What’s Your Financial Lifestyle? (Part 2)

September 21, 2017

This is part 2 in a series that playfully examines several financial lifestyles commonly observed by the Cash Cow Couple. Read the first part here – Part 1 (The Borrows).

On Wednesday, we looked at Bob and Bianca Borrow’s story. You may recall how the Borrows treated credit cards like free money, charging everything to the max. You may have thought to yourself – “I’m not like them! I live within my means and only buy what I can afford!”

Fair enough, let’s consider an alternative…

“We spend less than we earn!”

– Carl Consumer

It is true that most folks are more responsible than the Borrows. Perhaps your lifestyle more closely parallels that of Carl and Connie Consumer. While the Borrows clung to their credit cards, the Consumers can’t get a big enough paycheck. Instead of borrowing to the max, Carl and Connie spend almost every penny of their combined net incomes. They look at their take-home pay, commit that number to memory, and make sure not to spend more than what they earn! The Consumers think they are doing quite well, “living within their means.”

Like “everyone else” they know, Carl and Connie can’t afford to pay cash for major purchases such as a home, a new car, or that new pool they’ve been wanting for years. I mean, they’ve worked hard and saved up a down payment. What else can be expected?

When discussing these major purchases, the buying decision usually boils down to the magic question: “Can we safely afford the monthly payment?” As long as money earned exceeds money spent, why worry about the details?

They never stop to consider how much they’ll pay in interest on top of the purchase price or worry about how quickly they can pay off the loan in full. Such details are boring and best left to nerds and financial professionals. If they can comfortably swing the payments, they’re buying the goods. Of course, they don’t need a payment plan for necessities like food or clothing. They pay for those in cash! “Remember,” says Carl, “we don’t spend more than we earn and we’re doing just fine.”

Both of their employers have 401(k) plans in which the employer provides a 5% company match on any money that they are willing to  invest on a tax-deferred basis. Carl and Connie have also thought about contributing to a Roth IRA, which allow after-tax earnings to compound tax-free for retirement. But the timing isn’t quite right so they pass up the free company match and the opportunity to build wealth and minimize taxes.

Of course, they would like to save and invest, but there are far too many things they need right now:

  • A newer car (because that 2007 model has too many miles at 60k and is likely to break down soon – plus it looks ugly!),
  • That new LED TV (The 3-year old LCD doesn’t have wifi to stream Netflix and the picture isn’t quite what it once was…),
  • A new iPad (That retina display just tickles the eyes, don’t it?)
  • The latest iPhone (How can I use that old 3GS, 4, 4S model? The camera is blurry and it refuses to run more than 5 apps at a time!)
  • A family cruise (It’s time to reward the children for excellent grades and the adults for working so hard).

Unfortunately, the Consumers are working for their dollars instead of letting their dollars work for them. Although Carl and Connie believe they own their finances, the truth is that they are slaves. Like the Borrows, a job loss, accident, or illness could lead to a complete financial meltdown. Without a cash cushion and a long-term plan for achieving financial freedom, they will be unable to successfully retire until a very late age. In fact, they may never be able to retire if Social Security goes poof. The Consumer’s are slaves to a full time job or a government bureaucracy.

How Sad.

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17 Comments on "What’s Your Financial Lifestyle? (Part 2)"

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Elyse
Elyse
Wow! you hit the nail on the head for me. Its refreshing to see young people getting this, but for me and my hubby we are learning late in life what living within your means really means. We are in our late 40’s early 50s and have a daughter graduating from HS next year. College savings??? uhh, we didn’t make enough for that. Our story is a typical one. Not quite like the Borrows, but more like the Consumers. We both got through college debt free, but quickly got into debt after getting married with a new car and house.… Read more »
Mark Adam Douglass (Minimalist Couple)
Mark Adam Douglass (Minimalist Couple)

I love the continuation of this story.

I know so many people like this. My mother is a perfect example.

I was once a combination of the Borrows and the Consumers. I feel so good having moved away from that.

I can’t wait for the next installment!

Tammy R
Tammy R
Jacob, how many times might I say to you, If only we had you guys 20 years ago! The perfectly placed humor always makes your posts do delightful to read. I love the list of things the family NEEDS. Yes, how we justify our purchases with I Work So Hard I Deserve This! Until we realize that the excitement fades long before the new-car smell or the first nick in the granite countertop (do they have nicking capability? not sure as I do not have nor want one!) I’m not sure how we’re surviving without a TV, iPhone/iPad, or fancy… Read more »
cj
cj

How sad indeed, Jacob. What a splendid post. We were headed down the path of the Consumers and it was intensely stressful. Having $100 left over at the end of the month does not equate to financial irresponsibility, but many people think it does. We did. We were wrong with a capital W.

eemusings
eemusings

That image totally made my day. “Don’t imPRIUS me much”?!?! Genius! Still cracking up five minutes later.

John S @ Frugal Rules
John S @ Frugal Rules

How sad indeed! Being a slave to consumerism can be a VERY costly thing to say the least. Unfortunately, for many, they can’t see past their noses and see what these expenses will cost them in the long run.

Joni Scott
Joni Scott
OK, now you are getting personal! 🙂 However, I have a Kindle Fire instead of an iPad, and an Android phone instead of an iPhone. The LED TV saves us money by not going to the movies 🙂 Thankfully, we learned early to max-out our retirement contributions, put everything on a frequent flier miles credit card which we pay off every month (we essentially fly free most everywhere we go), and to be properly insured. We learned a lot from sound financial advisors, and did much research on our own. We learned how to invest in the stock market, and… Read more »
Kris Prewitt
Kris Prewitt

Totally agree….Duane will not be able to retire as early as Mike has, but we have had such a fun marriage and made some awesome family memories during those years. Sometimes those memories do cost some money, but like the commercial says they are PRICELESS!!!!! Sadly, life can be cut short, so do throw in a few joyous occasions and learn not only the importance of charitable giving, but the wonderful feeling that it gives you to be generous to others. Love this life that you have together. 🙂

Laurie @thefrugalfarmer
Laurie @thefrugalfarmer

Great post! I just heard a relative say at Christmas, when questioned about his new car “Oh, I don’t look at how much it costs, I just see if I can afford the payment”. The comment made me sick to my stomach. This was a 60+ year old man!

Vanessa
Vanessa

Oh my word Laurie. Unfortunately I think this is more common than we care to think about.