Personal Finance

The American Dream: The Family, the House, the Car—Could It Cost Us Financial Stability?

Expertise: Personal Finance
15 Articles Written
Front side of typical american porch colonial house with white traditional columns and pillars, beautiful garden in the back and forest

This is the fourth post in a five-part series that explores how the traditional “American Dream” does not fit today’s world. The rest of the series will discuss what once constituted success and whether these sought-after milestones should be left alone, tweaked, or changed altogether. Read the first three articles here: “The American Dream: How Has the Definition Changed Over the Years?,” “The American Dream: Are Traditional Values and Beliefs Helpful or Harmful Today?,” and “The American Dream: Your Well-Paying 9-5 Job Will Build You Wealth—Reality or Myth?

In the last three posts of the series, we looked at the current definition of the American Dream and what was wrong with the first four steps. Here we will evaluate steps five and six.

But first, a quick reminder of all 10 steps:

  1. Go to high school and get good grades.
  2. Go to college and get good grades (while probably taking out student loans).
  3. Get a good job.
  4. Continue to spend more as one makes more.
  5. Get married and have 2.3 kids and a dog.
  6. Buy the nicest house and car one can afford (financing both).
  7. Work for 40+ years to support one’s family.
  8. Retire at age 65.
  9. Enjoy the good life.
  10. Leave your children a nice inheritance when you die.

What’s Wrong With the Traditional Version of the “American Dream”?

Step 5: Get married and have 2.3 kids and a dog.

Let’s start with the “married” part. Marriage is still an important part of the American Dream, as it was early in the 20th century. But I think it’s safe to say that marriage can look different nowadays.

Same-sex marriages are now a part of the American landscape (whether you agree with them or not). Also, divorce rates are much higher than 50 years ago. And many Americans are in their third, fourth, or fifth marriages.

A happy marriage is something most Americans still aspire to have, however. It still retains significance in the American Dream, even if it is a bit altered today.

What we can take a look at is the No. 1 (or No. 2, depending on your source of information) reason for divorce: finances.

closeup of woman removing wedding ring from hand with man in background covering his face with his hand in despair

If you pay attention at all to BiggerPockets (and I assume you do), then you are someone who prioritizes personal finance. I am not a marriage or couples counselor—far from it. But many experts propose having finance discussions with a potential spouse very early on. That is good advice, in my opinion. Marrying someone who shares the same financial outlook will likely be a much smoother and more enjoyable experience.

If you are out there in the dating world, look for someone like-minded about finances. If you are genuinely sold on REI or the FIRE movement, it would be wise to find someone who shares your enthusiasm.

Now, how about kids? I don’t pretend to have a checklist or roadmap that would fit everyone on this subject. When someone chooses to have kids is a very emotional and personal decision. But if you have the opportunity to have your little ones once you are financially ready, you are setting your family up for a better chance of success. Bottom line: kids are expensive.

Related: 7 Ways to Screw Up Your Kid’s Financial Future (& How to Avoid It)

Lastly, how about that puppy?! A dog is expensive, too. (And most other pets, for that matter.) It should be a privilege to own a pet. Most would agree that one should only get Bruno when the expenses of having his smiling face around do not interfere with your short-term or long-term financial goals. This is best for you and your pup.

Step 6: Buy the nicest house and car one can afford.

This step is rooted in step four, which was “Continue to spend more as one makes more.” It is also supported by the need to “keep up with the Joneses.” The reason this sentiment exists at all is because it just feels good to live in a beautiful, big house and drive a fancy, expensive car.

The very first paragraph of page one in the book The Millionaire Next Door is precisely relevant here. It says:

“Twenty years ago, we began studying how people become wealthy. Initially, we did it just as you might imagine, by surveying people in so-called upscale neighborhoods across the country. In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”

Why is that? The answer isn’t too hard to figure out. Those who spend loads of money on fancy houses, cars, restaurants, and vacations often don’t have any money left. They spend everything they have. (After all, that is the American way.)

And on the flip side, those who save and invest their money instead of spending it on the lovely house, fancy car, and other wants have been able to build up plenty of wealth. And wealth is the key to reaching financial independence and no longer having to work.

Those in the upscale neighborhoods will most likely have to continue working until they are 65 (or older) to pay for all of their purchases. Meanwhile, those who choose to save and invest their money are much more likely to reach financial freedom early in their life. This is due to the enormous amount of wealth that can be accumulated by only spending money on "enough" plus a little more, as FIRE expert Vicki Robin likes to say.

