Where You Live Affects Your Wealth

Where You Live Affects Your Wealth

Updated on Feb 14 2019

Market researchers who studied the habits of millionaires concluded that your neighborhood and where you live plays a prominent role in how much you save and spend, affecting your ability to accumulate wealth over time.

Even though your neighbors may drive fancy cars and have a luxurious lifestyle, that doesn’t mean you should emulate their habits. Keeping your spending under control is key to growing your financial assets. Learn more about the impact of your neighborhood and social circle on your financial health.

The Financial Impact of ‘Keeping Up with the Joneses’

There are several factors that impact your ability to build wealth, but have you considered that where your neighbors may be the largest factor in your financial health? Sarah Stanley Fallaw is the director of research for the Affluent Market Institute and co-author of “The Next Millionaire Next Door: Enduring Strategies for Building Wealth”. In writing the book, she surveyed over 600 millionaires in the United States, revealing six factors related to net worth potential, regardless of age or income.

These factors include:

  • a commitment to saving
  • confidence in financial management
  • taking responsibility for financial outcomes
  • setting financial goals
  • focusing on tasks without distraction
  • being indifferent to social pressure to purchase the ‘latest and greatest’

Additionally, her research suggested that those who live in an affluent neighborhood will spend more and save less, mirroring their neighbors spending habits and trying to keep up appearances.

Thomas J. Stanley, Stanley Fallaw’s father, also a market researcher and author of the book, “Stop Acting Rich”, claims that your home or neighborhood is, in fact, the single greatest detriment to building wealth.

He wrote, “If you live in a pricey home and neighborhood, you will act and buy like your neighbors. The more affluent the neighborhood, the more its residents spend on almost every conceivable product and service.”

Managing Housing Costs to Build Wealth

In addition to neighbors affecting your ability to build wealth, Stanley Fallaw also found that your home’s price relative to your income can also play a role in your ability to build wealth. In fact, most of the millionaires she studied had never purchased a home that cost more than three times their annual income.

While an “affordable” home depends on many factors, such as your salary, your age, and what state your home is in, experts agree that an affordable house is 30 percent of your pretax income, but more conservative financial planners may cap that at 25 percent.

Fallaw Stanley notes, “We still argue that your more immediate community (your school district, neighborhood, and town) is more important when it comes to your personal happiness,” she wrote. “When you’re thinking of buying that 4,500-square-foot McMansion out in the suburbs to avoid a two-bedroom fixer-upper in the city, you’re trading size of home for commute. What’s more important to you?”

If you are having trouble building wealth, contact a fiduciary financial advisor. Financial advisors can be a trusted partner in your financial journey, conducting a thorough financial assessment, helping you to see where you can be saving more, spending less, and reaching your retirement planning goals.

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