Going against the grain of our consumer-driven, materialistic society is difficult. Most are a slave to “more”, going deeper in debt to get fancy cars, stylish clothes and expensive homes. Being focused on paying down debt, increasing savings and building passive income for investment is not mainstream. Many want to look rich, but not be rich. But this debt building lifestyle that many take for granted is more dangerous than we realize. To illustrate, I present this real-life, cautionary consumer tale of my friend Bob*.
I met Bob at work, and we developed one of those casual acquaintance friendships that centers around quarterly lunches out of the office. Our lunch excursions were a way to vent work frustrations and gossip about coworkers. And as Bob was a car lover, he loved my mini cooper convertible.
When we first started our every two or three month lunch excursion, I discovered Bob had a love for the finer things in life. And frankly, so did I. Our friendship began during the beginning of my very own cautionary consumer tale. I just came back from a couple years working abroad, and got caught up in all the finer things my lower cost of living afforded me. After getting my fancy mini cooper convertible, I bought a fancy downtown condo with my partner at the time.
Coincidentally, Bob was also looking for his next fancy digs. Our company just sold off one of our products, a product that he worked in as a manager. As part of the acquisition and merger with this other company, Bob got promoted to a Director.
He loved all of the extra salary, bonuses, and status that it afforded him.
When I first bought my downtown condo, I took him by the place before and after the renovations I thought were absolutely needed at the time. They weren’t, but the renovations gave me a sense of accomplishment and pride. A status symbol that I was proud to share with my fellow consumer-driven, materialistic friend.
I enjoyed discussing and scoping out properties with him, to aid him and his fiance in their search for a new home. His list of demands was pretty high. He wanted a place right in the middle of a high cost of living, fancy side of town. Near a museum that he volunteered at and frequented often, also near all the hip and happening restaurants and bars. He wanted the convenience of a condo, but really wanted a garage for his ever-revolving high-end automobiles.
During the peak of my cautionary consumer tale, we’d share our weekend excursion adventures to nearby quaint towns. Discuss the best wineries in the area. Share pictures of our high-end vacation destinations.
Bob finally found the perfect property. It was a new construction set of modern, three story homes right across the street from his favorite museum and local nightlife hot spot. He and his fiance had toured quite a few places, and this was the only one in the perfect location with new and modern finishes. Not to mention a stand-alone, single detached house with a garage. This setup was unheard of in this area of town, but he found it!
He was so proud. Work was going well. His new job gave him the power, status and pay he had always wanted. After he and his fiance made the down payment on their new home, he looked for an apartment they could occupy for a year while waiting for their fancy digs to be built. They found a high-priced apartment overlooking a downtown street famous for its annual parades. He invited me to join them on their balcony with amazing views of the next parade. I promised to bring quiche and champagne to celebrate.
While Bob was living the high life, I was questioning mine. The glitz and glamour of high debt and high-cost living was wearing on me. Although I was making more money than I ever had, my expenses were getting out of control, and I felt more poor than I ever had. As my cautionary consumer tale was coming to an end, I moved out of my high-end condo and into a more modest apartment. And started making strides towards financial stability and financial independence.
You should have seen Bob’s face when I pulled into his apartment complex in my used Mazda 2. The lease on my fancy mini cooper convertible came to an end, and with an eye on my finances, I decided to buy a used car outright instead of financing another. I felt great about it, but Bob seemed confused.
While we enjoyed quiche and champagne on his balcony overlooking the local parade, he asked me how work was going. I assured him everything was okay, that I just got out of a relationship and an expensive living situation. And that I was trying to get my finances in order.
That’s when I realized how uncomfortable most people are about discussing finances. He quickly changed the subject to the parade, his job, the champagne. Anything but money.
Several months later we scheduled another quarterly lunch, and I was excited to show him my next big purchase. I had closed on my first owner occupied triplex a few weeks prior, and had just finished some modest renovations on my unit. After a meal at a local Chinese restaurant, full of soup and dumplings, I drove him over to my soon-to-be new home. I was excited.
He looked shocked. Not in a good way.
Pretending not to notice his shock, I walked him around the property, explaining my future living situation. Living on the end unit, and managing the other two. We went inside the unit I would move into that weekend.
I admired the newly tiled floors and painted cabinets.
He did not.
