Americans Are Broke: Here’s Why

Americans Are BrokeAmericans tend to not have much money saved or invested for their future. Many of us live paycheck to paycheck. We eagerly await having money deposited in our bank accounts to go out and buy the newest gadget.

If we actually enjoyed many of the things we waste our money on, someone MIGHT be able to justify to themselves why living paycheck to paycheck is OK. Even though it isn’t.

Unfortunately, so many people don’t realize that they don’t enjoy these things that they live paycheck to paycheck to buy.

One Quote Explains It All

Will Rogers once said:

Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.

This quote has recently been attributed to Will Smith as well. It doesn’t matter who made the statement. The quote makes a lot of sense and most Americans don’t even realize it.

Americans are going into debt (spending money they haven’t earned) to buy things that they probably don’t even value highly when they sit back and think about their lives. The reason they buy these things is to keep up their image in their neighborhood or among their work colleagues. To prove it, I have a quick exercise I want you to go through.

Think About This For A Minute

I want you to sit and think about what you value most in your life. It should only take as little as 30 seconds or as long as 5 minutes if you want to be really thorough. I’m guessing that these things were probably at the top of your list:

  • Family
  • Friends
  • Health
  • Security
  • Opportunity

Did you notice what isn’t on this list? Things like giant homes with granite counter tops and real wood floors throughout aren’t there. Fancy cars like Cadillacs, BMWs and Audis didn’t make the list. Neither did boats, jet skis, vacation homes or motorcycles.

While none of these things likely made the list of what you value most, if you stop and take a look at your spending for the last year or even just the last 30 days, you’ll notice that homes and cars probably rank toward the top of your highest expenditures by category. But why?

Society Brainwashed Us To Want These Things

We buy many of these things, fancy versions of them at that, because society has conditioned us to want these things. We buy them with money we don’t yet have (debt) in order to fit society’s expectation of us. We do this to keep up with our neighbor down the street that just bought a new car, even if we don’t consciously realize what is happening.

There is nothing wrong with owning a home or having a car (or even 2 ), but if we don’t value these things very high on our list, why are we spending so much money on them?

A basic house will provide the same shelter that a high end house with all of the high end finishes would. A basic 5-10 year old Honda Civic will get you around town just as well as the 6-series BMW you’ve been drooling over. If we don’t value these things, why waste our money on expensive versions of them?

So What’s The Solution?

Want a solution to this problem? If you don’t value these things highly, you shouldn’t be buying them or at least not the fancy versions of them! It might take some time to adjust to the fact that what society wants you to buy and what you actually want to buy are different. It’s perfectly OK to drive a 10 year old car or live in a house with carpet and laminate counter tops.

Wait? I’m Not Allowed To Have Fun And Nice Things?

Before you freak out, some people do value fancy homes and fancy cars at the top of their lists. These people should be spending their money on these things if, and only if, they can truly afford them. At the same time, they should cut back on their spending on other things they don’t care as much about.

Just remember, living paycheck to paycheck or going into unsustainable debt to buy these luxury items shouldn’t be an option. Too many people end up in massive amounts of debt and have no clue how to get out. Wait until you have the money to buy these fancy luxury purchases. [Related: How To Pay Off Your Debt If You Don’t Know Where To Start]

How Can You Make Sure You’re Not Going Broke To Impress Other People

Go home and take a look at the things around your home. First off, look at where you live and the home you live in. Next, take a look at your car. Then go inside and look at all of the stuff and valuables you have. Then ask yourself the following questions:

  • Why do you have these things or the specific version of the things you have?
  • Do you have these things because you really wanted them?
  • Do they provide a purpose or joy in your life?
  • Do you like them as much now as you did when you were dreaming of buying them?

The answers should show you whether or not you’re spending your money on things you truly value or not. If you find out you’re just buying a bunch of junk you no longer care about, then you need to change your spending habits! How can you do that?

How To Change Your Spending Habits To Align With Your Values

It’s not easy to change your spending habits, but it is totally worth putting in the effort in to change them. Here are a list of questions you should ask yourself before you make every purchase:

  • Do I really want or need this?
  • Why do I want or need this?
  • Could I wait a week to buy this? (If so, wait unless it is a need.)
  • Do I already have something that serves the same purpose?
  • Can I pay for this today with cash and not go into debt?
  • Does this purchase align with my values and priorities?

These questions should help you figure out if you really want an item and if it aligns with your values. If it does and you can afford to buy it, go ahead and buy it. If not, wait until you have the money to make the purchase or don’t buy it at all if it doesn’t align with your values.

What To Do If You Buy Something That Doesn’t Align With Your Values

You’ll still make errors in judgment from time to time, so make sure to keep all of your receipts. If you figure out the item you purchased doesn’t align with your values and it is still returnable, use your receipt and return the item! If you can’t return the item, make sure you learn from your mistake and don’t make the same mistake again.

Americans try to impress others and that causes us all to go broke. Break the cycle and quit trying to impress people. Instead, only focus on what you truly want and need and your finances will be in much better shape. Once you make the change you should be able to pay off your consumer debt. Once your debt is gone, it’s time to finally start saving and investing!

What do you think about how society pressures us to buy things we don’t want with money we don’t have to impress other people we don’t really care about? Have you fallen victim to this societal pressure? Or have you found a unique way to stand up to the pressure and be your own person? I’d love to hear your thoughts in the comments.

Image by: TaxRebate.org.uk Text added by: Lance Cothern

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. Another thing that people seem to need to be at the forefront of is going to the newest restaurant or seeing the newest movie released. Somehow it makes them feel better or more “with it” than someone who waits until the movie comes out on video. One restaurant in our town opened and closed before we ever went there. Guess I’ll never know how wonderful it was. So wonderful it already closed. 😉

  2. We don’t care about what others say, hence we don’t dine out or dress fancy. But we do vacation and invest in our businesses, while also making sure our daughter is very well taken care of. Just ignoring ‘the Joneses’, can free up enough money to splurge on the very few things that really matter, while you can be frugal on those that are not important to you.

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