Thursday, November 22, 2012

Following from the Front

Have you ever had the experience of driving a long distance on a mostly deserted highway with some jerk behind you the whole way? I’m not talking about tailgating, but just staying strangely close when there are no other cars around. Can you believe that this has any connection to personal finance? Read on.

I’ve been on the “jerk” side of the deserted highway story several times. But the funny part was that I had my car on cruise control. So, I wasn’t really following. My car has no advanced features where it adjusts speed based on vehicles in front. It’s not plausible that the two cars’ cruise controls were so perfectly synchronized that we were able to stay together for so long. The only reasonable explanation is that the other driver was adjusting his speed to keep me behind. Most likely he was doing this subconsciously.

Sometimes in this situation I speed up temporarily to pass the other car just to break the spell. Slowing down temporarily usually doesn’t work because I later catch up again.

From the point of view of the other driver, some jerk was staying behind him. But if he wanted to see where to lay blame, he should have adjusted his mirror.

Now let’s connect that little story to the personal finances of a hypothetical but all too typical couple, Justin and Sandy. They were married 20 years ago, bought a house together 5 years later, and had 2 kids. When they first got the mortgage, their total debt was about $200,000. Over 15 years, they made a combined total income of $2 million. Their mortgage is smaller now, but their lines of credit and car loans are bigger. Their total debt is still around $200,000.

Is it just an amazing coincidence that Justin and Sandy have made no progress on their debt in 15 years? They’ve each had raises, had a bout of several months of unemployment, and took pay cuts when landing a new job. But through it all their debt has remained nearly constant. Their spending has almost exactly matched their after-tax income.

If you talk to Justin and Sandy about their still too high debt level, they will complain about losing jobs, the cost of braces, and many other outside forces that hurt their finances. But the correlation between their income and their spending is just too strong to be a coincidence. The truth is that they are continuously adjusting their lifestyle to match their income.

Just as the driver in front of me believed that I was matching his speed to stay close, Justin and Sandy believe that outside forces are driving their spending. But, just as it was the driver in front who was matching speed, it is Justin and Sandy who are adjusting their lifestyle to their income. In a sense, they are following from the front.

To make any significant progress with their finances, Justin and Sandy need to do something to control their spending even while their total income is high. Some possibilities are to move to a cheaper home closer to work, own cars that are less expensive to buy and maintain, or eat out less.

If you think fate is doing things to you to keep you from reaching your financial goals, consider the possibility that you’re really just following from the front.


  1. Man, such elegant and insightful analogy. We've all read about how we adjust our spending, but this fresh look hits it home in a new way.

    (Now if only I would change my behaviour to not follow the same pattern. Not much luck so far!)

    Michael James on Money is by far my favourite read on personal finance. Keep up the good work!

  2. @Daryn and @Patrick: Thanks for the kind words. To everyone else, I swear that these guys are real and not just my other identities :-)

  3. I've seen this happen in people's spending patterns before and, although I can't prove it, I believe it's true. Nicely said.

  4. Very clever analogy. Agree with Daryn: your blog is the best around! Not only you inform us, but you make us think

    Back to topic, as I write this, while a few of us are thinking about Michael's analogy, herds of millions are looking for ways to spend money in Black Friday, money that in some cases they don´t even own...

  5. @CC and @Robert: Thanks.

    @UI: Maybe I should market my blog saying "my blog makes you think and distracts you from wasting money." :-)

    1. The first reply above is (in part)a reply to Canadian Capitalist's comment:

      Nice analogy Michael. It sounds simple enough to keep spending growth less than income but hard to actually do it.