When we're born into this world, we don't have a clue what money is. Thus, we all start out with a financial disconnect that's due to a lack of awareness. But, over time we're taught the value of money as well as financial awareness.
But even as adults, some people still suffer from financial disconnect. Some people waste their money away yet still criticize how other people spend theirs. Others think only their way to invest is the right way, and the way everyone else invests is wrong. When it comes to money and people, financial disconnect abounds.
I thought about this recently with an interaction I had with a friend of mine. One of my new favorite restaurants in San Francisco is Espestus Churrascaria. The restaurant serves good old fashion Brazilian meat that is more tasty than some of the finest dry-aged rib-eyes. Ever since visiting Rio de Janeiro in 2006 during business school, I've been craving to eat some Picanha (rump cap) until finally my best friend took me to Espestus last month.
Financial Disconnect Abounds
After going without picanha for eight years, I wanted to return just a month later. Perhaps one of the main reasons why I never went was because of the cost. At $74 a person after tax and tip for food alone, Espestus costs a pretty penny!
Instead of just going with my friend the second time around, I asked her if she'd like to invite another couple friend of ours to make it four.
Here's her friend's text response: Too expensive!
Espetus is surely an expensive place to eat, but our friends are in their late 30s, rent a $3,700 a month apartment and drive a 2010 Porsche Cayenne. The husband also has a $10,000 motorbike.
Here's my text response to my friend: Ask them anyway. They drive a Porsche that costs literally 15X more than Moose!
She texts back: OK, I'll see.
Who Is Out Of Touch With Financial Reality?
My friend knows this couple better than I do. I'm absolutely sure the husband makes more money than my friend given he's seven years older and is a hardware engineer in Silicon Valley. His wife is currently working part-time in retail, so probably doesn't make too much. Perhaps my friend was just thinking of her instead of looking at their entire financial package. My friend is a very frugal and kind person.
I'm a very analytical person when it comes to assessing someone's finances. I've got a couple triggers that get processed instantaneously. If I see someone driving a $40,000 Porsche Cayenne (he bought it used), I automatically assume the driver makes at least $200,000, if not $400,000 based on my 1/10th rule for car buying.
As a landlord, if I know someone pays $3,700 a month in rent, I assume they make at least $148,000 a year because 40X the monthly rent as annual income is the minimum I accept for tenants (See Pricing Strategy To Maximize Rent). I'm sure many of you have your own quick assumptions about others as well.
Surely a couple who makes $148,000 – $400,000 a year in combined income can afford a $150 dinner for two, no? Putting the situation this way, my friend agreed she didn't think things through. However, she still feels bad asking them to go with us to Espetus Churrascaria for a face-stuffing good time, so she never asked.
Is my friend showing financial disconnect, or am I being financially aware?
Be Careful With The Things You Own
The truth of the matter is, my friend is more right than wrong. It's unlikely the couple have a lot of savings given the old company the husband worked for went under. The wife has been out of steady work for two years and $3,700 a month in rent for a one bedroom is expensive. They just like their toys. Good on them for spending on what brings them happiness. They are a very generous couple who are very fun to be around – hence, why I asked my friend to invite them in the first place.
I've just got different financial values than them. For example, I personally would never spend more than $2,000 a month on rent. The day I needed to was the day I bought my first SF property back in 2003. Because they do spend so much on rent, I automatically think they are decently wealthy. Therefore, I assumed they can spend freely on food, which is something I don't mind paying up for.
The things you own allow your friends to paint a financial picture of who you are. I always want to anchor low so that I have the choice to spend up if desired. To anchor high would surely be bad for my finances as I'd hang around with wealthy people who think nothing of $75 dinners, $200 shows, $500 hotel rooms, and $8,000 business class tickets overseas.
They would automatically assume that I can afford everything because of my things. If I show any unwillingness to pay, then I'll be deemed as “cheap.” And there's little I find more annoying than when rich people call me cheap.
Turn Financial Disconnect Into Financial Awareness
I encourage everyone to err on the conservative side of spending on things which can be seen by others. When I owned a used BMW M3 coupe as a 27 year old, I wanted to naturally buy a fancy racing watch like the stainless steel Rolex Daytona ($10,000 back then).
Now that I drive a 14 year old Land Rover, I'm just happy if my dashboard clock doesn't go out! Spending begets more spending thanks to your own desires, and thanks to the assumptions made by others. It's not someone's fault for thinking you make more than you really do when you've got a lot of fancy toys.
Avoid the negative spending trap as much as possible if you want to grow your wealth. And if you're already wealthy, well then don't forget to treat your less wealthy friends out for all-you-can-eat picanha!
Further Reading
- Would You Return A Lost 12 Carat, $200,000+ Diamond Ring?
- The Clubber’s Guide To Saving Money And Having A Good Time
- Blink And Blink Again: Your Unconscious Mind At Work
- Are The Poor Bringing The Poor & Middle Class Down With Them?