Besides, a house with a ton of equity is not necessarily the best way to hoard your net worth. Robert Kiyosaki argues that a house is a "fake" asset; it's actually a liability. It usually costs more money to have a house than it brings in, even with appreciation.

With these ideas in mind, many are now opening up to other ways to look at their houses and cars—ways that are focused on long-term goals and not short-term gratification.

When it comes to housing, many are warming up to the idea of house hacking. (Thank you, Craig Curelop, for writing an excellent book on this!) Some are renting a place with roommates longer than usual. Others are living in less square footage than they could afford, whether buying or renting.

Related: Why Having Roommates as an Adult (and an Investor) Is the Best

In a 2019 report by Zumper.com, they found that 32 percent of respondents said they do not believe that the American Dream involves homeownership: “This continued trend signals a shift away from owning a home as the American goal and reveals new trends in the renter lifestyle. In fact, one in five respondents confirmed they do not have plans to buy a home in their lifetime.” (1)

There are a lot of blog articles and forum posts on BiggerPockets arguing that owning a house, even a nice one, is still a solid financial move. As with most things, whether to own a house and how nice of a house to own are individual choices that need to be customized to one’s circumstances.

But what is clear is that not everyone is buying a home today to mark that box off from the American Dream checklist.

exterior of very large home with well manicured landscaping

Now the car…

Buying a new car is one of the most detrimental financial decisions that most Americans make. Period.

I feel like I’m about to repeat what so many before me have said about owning a car, but I’ll do it anyway for the unlikely newbie who is coming across this startling information for the first time. (But I’ll leave out the numbers and intricate details here.)

Cars cost money. I’m talking about the money to buy one. I’m talking about the money to own one. As I write this, my truck (six years old) is in the shop. I’ll be picking it up in about an hour. While I was driving home from work yesterday, the “service engine” icon lit up. That light is going to cost me around $200. Lucky me.

Consider:

  • Gas
  • Insurance
  • State registration
  • Maintenance
  • Repairs
  • Tires
  • DEPRECIATION

The last one is the biggie. If you buy a brand new car, you would be better off taking a third of the purchase price and putting it on black at a Vegas roulette table. At least in Vegas, there’s a chance you could make money.

Meanwhile, if you sold that car a month later, you would’ve lost around a third of its “new” value. So, if you’ve bought a new car in your lifetime, you’re a sucker.

It takes one to know one. I’m a sucker, too. I’ve bought new cars. And I regret it.

Never again.

Instead, buy a car that’s six to eight years old, has relatively low mileage, is dependable, is common, and safely gets you from A to B. Do that, and you just saved yourself tens of thousands of dollars when you factor in the potential compounding effect on the money you saved and invested over the time you own that new car. Congrats to you and me when we buy that used car next time.

“Commuting costs (and time) can and absolutely should be eliminated or drastically reduced… Putting yourself in a position to bike or walk to work [or classes]is the best solution to buy back your time and save yourself from the different negative consequences of commuting… The most ridiculous way to commute to work [or school]is with a newer, financed four-wheel drive vehicle that gets less than 20 miles per gallon, and to do this over a distance of more than 10 miles each way.” —From Set for Life by Scott Trench

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Other pieces of advice:

  • How about this: Don’t even own a car. If you live in a year-round warm climate, consider owning an electric scooter, moped, or bike instead of a car. On a rainy day, you can always get an Uber/Lyft if needed. Oh yeah, you could possibly take public transportation, too. Plus, no parking to pay for. Can you live without a car? Don’t just immediately say, “No.” Give it some real consideration. 
  • Don't ever take out a loan to buy a car. If you don't have enough money saved up to buy the one you want, then either save more money or buy a less expensive car.
  • When choosing a used car to buy, look for the highest MPG, durability, dependability, safety, and resale value (unless you're going to keep it forever). Also look for low miles, a clean/clear title, one (or few) previous owners, and an accident-free vehicle (try checking with CARFAX). Get a popular model, one you see everywhere on the road. (Think Honda Accord, Toyota Camry, Ford Focus, etc.) And have a mechanic of your choice do a PPI (pre-purchase inspection) before you buy it.

The next article in this series about the America Dream will analyze steps seven and eight.

Sources

  1. https://www.zumper.com/blog/2019/10/2019-state-of-the-american-renter-report/

What are your thoughts about having a dog, a new car, or as much house as you can afford?

Let’s talk in the comment section below.

