A question about buying something more expensive than annual income leads to a focus on how luxury spending affects finances. The argument criticizes judging purchases by sticker price and instead uses a ratio of purchase cost to wealth and income. A yacht example shows that a very large price can be a small fraction of massive wealth, while the same proportional burden can be extreme for smaller net worth. The same truck price can represent very different financial pain depending on the buyer’s wealth. The ratio lens prevents two outcomes: avoiding affordable purchases and copying wealthy lifestyles without understanding underlying finances.
"No one should ever have a car that nice. There's starving children somewhere. Like your car caused children to starve. Would you shut up? He labeled the impulse "redneck envy" and mocked "oversaved people that think they're Jesus" who believe "the only car you can drive and still be holy is a '93 Camry.""
"If you judge purchases by the price tag rather than the ratio, you make two predictable mistakes. You either deny yourself purchases you can easily afford and die with a portfolio you never used, or you copy what wealthy people buy without copying the balance sheet underneath it and end up house-poor, boat-poor, or truck-poor."
"A purchase's pain is a function of what percentage of your wealth and income it consumes. Run the Zuckerberg math. A $500 million yacht against a $200 billion net worth is roughly 0.25% of wealth. The equivalent proportional purchase for someone with a $500,000 net worth is a $1,250 jet ski. For someone with a $100,000 net worth, it is a $250 kayak."
"A $90,000 pickup truck purchased by someone with a $250,000 net worth represents 36% of everything they own on wheels that loses value every month. The same $90,000 truck purchased by someone with a $4 million net worth represents about 2%. Identical sticker. Wildly different financial event."
Read at 24/7 Wall St.
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