Readers, is my friend showing tremendous financial awareness or financial disconnect by saying the couple can't afford to eat with us? Am I overly simplistic in my financial assumption of others because I believe everybody is rational? How do you balance going out with friends who have much different financial wealth than you? Do you think it's natural for other people to guesstimate your financial health based on the things you own?
Related: Are You Delusional? Don't Let Dunning Krueger Ruin Your Life
My wife and I save more than $150 a day on average, and we’ve never spent close to $150 on a dinner for the two of us – and wouldn’t unless there were a very good reason or we just wanted to see what all the fuss was about. We can afford it, but “too expensive” still applies.
Couldn’t imagine why it would be a problem to at least ask your friends. Especially if you’ve been out to $75pp dinners before. It’s up to them if they want to spend $150 on dinner or not. I don’t think it’s fair for someone to decide for them.
My wife and I love cars, we owned a 100k sports car and a 60k SUV, I worked in technology company for 15 years and my salary is 100k/year and my wife makes about the same. And we do go out with friends to spend $200/couple for dinner. Brazilian meat is one of my favorite.
In the eyes of some of my friends and colleagues, we are considered over spenders, since most of them were my ex colleagues and college friends in the similar fields and position.
However, we owe nothing (debt free) on the car and house since we paid it off long ago. We did it by starting a side business when we were young and now we have 4 employees and the sales is about 1.3m a year with 40% gross and still growing, we also have a couple rental properties that paid off, giving us about 5k/month.
I do get comments from colleagues like ‘The car payment must be expensive.’ ‘You shouldn’t spend so much on cars and save more.’ ‘Your wife must make alot of money’. One of my managers even told me ‘You need your job, so you can sustain your lifestyle.’ I usually just nod and smile at their comments.
My point is that people who think they know you judged you the way you spend your money. Just like your friend Sam, she thinks that the meal is too expensive because they drive a nice car and live in an expensive place.
People like to compare themselves against others they know and some have this mentality, “If I can’t afford it, how can he/she?” or “I’m better off, because I’ve savings and he/she does not.”
Jay,
I was thinking about that too. But, then I re-read Sam’s post. It looks like the husband has recently started working for a new company. His old company went out of business.
The wife hasn’t had a full time job for two years and now is working part time in retail. Sounds like financial stress.
What is not indicated is how long the couple has been renting this particular apartment. Whether it is subject to rent control. Why they choose to live in this location (safety, commute, etc.). Why rent a one bedroom? Were they already renting this place while the husband worked at the previous company. Etc.
Nothing really wrong with owning a Porsche. Or a motorcycle. Or whatever. It just appears to me, that this couple may have fallen into financial stress and are still trying to recover. And maybe in a few years, they might just be fine.
If everyone were reasonable and responsible, there would be no credit card debt. Everyone would save for retirement and live within their means. Way too many people do what makes them happy at the moment which generally means they spend their money in a variety of ways without having any savings.
Eventually, you will surround yourself with friends that have similar goals and wealth. That still does not mean that they will want to go to an expensive restaurant with you. I still reserve those occasions for special events with my wife and family.
You have to analyze what an expense is, vs. an investment. A car is an expense. If one chooses to drive a less expensive car, you can have more of the things that you enjoy. A car just gets you here and there – and impresses your colleagues.
I would rather a good meal. Of course, even as a business write-off, $74 per person would make me flinch…
I don’t think it would ever hurt to ask. People, even the most aloof ones, know what images are being presented by virtue of their clothes, cars, and home. These are choices that are made, whether it be a conscious decision or not. You would think downsizing would be a consideration if someone was struggling, but I’ve learned over time that people don’t like to move down, only up. As for me, I shop for used clothes, drive an old car, and people know these things. I rarely discuss how (decently) well we are doing financially, but like you, I hate being labeled as cheap, especially when I would call it “smart.” My finances have priorities, and basically those are experiences (including fine meals) over depreciating assets/toys. But, to each their own, right?
Despite the fact that we are basically the only “savers” out of our group of friends, we have the least amount of nice stuff. Our friends are always spending everything they have and then some, even when it’s clearly not in their best interest.
I like what you said about “anchoring down” when it comes to your monthly expenses. I like to do that as well. I can choose to spend more if I want to as long as my expenses are low. If my expenses are high, I literally have no choice. I would not ever pay $3,700 for a one bedroom apartment. I know you’re in SF, but that’s insane!
It may be natural for others to guesstimate your wealth based on the things you own, but it is very typically incorrect. The couple you talk about may be just scraping by, or even going into debt just to pay their expensive rent. Many big spenders are not necessarily wealthy. They are just doing what they can to keep up with some Joneses that have impressed them. My wife and I are at a point in life where we do not care what others think about our wealth. If we want to have fun with other friends who do not make as much money as us, or who might make more, we invite them over for dinner and have a nice time. We certainly do not ask them to join us at a resaurant where the cost is in the vicinity of $75+ per person.
Hence, you would vote that both my friend and I are demonstrating financial awareness. For a couple with such spending habits, I see no problem if they spend $150 for a night out for two on dinner with friends.