Personal Finance 

Beware Lifestyle Leverage

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One thing that I’ve noticed with a lot of young professionals, especially if they start rising in the ranks of their firms, is that there’s some pressure to get bigger and better things. Part of the pressure comes from mainstream media and pop culture, very few stars drive Honda Civics when there are much fancier cars to be had. MTV Cribs didn’t show one bedroom efficiencies or roommates. There’s a sense that as you make more, you should enjoy it. You should treat yourself to better cars, better housing, better meals, and, presumably, a better life.

The unfortunate part in all this is that sometimes you leverage too much… you borrow more than you should and live a leveraged lifestyle. It’s also one of the gems I read in Barry Ritholtz’s column 7 life lessons from the very wealthy.

This is even more treacherous when you consider companies sometimes play into this in order to retain talent. Since I never worked in a “partnership-track career,” that is one in which you’re expected to kill yourself working long hours in order to get to the promised land position of “partner,” (think: lawyer, financial services) I never knew the firms were eager to help inflate the lifestyles of their up and coming talent.

They encourage up-and-comers to spend extravagantly; they extend lines of credit to their rising stars. You need a big house with a jumbo mortgage; you cannot pull up to a business meeting in anything less than the best luxury car. It is part of their corporate culture.

On the surface, that seems great. Your firm likes you and values you enough to offer these perks most people don’t get. They’re also informal golden handcuffs. You can’t leave because you can’t afford it!

It’s hard not to work long hours if you need to… in order to pay for that expensive car lease or mortgage payment. Don’t turn yourself into an indentured servant.

{ 13 comments, please add your thoughts now! }

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13 Responses to “Beware Lifestyle Leverage”

  1. Robert says:

    “Don’t turn yourself into an indentured servant” AMEN!!

    There is a reason DEBT is a four-letter word. If you know what I mean..

  2. It’s sad but true, even businesses are worried more about “image” these days. How successful can a company be if it’s stars and top employees are driving around in reasonably priced cars, or who live in non-exclusive neighborhoods? Give me a middle of the road car and house any day of the week if it gives me the freedom to drop everything and take off for a weekend trip or quit to go do something I’m more passionate about.

    Oh, and there was one episode of Cribs that showed the rapper Redman’s little side apartment in Staten Island, NY. But your overall point is spot on, Jim. All of these shows put the spotlight on the extravagance and excess that those people seem to enjoy.

  3. mannymacho says:

    That was a really neat column Jim, thanks for sharing. That reminds me of the Seth Green version of “Cribs” from that Un-Broke show.

  4. DJ Wetzel says:

    This is probably a weird reference…but my wife and I recently watched the movie Julie and Julia, about Julia Childs, the chef. In the movie the character that plays Julie meets with all of her friends who have high paying jobs and swanky titles. They are all fawning over eac other about their new promotion or big new project that they have just received. One of them comments on how much money she is now able to borrow from her employer at a ridiculous interest rate, and everyone else (except Julie) is very impressed.

    I can relate with Julie in this situation, and I see many of my friends who are doing this exact same thing. Unfortunately, I think they will also be the ones who crash the hardest when they lose a job, miss a promotion, or miss any other little stepping stone in their path to fame.

  5. cubiclegeoff says:

    When you’re pressured to have an appearance to keep your job, you do what you have it. Not saying it’s right or the best thing to do or that there aren’t other options, but sometimes that is just how it is.

    Also, there are some that say you SHOULD borrow and leverage while your young, and then when you’re older and can afford to pay it off, it balances our your life over the very long-term.

  6. LL says:

    Good points! I just wanted to add something. I once saw an episode of Cribs where they went to Redman’s house. He had a 2 bedroom townhouse in the New Jersey suburbs. He showed off his broken doorbell. He joked how his house was small and not fancy, but he wouldn’t be broke when he was old.

    It was nice to see a celebrity breaking the extravagant lifestyle mold and living normally.

    • skylog says:

      i remember that episode. it was classic…and smart. i can barely remember any of the other episodes i watched, but that one has always stuck with me.

  7. JamesV says:

    Very good article! I’m really enjoying this Bargaineering website. I read it every day now;)

    I sure do agree with this article being in my mid-30’s. It’s the classic keeping up with the “Jones’s” (sorry about the spelling?) I know I can find myself falling into this trap though, so I gotta be sure I continue to ‘walk the talk’ myself. I really enjoy nice (expensive) things. Who doesn’t? But I’ve always tried to not pay much for the nice things, or just pass on them, and know that I “can’t have it all”. I try to buy something that looks expensive/quality, but is really a bargain. I do a ton of research first and randomly poll a number of people before I buy it. If I can’t buy it with cash, then I don’t buy it, period, no matter what it is. I just bought a new-to-me Mini Cooper S, but of course not a newer one like a 2009-2011…. I bought a 2003 that looks just like a 2011;) Likely saved over $10,000.

  8. Annie says:

    You should treat yourself from time to time – it makes life more fun. Overextending is not the way to reward yourself. You never know what the future can hold i.e. downsizing at your firm, corporate takeover, illness etc.. Live within your means. If you plan ahead and don’t get too extravagant who knows you might be able to retire early.

  9. daenyll says:

    live the lie long enough, you forget it is a lie until everything comes back to bite you in one snarling furball from hell. It’s always better to be the spectator from the other side of the fence and learn the lessons rather than the poor person who’s left torn and broken with the interesting proposition of a rabies vaccination series in the near future…

  10. Shirley says:

    I’ve never been put in a position to have to seem to be other than what I truly was, but I have seen others there.

    Their most common trait seemed to be that they were in a frantic hurry about everything and didn’t ever have time to relax and enjoy anything. Perhaps they were in a hurry to get this facade over and done with?

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