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Website story by Brenda Ward
They have a big house, a late-model car and their kids go to private school. You might think those flashy people in the leafy suburbs are rich, but don’t be fooled.
Look closer, and they’re more likely to be earning $70,000, but living a lifestyle they can’t afford. “I call them the $70,000 millionaires, says The Money Mentalist, Lynda Moore.
She often helps clients who are overextended but can’t stop buying more ‘stuff’.
She says: “When instant gratification is just a swipe away, it can be really tough not to give in to temptation and think, ‘I’ll just worry about the financial consequences later’.”
That’s why you shouldn’t try to keep up with the Joneses, she says.
“The Joneses may be just like you – but in debt!”
Research done in the United States showed that millionaires usually don’t have flashy lifestyles. Millionaires are more likely to be driving an older car and living in the same house for 20-plus years.
For their books The Millionaire Next Door and The Millionaire Mind, researcher Thomas J Stanley and university professor William D Danko looked at the lifestyles of America’s millionaires. They classified a ‘millionaire’ as a person with more than a million US dollars’ net worth of assets.
As a group, the millionaires were what the pair called ‘tight-wads’, living well below their means, wearing inexpensive clothes and driving modest cars.
However, as a group, they had more than 6.5 times the wealth of the average American and were ‘fastidious investors’, on average putting 20 per cent of their income into investments.
Here in New Zealand, the disconnect between how we live and what we earn is a real concern, says Moore.
“The saddest definition of wealth is the house, the bach, the BMW, all on credit. To me, that’s not wealth. The definition has to change because we can no longer expect that at 65, the government is going to look after us.
“Now we have to create our own security – but the problem is, we’re not. Financial planners are seeing people who are going to have mortgages in retirement. It’s a real concern.”
Owning a million-dollar home in Auckland may make you feel rich, but that doesn’t make you ‘rich’ either, she says. “Yes, you can sell the house, but you still have to live somewhere.”
Many people are in a precarious financial position, she says. Moore’s business partner Simon Lempriere says he was shocked to meet clients earning $120,000 but overspending.
Spectrum Rentals co-owner Marina George says she had a friend who earned $150,000-plus a year.
“He goes out for dinners, lives a very high lifestyle, and you’d think he was successful, but he rents –doesn’t own his own home, or car, and he’s only a few years away from retirement.
“He has the company car, all the perks but he can’t make ends meet. He ended up bankrupt three years ago. It’s scary to see how that’ll work out for him,” she says.
An expensive lifestyle can be sustained for some time, but it may not last, says Moore.
“It’s all well and good until the bank comes calling,” she says. “In the last recession, banks were calling clients and saying, ‘It’s time now to sell the bach’.
“If you don’t make your own financial changes, someone else might start making decisions for you. Why don’t people take control?”
Brenda Ward is the editor of JUNO Investing magazine.
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