive from work are added to their investment account. Desmond and Molly have no debt.
Desmond and Molly are quite well-off relative to their income. They fall into the “Millionaire Next Door” category. They live conservatively but comfortably. Their friends would have no idea they are debt-free millionaires.
Although starting from humble beginnings – Desmond working in a marketplace and Molly singing in a band – they formed good savings habits early on. They always saved 20-25% of their income and paid cash for everything other than their house.
Some Key Takeaways
- Indiana and Marion are not necessarily as financially secure as they appear, although it is possible they are living in a state of ignorant bliss that will come crashing down at some point.
- Falling into the “Keeping up with the Joneses” trap may put you in a situation similar to Indiana and Marion.
- It can often be difficult to know someone’s true financial situation based solely on outside appearances.
- Who you keep as friends can have a significant impact on your own spending habits and financial wellbeing.
- You likely don’t know the path any of the Joneses took to get where they are. They may have been aggressively saving while you were spending so that now they can spend while you need to save.
- Keep your eye on your own savings rate instead of your neighbor’s new car.
- The examples above play out in real life across all income levels.
- There are many stories of people who made millions and died broke.
- There are also many stories of people who never made much but died very wealthy simply by living below their means.
- The sooner people learn to live below their total income while prioritizing saving and avoiding excessive debt, the more flexibility they may have over time.
- Envy is a common human response, and becoming aware of it can help people make more intentional financial decisions.
- Maintaining perspective and focusing on long-term goals can be helpful for many individuals.
Don’t just take it from me…
You shall not covet your neighbor’s wife. And you shall not desire your neighbor’s house, his field, or his male servant, or his female servant, or his ox, or his donkey, or anything that is your neighbor’s. Deuteronomy 5:21
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Kenneth R. Duetsch
Managing Partner / Financial Advisor
CFP®, CFA®, MBA