My finishes were not high-end. This unit was kind of a wreck when I bought it, and I only wanted to renovate to the point of rent-worthiness. My plan was to live here for one year, buy another owner occupied property, move into that and rent this one. Building up passive income as I went. This excited me. But as I explained my plan to him, I realized how this looked through his eyes.
A couple years prior, I was showing him a downtown, one bedroom loft that I purchased for more than what this triplex cost. I had renovated that loft with the most high-end finishes I could find. Now, a couple years later, we drove to a modest suburban neighborhood in my used Mazda 2 to look at apartment-grade finishes in a small two bedroom townhouse-style triplex.
I felt like an idiot. Self conscious about my new lifestyle and priorities, I spent the rest of the day at work second guessing my choices. More importantly, I was second guessing how others saw me. I was now bringing my lunches to work almost every day in an effort to save money. Skipping most lunches out, and all happy hours to save a buck. Was I missing the point?
As I watched my bank accounts swell, my concerns went away. I focused energy on building up real estate investment and property management skills. And on making small improvements in all areas of my life.
Around December, Bob and I were ready for another one of our lunches. I hesitated to reach out to him, realizing we had grown apart. Not that we were very close friends to begin with. But now we no longer shared a love of a consumer-driven high life. What the hell would we talk about?
I reached out anyway. He seemed happy to meet me at a local Mexican restaurant for lunch.
When I walked up to the booth where he was sitting, I could see something was wrong. His face long with concern, he gave me a half-hearted hug before sitting back down. It took a minute for me to get it out of him, but he eventually confessed.
He’d just been laid off.
I was floored. I knew his brand new, expensive home was close to ready, and being so close to Christmas it seemed like an especially horrible blow. My mind raced with all kinds of questions. And assumptions. Of course, he’d have to sell his half million dollar home. Scale back his cars. Probably accept a lower paying job quickly to stop the bleeding. Alter his lifestyle to stop spending and start saving.
At least, that’s what I thought.
When I asked him about his new place, he assured me everything was okay. He had talked his ex-employer into holding off his layoff until he closed on the property, which would be in three days.
I couldn’t believe it. He was going to stay there. How would he pay the mortgage? As I talked to him, I had no indication that he would scale back anything. He was happy to have a couple of fancy vacations to look forward to that would take his mind off of everything. And optimistic that he’d find a new role soon. He already had some conversations lined up. Expected to be back in another role within a couple months. Probably an Executive Director role. Taking a step back would not look good on his resume.
I paid for lunch. And hoped for the best.
Fast forward six months. Bob did not have a new job. He had cashed out his 401(k) and was blowing through it to pay bills. To keep up with his high cost of living.
It took another six months for him to accept a position. Not as an Executive Director, or a Director… or even a Manager. He joined a local IT company as an engineer. Almost a year after he was laid off, he finally checked his pride and got a job outside of a leadership role. While I never asked him specifics about his finances, at our next lunch he did indicate he’d blown through his 401(k) savings and got this job just in time.
Of course, he traded in for a new car as soon as he got the new gig. A few months later, Bob and his now-wife took a long vacation to the Caribbean at a high-end resort. It had been a stressful year, and they both deserved some pampering. During our next lunch out while he showed me pictures from their vacation, I was showing him pictures of my real estate investments.
A few months later I got a call from Bob. He’d just been promoted to Director, and wanted to have a Friday lunch with me to talk about it. I was happy to meet him. As I had just left my corporate job a few weeks prior, I had plenty of time, so we didn’t have to do the back-and-forth schedule coordination.
We had a lovely lunch. He was in good spirits, clearly proud of his promotion. I was slowly unwinding from a decade of corporate stress. He could tell, told me I looked peaceful. And I was. As our lunch was winding down, I asked him if everything was alright. If he was more stable financially.
He assured me he was. He’d just sold his only, small rental property for profit which helped pay off most of his credit card bills. After about a year or so of working, he should have the rest of his large credit card bills paid off, and would consider investing in a 401(k) again. Then he mentioned going on a vacation to Hawaii in a few months.
I forced a smile. Couldn’t believe he treated his debt with such nonchalance. Still spending like a madman after a year of unemployment had plummeted his net worth. But it was his cautionary consumer tale, not mine.
As we got up and went back to our respective cars, he told me how proud he was of me for going into real estate full time. He thought I was crazy when I bought that triplex, but now he could see how wise that was.
I could not agree more.