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Keeping Up With the Boneses

Growing up, my grandfather was one of my heroes. His given name was Homer, but we all called him Bones. The son of a Methodist minister, he served as a Navy doctor during World War II and practiced urology in Houston for four decades. He was a man of strong faith and principle; humble, honest, and exceedingly kind.

As a doctor, he was financially secure, but his lifestyle was modest by most any measure - likely a consequence of having grown up during the Great Depression. He lived in the same house for nearly fifty years and drove a Buick sedan. If he found something broken around the house, his first response was to try to fix it rather than rushing to the store. He often kept and consumed his groceries well past their expiration date, which meant that we grandkids were careful to take a good, hard look at the food in his kitchen before taking a bite. Despite his frugality, he was generous with his money, and even more generous with his time: serving for many years as a Sunday School teacher, reading to underprivileged students at a nearby school, and actively participating in a number of civic and professional organizations.

When I exchanged wedding vows with my wife seven years ago, she placed Bones’s old wedding ring on my finger: a tangible reminder of the impact he had, and continues to have, on my life.

I hope you’ve had the chance to know and learn from someone like Bones: someone who inspired you to do better – to be better – by the quiet force of their character. There seems to be a lot of wailing about the lack of leadership in our world today, and to be fair, many leaders are facing extraordinary challenges right now. In my humble opinion, what we really need is more role models like Bones: people who lead by example rather than rhetoric, who seek to serve others rather than themselves.

I would also suggest that we need more financial role models like Bones. No matter where you are in your career or how much money you make, one of the biggest challenges you will face is the temptation to spend more as your income rises. Commonly referred to as “lifestyle inflation,” it’s a subtle, progressive condition that stems from our tendency to compare what we have to what other people have, plus the fact that there are a lot of fun, easy ways to spend money. There are other reasons too, of course – some cultural, some individual – but these are two of the primary culprits.

The evidence for lifestyle inflation is perhaps more anecdotal than statistical, although a recent Morningstar study did find that savings rates tend not to rise in lockstep with salary raises/bonuses. Statistics aside, we’ve all seen and/or experienced it. Every story you read about an athlete or celebrity frittering away their fortune involves lifestyle inflation. Moving to a nicer neighborhood, sending your kids to private school, joining a country club – these are obvious examples, but most inflationary spending decisions are invisibly sprinkled into day-to-day life. Eventually, you realize that you're living far more comfortably than you used to, but your savings haven't quite kept the same pace. Again, it doesn’t matter if you make $50,000/yr or $5,000,000/yr, there are always going to be enticing ways to spend your money, and there will always be people who make and spend more than you do. As my great-uncle, Bones’s brother-in-law, used to say, “The bigger the swimming pool, the more water it takes to fill it.”

Now, I’m not saying that you need to stick to some arbitrarily low level of spending, or that you should adopt an ascetic lifestyle and deprive yourself of all worldly goods and pleasures. Furthermore, my goal is not to cast judgment, since we are all guilty of succumbing to lifestyle inflation to some degree. My point is simply to bring awareness to this all-too-common phenomenon, and to encourage you not to get too carried away with your spending at the expense of your savings.

Here are a few key points to remember:

  1. The more you spend, the bigger your retirement portfolio needs to be to sustain that level of spending.
  2. Investments (generally) need time to grow. Even if you’re able to set aside more money towards retirement later in your earnings career, those dollars won’t have as much time to grow/compound.
  3. If you allow your lifestyle spending to rise and your savings rate to stagnate, you’re more likely to find yourself in a situation where you can’t make up for lost time/savings opportunities.
  4. The best advice is to develop early savings habits; these habits act as a behavioral guardrail to keep you on the financial independence highway, and (as mentioned in point #2) the money you save early on will reap more fruit than the money you save later.
  5. Comparing yourself to others is a recipe for dissatisfaction in most areas of life, including your spending habits. Resist the urge!

You don’t have to live in the same house for half a century or drive a Buick sedan to be financially secure. On the other hand, if you move into a bigger house every few years and regularly upgrade your sports car just because you can…well, unless you're worth eight or nine figures, that kind of lifestyle inflation can ravage your finances. Rather than chasing those high-flying Joneses, try keeping up with the Boneses instead.

And Now For Something Completely Different...

A righteous rendition of “Donna Lee” by Joe Pass and Niels-Henning Ørsted Pedersen. To quote jazz legend Oscar Peterson, “Niels didn’t play the bass, he was the bass.”