Dan is a high school Business/Marketing teacher, real estate investor, and personal finance advocate in Denver, Colorado. He and his wife have a variety of real estate investments including multifa...
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    Steve Ryan from Hazleton, PA
    Replied 11 months ago
    I think the overarching rule would be to continuously explore your options, do objective research, and run the numbers based on the best available info. There are a multitude of exceptions to any set of guidelines (even on BP!). Don't draw arbitrary lines of risk tolerance based on beliefs, feelings, or anecdotes. I think a big decision that's not on the list is location, location, location. Here in NEPA, it's not hard to find livable houses with "good bones" under $20k. Cash or finance, you really can't go wrong at that price. (And yes, there are plenty of income opportunities in the area.) Cheap insurance, cheap taxes, minimal tied-up equity, and huge upside potential if you're handy and motivated. You'll never be as happy in a low-price rental that will cost far more in the long run. As far as going carless, you can probably save way more on housing by living in places where you simply can't go without a car. (Especially if you're doing the real estate thing!) And when it comes to getting the right car, I've noticed what I call the "Carfax effect," where people place a premium on single-owner, no-accident used cars. I paid $2500 for a rebuilt-title Honda Fit that has been an absolute joy to own and drive. I also know several people who've gotten bargains on professionally reconditioned flood cars with no issues. Again, the risks can be quantified. Don't rule anything out based on fear!
    Dan Sheeks Rental Property Investor from Denver, CO
    Replied 11 months ago
    Some very good points, Steve. Thanks for the comment.
    Susan Maneck Investor from Jackson, Mississippi
    Replied 11 months ago
    I just recently added up my assets to find I'm a millionaire. Barely so and not so whenever there is a downward turn in the stock market. However because of the rentals I own I won't have to depend on the market ups and downs for my income when I retire. I bought my house in a predominantly black neighborhood for 30K that had already been rehabbed and then lost during the recession. Public transportation is really bad in Mississippi so I do have a car, a 2011 Nissan Altima hybrid. I did get a loan on the car at less than 3% interest and paid it off early. It has lots of dings (all my fault) I but intend to drive it until it dies. I used to have motor scooters but I'm too old (63) for that now. I'll be retiring next year. I'll be dividing my time between Mississippi and California as I now own property in both states.
    Dan Sheeks Rental Property Investor from Denver, CO
    Replied 11 months ago
    Hey Susan. It sounds like you are making some good choices to help yourself out - including not riding a scooter when you're 63. :-) Nice work!
    Vaughn K. from Seattle, WA
    Replied 11 months ago
    On the house point, I really do think the biggest mistake a lot of people make is where they choose to live. I have been in Seattle, and due to timing issues I missed out on getting started in RE here before the boom... I wouldn't buy here now if somebody gave me the money!

    Anyway, the cost of living here is insane. I finally decided awhile back to bail, move somewhere sane, and basically be set for life in just a few years after doing so. Many people convince themselves that their high salary in SF, NYC, Seattle, etc make them better off... But the truth is $60K a year in most of the country will get you farther than $100K will here. No matter WHAT industry you work in, there is always an alternative place to live. If you're a programmer, there are plenty of IT jobs in any major metro... You may not be working on some trendy dumb project for Amazon or Google if you're in Atlanta or Dallas working for a random fortune 500 companies IT department, BUT you will own a house, have money left over every month, etc.

    Any which way, the key is to always live beneath your means. I'm hoping when I move to only spend maybe 10% or so of my income on housing... And that's if I don't decide to house hack, which I probably will. In which case my net outflow will be less than that! But I could easily buy a small single family home without exceeding 10% of my income where I'm going. That leaves a LOT of capital to invest!

    And yes, new cars are for suckers. I've never bought a new car. The most expensive car I have purchased to date was $8,700 bucks. For somebody who makes what I do that seems pretty darn reasonable.

    That said I DO like cars, I have one modest "cool" car now, but plan to buy some nicer ones in coming years... But for the thinking man there is a sensible way to do this! I like classic cars, my "cool" car is a classic that's older than I am. Most people think they're pretty sweet and impressive too. One of the interesting bits about classic cars is they tend to hold their value or go up, as opposed to drop like a rock in value like a newer car. Here's the funny thing, even if you want a "cool" car to impress people, or just for personal enjoyment, a 60s muscle car in daily driver condition will cost you less than buying a few year old Mustang or Camaro or whatever... And it will likely just go up in value! Sure, you still have capital tied up, but a decent runner that you spend $10K on isn't too extravagant, and in the end will end up costing you less than even buying a 6 year old $6-8K car because that still has room to drop further! Cool proper old cars are the ultimate way to buy an "impressive" car while still being fiscally responsible.