I looked over some of my old posts, and I saw this one below about the practice of buying things you cannot afford.  I thought some of the ideas and concepts in this post are particularly relevant right now, given the current financial mess on Wall Street and where it came from . . . people buying houses they couldn’t afford and banks lending money that they knew would not be paid back.

The post . . . .

A critical epidemic that has gripped our society is the need to keep up with everyone else.  By that, I mean buying the same HDTV that everyone has; buying the same expensive SUV that everyone has; going to the same restaurants that everyone goes to; buying the same gadgets as everyone else, etc. 

How It Happens

The “how” is simple.  I walk my dogs every morning.  As I pass by house after house in my neighborhood, I see various expressions of people’s perceived “worth.”  I see a BMW 5-Series parked outside someone’s house.  I see a Cadillac Escalade parked outside another. 

House after house, I see luxury car after luxury car.  On garbage days, I’ll see an empty box for a 42-inch Panasonic widescreen plasma TV.  I’ll pass by empty boxes that formerly housed other special gadgets: stereo equipment, a large gas barbecue grill, etc.  In another house’s backyard, I’ll see a pool being constructed.

I can guarantee that at least half of the owners of these expensive items cannot afford them.  However, they see other individuals who own these items and they feel inferior.  If that guy across the street just bought a 50-inch 1080p HDTV, why can’t I?  Until you get the same item or buy a superior one, you won’t feel secure.

This phenomenon occurs because we don’t judge people based on their character or personalities.  Instead, we judge them based on what they own.  We are more impressed with someone who drives a Mercedes than with someone who drives a Honda.    

We Must Exercise Restraint

We need to show restraint for several reasons. 

1) It is this very phenomenon that has driven the U.S. into this so-called “credit crunch.”  People buy expensive assets they can’t afford with credit cards.  They run up high balances, and then they can’t pay much more than the monthly interest that accrues on such balances. 

This problem drives people into personal bankruptcy, and it impacts their ability to buy more important items and take on debt in the future (like a mortgage).

2) People dig themselves into this hole only because their neighbors and friends bought the same items.  We think we can afford (and we want to afford) a Lexus because it seems our next-door neighbor can afford it.  The underlying assumption with that line of thinking, however, is that our neighbor can, indeed, afford that Lexus. 

But what might surprise you is that that neighbor probably cannot afford it.  Thus, most of the time, we base our impulsive buying decisions on a false premise!  We’re stretching ourselves thin to show off to the world that we can afford expensive assets, but we don’t realize that others around us have done the same thing (i.e., stretched themselves thin) and are in the same financial hole. 

3) The more we spend on impulsive purchases, the less cash we have for other, more productive, things.  To make my point, I only need to point to a great quote by Henry David Thoreau: “A man is rich in proportion to the number of things he can afford to let alone.” 

In other words, the more things we restrain ourselves from buying, the more cash we have in our pockets.  (I wrote a little bit about Henry David Thoreau’s concepts of simplicity and self-reliance in my post about Timothy Ferriss’s The 4-Hour Work Week.)         

How We Benefit From Restraint

We benefit from restraint because every dollar we keep for ourselves is a dollar more we have to invest.  People often complain that, beyond their 401(K)’s, etc., they don’t have money to invest.  They hide behind the mantra that “it takes money to make money.”  They tout these myths while spending their disposable cash on expensive items like TVs, cars, vacations, etc.

If individuals saved more of their hard-earned money–if they simply exercised some restraint–they would have much more cash available to invest or start a business.  Saving money can occur at the highest level (like opting for a cheaper four-door sedan instead of a huge SUV) and at the lowest level (like packing a lunch instead of buying lunch every day at work, or not signing up for monthly-charge DVD-rental plans).

There are no excuses.  All it takes is the desire to be yourself (instead of trying to be like everyone else and buying stuff you cannot afford) and a little restraint.

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