The Lifestyle Trap - Its all about Choices

I have to admit; the thought of sitting behind the wheel of a finely crafted precision made BMW SUV does appeal to me. The fine leather, tight handling and good looks of a luxury SUV complement any suburban driveway. The only thing better than one BMW in my driveway is two BMWs. Just think how good it feels to pull up in your driveway as your neighbours catch a glimpse of fine European craftsmanship. Does this sound like a commercial? Does it sound real? Am I missing something more important?

Have you noticed your mortgage balance grow over time? Have you ever taken equity out of your home to pay off other debts? Have you noticed that your pay increase is never enough? Do you know how to recognize negative cash flow? Have you ever counted on a bonus to pay your taxes or credit card bills? Have you ever been disappointed with a recent winter vacation? Do you sometimes think that your vacation dollars did not give you a big enough bang for your buck? Good. Then you are just like the rest of us. Now lets look a little deeper. See if the following story rings a bell:

Who can relate to, George, a hard working senior manager surprises Jan with a new Mercedes SUV on her birthday. Now Jan can safely drive her two kids skiing to the local ski hill. Her kids convince mom they need new equipment and Jan obliges with brand new Carving skis, clothing, and helmets. Jan does not ski and prefers to have a few Lattes with her friends in the chalet who also shuttle kids to ski lessons. Jan learns their friends are moving to a bigger house in the fall and are planning a winter trip to Whistler. Jan tells George over dinner that Darryl is taking his wife skiing to Whistler. George takes the bait and three weeks later books a winter vacation in the Alps for Jan and their two kids. Jan figures that now is a good time to buy that new ski outfit. Darryl invites George and Jan to the new house and shows with pride the new renovations and indoor pool. George was impressed and thought, hey, maybe that new solarium would look great in their home and asks Darryl for the name of the his renovator. Who is in control here? George? His lovely wife? Does George know what effect his decisions will make to his early retirement plans? Does George even care about the future?

I am not finished with George. George likes to look good at work. Image is everything to him. Lately, George has not been working out as often as he used to at his fitness club. He has gained a few pounds, and needs a few new suits. He visits his local tailor and spends $1299.00 on two new suits. Did George make the right choices?

Have you ever wondered how much your Hugo Boss suit is really worth? When I travel to Germany to visit family I usually make a detour for Metzingen. This sleepy little town south of Munich is well known for great deals on Hugo Boss clothing. The town is home to a Hugo Boss manufacturing facility and warehouse outlet. I have found some amazing bargains there. A few years back I purchased a $1000USD+ Hugo tuxedo for under $150US. For $100US you could buy Hugo business suits. The suits I bought were apparently seconds. I still can't find anything wrong with them. You can just imagine the mark-up on big name fashion.

I think it's just about time to warm up my calculator. I know, I am spoiling all the enjoyment we get out of spending our hard earned paycheques on luxury goods. Before I get into some lifestyle calculations I want to make clear that I am not advocating a 'miser' lifestyle. We all should have balance in our lives and therefore we must equate what we will gain today on the purchase of each additional luxury good with what we will lose in terms of foregone retirement income. Economists call this marginal utility.

Now lets try to figure out how much George and Jan's lifestyle choices will cost them in terms of reduced retirement income. Stay tuned for the next installment!