The Status Spending Test: Two Simple Questions About Your Car and Home

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I feel like I’ve been reading a lot of backlash against the “latte factor”. I agree buying a Starbucks latte every day will not directly lead to poverty, and forgoing it will not make you independently wealthy. However, sometimes a concrete example is more powerful than a vague position like “just prioritize your spending” (which I believe, but sort of like “spend less than you earn”).

Instead of the small stuff, I prefer to start with the biggest expenses and work down from there. You may consider your mortgage and car payments to be a “fixed” expense, but that doesn’t mean they can’t be reduced. Tom Welsh of Humble Dollar has a post Pay to Play which includes a very simple test to see if you are spending an excessive amount on your social status, possibly at the expense of your future basic needs. No calculator required. No budgets.

How can we tell if we’re engaging in heavy social spending? Two simple tests can help you analyze your own degree of social spending.

Test No. 1: Did you pay $57,000 or more for your car – a 50%-plus premium to the average $38,000 new car price?

Test No. 2: How many rooms in your home are used by people every single day? Divide that number by the total number of rooms in your home. Is it 50% or less?

My current vehicle is a 2015 Toyota Sienna, bought used for well under even the average number. It creates zero excitement and is little more than a reliable appliance, but I have come to love it (and its sweet sliding doors) for what it is. We are a family of 5 inside a 2,000 sf house, and every single room is definitely used every single day, often by multiple people at the same time. We prioritized room, safety, and reliability in the car. We prioritized location with the house, with minimal commute time, while also trying to make it smaller (and cheaper) but still allowing for a home office.

Now, a luxury car and a big house may be your prioritized expenses and well within your means. Which is great. But if it isn’t, you may have found something to cut back on that is much more powerful than skipping the Starbucks. Moving is a huge pain, but it’s a one-time change to which you quickly adjust, while potentially improving your overall financial picture for the rest of your life.

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Comments

  1. I don’t think your examples are a one size fits all. I am an early retiree, I was semi-retired at age 51 going from full to part-time work, I fully retired at age 58. I was able to do it because I spent less than I earned and invested in equities starting at age 25. I made my last car payment at age 25, I bought my first house at age 25 and I paid it off at age 33. Since semi-retiring I have lived in small 982 sq foot 3 bedroom 1 bath ranch. I barely use 2 or the bedrooms. How much smaller home could I live in? I like to drive Toyota 4WD pickups. I drove my 1989 for 16 years and 183,000 miles with few issues. I am currently driving a 2010 with 100,000 miles. I buy them cash and I could get a new one for around $30,000. In a nutshell your parameters are too rich for my taste.

  2. I live in South Florida; my wife and I are both in healthcare (Gross Annual just barely above $100k) and see many in the field especially my RN co-workers who are living it up with excessive debt / living paycheck to paycheck. I have been following you since the beginning and thank you for all your valuable advise as well as the advise from the “Oracle of Omaha”; he initially stated me on my quest of frugality.
    I agree with your latte factor and proposed this to another of my colleagues in the following manner; Instead of a $40,000+ Lexus ES buy a Toyota Camry keep at least 10 years (previously leasing q 3yrs); buy a premium purse ($300-800) every 3 years; and skip the Starbucks daily; purchase a Keurig; invest the rest in index funds with market conservative of 5% after inflation in 30 years she have well over $300,000 in nest egg.
    Just saving $4/day on Starbucks saves a hair over $100,000 in 30 years @ 5%.
    My wife & I have always lived in small 3/1 or 2/1 homes usually in mixed older neighborhoods to keep expenses low as well as drive are cars to the ground (“If it ain’t Jap its Crap”; is what one of my former private duty clients whom are multi-millionaries from Toronto said.) With your website help; We are Mortgage free at 43yo (18 year payoff); and in the last 3 years have maxed out 401ks & Roth IRAs.
    Thanks for all your help, Jonathan!!!

    • Very impressive, great job saving and investing. It’s nice to hear another example of frugality and planning working, as opposed to “why bother, we’re all doomed if we don’t sell a startup for a billion dollars”.

  3. It’s interesting to note possible geographical differences in this scenario. For example, housing in New England/Southern Maine (where I am) is notoriously small – so the likelihood of anyone from this area answering 50% or less to the “how many rooms of your house do you use” does not necessarily give a good read on whether someone has made a status choice or not. More likely, location and proximity to “the city” (Portland) are the status choice my peers have to make when deciding on where to buy a house.

    I’m also pleasantly surprised that the thought of a $57,000 car BLEW MY DAMN MIND. We’ve never spent more than $10k and buy used cars only, outright when we can. We’ve also been lucky to “inherit” a couple cars at low or no cost from family. The funny thing about this to me, a natural spendthrift, is that my car gets me to and from work, the beach, the playground, the grocery store, etc. just as comfortably and speedily as a car six times its price. I have an hour commute daily and sure, smart parking and bluetooth everything and whatever else the kids have these days would be nice… but better than having that extra $47k to spend on quality time with family and paying down the mortgage? No thanks. 🙂

    Thanks, as always, for the interesting posts!

    • It’s a bit crazy to think that the average household income has been struggling to rise above about $60,000 a year, but the average new car now costs $38,000. 6-year car loans are now industry standard. So much of our wealth committed to cars.

      This is why it seems every other TV commercial is about cars. They need to keep us convinced that this is “normal”.

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