Financial planning - the effect of lifestyle

In my last post, I gave examples of how people around you can affect your financial planning. The people around you can also affect your lifestyle. The examples I gave in my last post about buying the same cars and living in the same neighborhoods illustrate this. 

     Lifestyle is a way of living chosen by an individual or a group of people. One may decide to live a conservative or an extravagant lifestyle. Extravagant lifestyle may be good if you wealthy and have a very stable income. On the other hand, conservative lifestyle is adequate if you are on low-income. For example, a Ferrari car of $1 million may be compatible with a multi-million income of a CEO of a major company (Apple, Facebook, Google, hp, Exxon Mobil, JP Morgan, Citi Group, etc.), but looks extravagant for a worker on an annual salary of $500,000. Therefore, your lifestyle has to be compatible with your income in order for it to be sustainable. At a first lok, one would say think a yearly income of $500,000 is enough to buy one a Ferrari over 5 years of work. This is where the temptation starts. The problem is not only buying a Ferrari car of $1 million, the car tax on that, the cost of insurance, and the maintenance add up to another heavy expenses. To worsen the whole thing, you need to belong to the elite club of Ferrari owners. Remember most of Ferrari car users have investments. They do not depend on salary.        

The cost of maintaining an extravagant lifestyle without having the appropriate income for it will put you under financial stress to the point you cannot have any financial plans at all. I used a Ferrari car as an example here. However, extravagant lifestyle can be observed in different levels of the society. It is incredible to observe that about 95% of the population have this problem. Extravagant lifestyle is generally assiciated to the rich. But, extravagant lifestyle is commonly found in the working class and worst in the poorer class.          

Many workers live paycheck to paycheck with the hope that their pension after retirement will support them when they stop working. This makes them use any excess remaining from their compulsory contributions on cars, house rents, credit cards, and amenities. Imagine a situation whereby a worker decides to reduce his lifestyle and save money so he or she can retire as a millionaire. This is a hard sell. I will show this with numbers in my next posts so that it can be easily visualized. 

The question of the poor is a special case. One of the reasons people give for not achieving something is poverty. However, this is not the case. Many people in the poor class do not know what is building wealth in the first place. They do not have enough, but have the habit of spending everything they have. They celebrate their children's aniversariares every year even if it means going into depbt, they buy expensive smartphones, buy branded sneakers, etc. What makes their case worse is that they never think about investing in themselves or in something that can change their lives. 

Recently, one of my cousins in Nigeria was asking me to help him go for a graduate study. He told me he does not have money. However, he sends me message through an iphone while I am using Samsung iphone. Is it not ironical for someone using more luxirious products be begging for help from someone using a less expensive ones?

Lifestyle is a strong barrier to financial planning. It is difficult to correct because it is a behavioral issue. Our behavior is molded by what we have in our subconscious mind. Unless we change what is inside the subconscious mind, we cannot succeed in changing our behavior. This is the reason why many people struggle with changing their lifestyle. Some even go to the point of killing themselves instead of changing their lifestyle.

So, adopt a lifestyle that is compatible with your income. Think about this!