Think back to your school days. You wanted to have friends and feel part of a peer group. But to be part of that group, you needed to be on the same socio-economic level as your peers. Back then, it was a matter of wearing the same brand of shoes as them or having the same model phone.
You needed to prove to them that you were on their level to be accepted by them. Now that you’re an adult, nothing has changed since those days. You’re still trying to prove to others that you’re on their level to be accepted by them or impress them with your possessions. But the difference is that you’re doing it on a bigger scale now. And it’s causing you financial distress.
The reasons for your financial distress
Status and comfort are the two primary causes of your financial distress. Wanting to penetrate a certain social group or to receive validation from them requires you to be on the same socio-economic as them. Otherwise, they won’t take you seriously or notice you.
To get to their level, you need to have a degree of status. And the way we do that is by having certain possessions. We buy cars we can’t afford, so we finance them. We take vacations without having savings by putting them on a credit card or even taking out a loan.
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In most cases, we take loans to enjoy a certain level of status and comfort.
Think of the reason you have a nice car, which is financed. You want people to be impressed by it and make them feel that you’ve accomplished more than regular folks. The comfort component of car ownership means that you don’t have to catch the bus and be in a congested space and stop at numerous stations before arriving at your destination.
All of us enjoy a certain level of comfort and status that’s acceptable. The only time those two factors become a problem is when you have to take out a loan to enjoy them. When you cannot pay cash for an item to enjoy status and comfort, that’s when it affects your financial situation.
The deeper problem with status and comfort
After you loan money to acquire status and comfort and you get them, you enter a pit that’s difficult to climb out of. Imagine having a luxury car that you financed. You love the sound system, the looks you get from strangers at a traffic light and how it’s improved your dating life, supposedly.
And then I tell you to sell the car and take public transportation because you actually can’t afford that vehicle. That’s why it’s financed. And not having it will improve your financial situation. The first thing you’re going to think is, ‘Oh, no. I can’t lower my standards now by using a bus or a tram. What are people going to think of me? How am I supposed to pick up my date without a car?’
It doesn’t even have to be as big of a purchase as a vehicle. It can be a simple subscription to a video streaming service, which you put on your credit card because you don’t have the cash for it.
Image by Clker-Free-Vector-Images from Pixabay
After you’ve enjoyed the shows on the platform for several weeks, I tell you to cancel the subscription. You’re not going to be happy with me because you’ve gotten into a routine of watching certain shows, and you really need to find out if Jane is going to dump Carlos to be with Chad.
If you had financed those purchases with cash and you still had savings, I would not tell you to get rid of those items unless they really were nonsensical.
The other problem with financed status and comfort
Now that you’ve taken out a loan to enjoy status and comfort, it feels good to bask in it. You enjoy the feeling you get in a certain car, label clothing brands and outings. You can’t get enough of that feeling, and you want more of it, sometimes on a grander scale.
What follows?
To carry on enjoying that lifestyle, which you can’t afford, you keep on taking out more debt. It’s inevitable. When you’ve financed certain items, it means you’re living above your means. One debt usually means taking out more debt.
Image by Clker-Free-Vector-Images from Pixabay
You got vehicle finance, so what’s wrong with taking out a cellphone contract to have the latest model, right? It’s a small purchase in comparison to the car. See what I mean? After the phone contract, you’re likely to take out a gym contract, put the shoes on the credit card and everything else you can’t afford.
It’s a hole that you dig deeper.
Let go of status and comfort
The best thing about being homeless is that I stopped caring about what people thought of me. Sure, we all care to a certain degree about what people think of us—otherwise we’d walk naked in public. But I didn’t care about car ownership, exotic vacations and designer brands to boost my status and comfort.
In fact, I also got very uncomfortable. After my luxury BMW was repossessed, I didn’t buy another car, even though I had cash. I wore cheap T-shirts and didn’t take a vacation—not a single one. Even now that I’m out of debt and have savings, I still haven’t taken a vacation.
Vacations are for rich and broke people. The middle class don’t mind staying at home because they’re concerned about getting out of debt and building savings to have a great retirement. They’re thinking long-term, instead of impulsively, like broke people seeking status and comfort.
The moment you stop caring about other people’s validation, that’s when you will make different purchasing decisions. No longer will your decisions be influenced by what others think you should have. Instead, you will withhold certain purchases until you’re out of debt and have savings. That’s much smarter than having debt to have a stupid car and designer clothing.
Financial distress is caused when people seek status and comfort by purchasing certain items to gain acceptance. When purchasing those items on credit, you cause yourself financial distress. To avoid it, don’t make purchases on credit. If you don’t have savings left after making a cash purchase, it means you can’t afford that purchase.
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