The appetite for the American dream has not been curbed as the United States has evolved over the years. The ideal that you can reach your goals and achieve success, regardless of where you are from or your socioeconomic status, continues to inspire workers and families.
Many believe that the American Dream entails a rather lavish lifestyle–fast cars, big houses and enviable vacations–however, the question is raised, is it possible to have the longevity of the American Dream if you’re living large financially in today’s society? Can we even afford the American Dream?
In a 2014 analysis by USA Today, research showed that living the American Dream would cost upwards of $130,000 a year for a family of four. The publication goes on to cite a U.S. Census Bureau statistic that revealed only 1 in 8 households even earned that much in 2013. These figures don’t deter Americans, though, who still feel the dream is attainable. This optimism combined with increased cost of living has left families carrying an average of $130,922 in debt–$15,762 of that in credit card debt alone.
Pursuing the American Dream has led to aggressive overspending. However, this is not a phenomenon without a fix. By simply reevaluating their lifestyle and financial habits, individuals and families might find that they can achieve the American Dream–but that it means living with less. (For more, see: How to Budget and Spend to Maximize Your Happiness)
Frugality in Finance
Committing to a more financially reserved lifestyle does not mean you have to give up everything you have or go without. Instead, you are setting yourself up for emotional and financial benefits that have an impact on both short-term and long-term living. (For more, see: Logic: The Antidote to Emotional Investing)
Financial Security: Choosing to live with less allows you to evaluate your holdings and purchases and realize if what you own is really an asset, or merely a liability. This is a key concept to understand–as Robert Kiwasaki explained, “Assets will put money into your pocket, and liabilities will take money out of your pocket.”
Liabilities–purchases like large houses, luxury cars and jewelry–cost more money to maintain, protect and keep up with little to no appreciation or added value over time. This means you end up having to spend money in order to keep your asset an asset. By owning less material items or by choosing to own items with minimal upkeep, you’re able to allocate that money elsewhere.
Fruitful Future: Having more money to work with when handling your finances sets you up for a more efficient long-term plan. With the money you have freed up from your liabilities, you can now focus more on savings, investments and retirement planning. This provides the opportunity to live a higher quality post-retirement life, or even retire earlier in some cases. Additionally, an enhanced focus on savings will mean that, instead of spending money on unnecessary material items now, splurges on special big-ticket items in the future will mean that much more. A scarcity of luxury items brings more value to the ones you do decide to invest in. (For more reading, see: Can I Retire Yet?)
Quality over Quantity: Spending less on materialistic goods not only saves you more money, but it makes you realize what is truly important. You will be confident that the money you spend will be going towards necessities, and not towards wastefulness. This makes for a more memorable, worthwhile experience when using your funds on purchases, as well as a decrease in buyer’s remorse that should allow you to enjoy your purchases guilt-free.
Instead of the latest version of an iPhone or an upgraded model of a Mustang, you will be investing your hard-earned dollars in higher quality items that will hold more meaning to you. This is one of the most important steps for the longevity of the American Dream: items that will last longer, hold your attention longer and stand the test of time. This behavior will reduce economic stress and lead you to a better emotional mindset. (For more, see: Behavioral Finance: How Bias Can Hurt Investing)
The American Dream doesn’t have to mean excessive spending and living a luxurious lifestyle, just like committing to a more minimalistic living does not mean having to sacrifice happiness. You still need to let yourself have fun and purchase items that bring you joy; the trick to success is just being more responsible while doing so.
Accumulating fewer material items and spending less will open the door for more promising financial opportunities moving forward. By living with less today, you’re preparing yourself (and your budget) for a better tomorrow. How’s that for a dream come true?
Michael Brady is president of Generosity Wealth Management in Boulder, Colorado
Registered Representative, securities offered through Cambridge Investment Research, Inc., a broker/dealer, member FINRA/SIPC
Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser
Generosity Wealth Management, LLC and Cambridge Investment Research, Inc. are not affiliated companies