The LGBT community has created a huge group of extremely successful people. On the other hand, being successful, accumulating real wealth and employing financial savvy don't always go hand in hand. Can you believe that a full one-third of Americans making $100,000 or more a year still live paycheck to paycheck?* And probably just as prevalent are those making considerably less than 100k who are trying to keep up with others making substantially more than that, thinking they need to appear rich.
Though more and more gay male couples are choosing to have children, stereotypically we don't have the expense or time constraints of raising children. (As I'm writing this I was just invited to a pool party happening in an hour. Instead of scrambling to find childcare, I just have to figure out what I'm wearing and is there time to get a spray tan?) Without a wife and kids monopolizing our incomes, many successful fellows in the LGBT community can get away with an ever-increasing lifestyle of extravagant vacations, designer clothes, luxury cars, high end gym memberships and many other trappings of wealth. Oh yeah, and Botox, lots and lots of Botox.
Where connoisseurship meets consumerism, we're talking "Keeping up with the Joneses" gay style. Furthermore, many gay couples are DINC's (double income no kids) by default giving us more freedom and time to enjoy the money we earn. But with this freedom often comes irresponsibility and the illusion that we never have to grow up where finances are concerned.
Gay Lifestyle Inflation
While not exclusively a gay phenomenon, lavish spending is strikingly apparent in the gay male community. It's no urban legend that thoughts about money and how to spend it are contagious. This means you may be mishandling your money by trying to emulate your successful friends, and this in turn may sap your ability to truly get ahead and reach your bigger financial goals.
How many times have you heard the following from friends?
- "Why don't you get this round, I'll get the next one?"
- "You need to buy a new __________" (fill in the blank, from cars to clothes to castles in France).
- "ewww, I don't fly coach...." or sometimes even "I can't fly commercial."
I witnessed a perfect example of "Gay Lifestyle Inflation" at dinner last night in West Hollywood. We were a large group, all men, and several friends couldn't resist poking fun at the person who had the "wrong" iPhone. From the jokes I assumed the guy had a 10-year-old flip phone but turns out it just wasn't the latest iPhone 6. (The horror!) Now as it happens, the poor unfortunate soul is a successful doctor. He surely could afford the newest iPhone if he really wanted to spend the money. But his phone did everything he needed and he saw no point in bothering with the hassle and expense of "upgrading." Indeed, it doesn't take a rocket scientist to figure out who I feel is the smarter person here.
Sad but true, choosing the wrong friends can be hazardous to your financial well-being. From where you stay when you travel, where you meet for dinner, how much you drink when out and about and possibly even the trajectory of your career, trying to keep up with big spenders can often lead you to skip a bunch of things you should be doing (saving and investing, anyone?) to secure your financial future.
I can't tell you how many times I've heard from new clients, "Well, a lot of my friends have saved nothing", or some even say, "It's not that bad, my friend X has way more credit card debt." Or the most common of all, "I don't live extravagantly" to which I say, respectively of course, "Yeah, right." News flash, $500 sunglasses may feel like a necessity in your crowd but in the real world that's just an eensy bit steep for an accessory.
At the risk of being even more of a Debbie Downer here: Irresponsible spending can reap negative effects ranging anywhere from racking up crushing credit card debt, to saving less than you should for retirement or other financial goals.
There may be a big difference between what you can afford and what you should afford and your friends might not be the ones who can (or should) tell you the difference.
Words to the Wise
As a financial planner, sometimes I have to dole out the tough love. So if you're living beyond your means, here goes:
- Trying to live like you're rich when you're not is a one-way ticket to poverty.
- Anyone with a pulse can lease a Range Rover but coming up with a down payment on a house or accomplishing financial security are a whole different beast.
- Economizing now in light of a future goal does not mean that you'll have to eat government cheese for the rest of your life. Work it now, prosper later.
- When it comes to financial realities, ignorance is most definitely not bliss.
The Cost of Friendship
By no means should you choose your friends based on income or social status and I don't want to discount the priceless ways friends can raise you up. Friends can offer invaluable career and life advice, love and loyalty. For many of us, our friends give us reason to live.
If your friends happen to be financially responsible, their actions and advice may help you get ahead financially as well. Perhaps they even have less disposable income, but pick places to dine they can afford, or at the very least not eat out every night at the most expensive place in town. They may choose more economically viable vacations or wait for those amazing shoes to go on sale.
And a wealthy friend who's a true friend will let you pick up the tab at Chipotle while treating you to sushi at Nobu next week. A true friend will support you living within your means and doesn't demand that you spend what he does.
As it happened, two separate friends both helped me get started in investing. Both were way ahead of me financially, but they sat me down and made me get started even though my original nest egg was pretty small. Who knew I would return the favor by paying it forward helping hundreds of people work towards their future goals and financial independence?
As Oprah once said, "Surround yourself only with people who are going to lift you higher, life is already filled with those who will want to bring you down." On that note, financial attitudes and actions, whether good or bad, are contagious. Your friends' money habits can either escalate your spending to the point of disaster or help ground you for a life of financial security.
Tip of the week: Know what you can afford and don't be afraid to say no. You can always say yes later when your financial planning pays off with some big dividends.
DAVID RAE, CFP®, is a Los Angeles-based retirement planning specialist with Trilogy Financial Services, a regular contributor to Advocate.com and a financial advisor serving the LGBT community. Follow him on Twitter @davidraecfp or via his website, www.davidraefp.com.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA,SIPC, a Registered Investment Advisor. Trilogy and NPC are separate and unrelated entities. Opinions expressed are those of David Rae and are not endorsed by NPC. *According to the US Census Bureau Data.