Financial freedom is the goal of most adults, though it seems to be an elusive beast to chase. While financial freedom has many different meanings to many different people, the overall gist of it is not to have to worry about money or how to pay your bills. In a 2017 study by CareerBuilder, 80% of working American households considered themselves to be living paycheck to paycheck. While there are many systemic changes that need to be made in order to improve this number, there is one thing that households can work on within themselves to help: stop trying to keep up with the Joneses. This is in no way placing blame on hardworking families for not being able to meet their living expenses, but is more a helpful suggestion towards the struggling middle class.
Housing is usually one of the biggest expenses in a household. The rule of thumb is to spend 30% of your net income or less on your housing costs – rent or mortgage. Before you take this advice blindly, however, consider your other monthly expenses. If you have children in childcare, you may need to lower that percentage, as we all know childcare is often more costly than owning a home. When you go house hunting, sit down and figure out your budget before you get a preapproval letter or speak to a realtor. When you are figuring out your budget, also take maintenance into account. Will you truly use all the rooms you are buying? How much will it cost to heat and cool the house? Are you going to clean it yourself or are you planning on hiring a cleaning service, and how much will that add to your monthly budget? These are all things to take into consideration before jumping into a large home. According to US census results, the average household size has shrunk, but the average house size had grown from 1,660 square feet in 1973 to 2,467 square feet in 2015. The necessary space per person hasn’t changed, but our perception of how much space we truly need has changed. While tiny home living is very much not for every person, we can all benefit from a little modesty and simplicity within our housing.
Similar to housing, American cars have gotten bigger and bigger over the years, although the average household size has shrunk. School drop off lines are filled with 3 row SUVs carrying one or maybe two kids. Walking hand in hand with the increased size of cars are all the upgrades. You can now get cars that will park for you, while playing a movie and heating your butt. While this technology is certainly very innovative and “cool” for lack of a better word, is it necessary? In addition to that, is it necessary to buy a brand new car? It is a well-known fact that new cars depreciate as soon as they are driven off the lot, so why put that extra money to waste when you can get a used car that is often just as good or better for thousands less? In the same manner as preparing to purchase a house, a car budget should be figured out prior to applying for a loan or showing up at the car dealership.
How many of us have been influenced into making a large (or even small) purchase based upon the spending decisions of our friends and families? The thinking being that it makes relative sense: if we gauge ourselves to be in the same economic class, and they can afford a new SUV, then obviously we should be able to afford a new SUV, right? The comparison game never goes well in this instance. We can never know exactly what other people’s finances look like, and is it really more important than your emotional well-being to show off these status symbols? Financial stress can take a huge toll on our mental and physical health. We should never sacrifice our health in order to feel like we are keeping up with our peers. Our own happiness should lie within how we feel about ourselves, not how we are perceived by others. If you’re looking for some more financial peace of mind, living within or beneath your means can significantly reduce your stress and increase your overall happiness.