Is Chasing the American Dream Ruining Your Financial Life?

2 5 minutes read

Is Chasing the American Dream Ruining Your Financial Life?

We all know how enticing the American Dream is. It goes like this: Through hard work, anyone can have great financial success, whatever their background.

Often, that financial success takes on a particular form. Maybe you’re picturing a big house with a large yard and a white picket fence. Perhaps you’re imagining an affluent jet-setting lifestyle. You might be thinking about lots of consumer goods or vast closets full of gorgeous clothes.

But there’s a darker side to this dream. Too many Americans end up focused on visible affluence — owning a luxurious home, fancy cars and luxury goods — as a marker of success. The pressure to buy these can create a lot of financial stress or even get people into debt.

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Why the American Dream can turn into a nightmare

We’re told that “anyone” can succeed if they just work hard enough. But, as many Americans have found, simply working hard doesn’t always result in financial success.

So many factors can cause financial difficulty, including medical expenses, unwise investment decisions or simply the costs of having a home.

“If you own a home, you’re inevitably going to have some big expenses,” says Andrew Bates, COO at Bates Electric. “That doesn’t just mean emergencies — you may need to pay for maintenance or repairs, like if you need an older house rewiring to fix safety issues.”

No one wants to look lazy. And if “hard work” is being held out as a prerequisite for doing well financially, it’s easy to see why people might be tempted to turn to credit cards, large auto loans or huge mortgages to have those outward signs of success.

Even if you are making a great income on paper, the American Dream and its association with consumerism can get you into financial trouble.

Let’s dig into some key ways the American Dream might be ruining your finances.

Mistake No. 1: Always pursuing ‘bigger and better’

It’s easy to get caught up in the idea that success means constantly upgrading — whether that’s moving to a larger home, buying a newer car or splurging on the latest tech. But does bigger always mean better?

The problem is that each upgrade comes with higher costs, from mortgage payments to maintenance and insurance. It’s a cycle that never ends. If you’re always reaching for the next level, you’ll end up financially stretched, even if you’re earning a good salary.

Perhaps it’s no surprise that a Clever Real Estate survey found that 45% of Americans have cried over their spending habits.

It’s hard not to compare your life to the lives of others, especially if friends are posting their latest purchases all over Instagram. It can feel like you’re falling behind.

“It’s hard to resist the temptation to splash out on something new if all your friends are going ahead and buying,” says Joel Popoff, CEO at Axwell Wallet. “But whether it’s a Stanley cup or a second home, if you don’t need it, could you put that money to better use somewhere else?”

Those people showing off their expensive purchases may well not be as financially secure as you’d think. Some are probably deep in debt. Or they might be splurging due to an inheritance or trust fund, rather than as a result of their own financial success.

Mistake No. 3: Getting into debt to finance large purchases

Of course there’s nothing wrong with owning a luxurious home, a fancy car or other nice things, but when those purchases come at the cost of financial security, that’s a problem.

It’s easy to justify a big expense by thinking, I can afford the monthly payments. But debt can quickly snowball, especially if it’s at a high interest rate.

Credit card debt, large car loans and big mortgages can eat up a massive chunk of your income, making it harder to save or invest for the future.

Before taking on any debt, ask yourself whether it’s a wise financial decision (this debt would usually be considered good debt) or whether you’re trying to fit someone else’s image of success.

Mistake No. 4: Living paycheck to paycheck, with little or no savings

Even people with high incomes can find themselves living paycheck to paycheck. It’s easy for spending to creep up along with your income. This is called lifestyle creep.

But without savings, any unexpected expense — a medical emergency, a job loss or a major car repair — can throw you into a financial crisis.

“Building even a small emergency fund will help give you peace of mind,” says Jacob Barnes, founder of FlowSavvy, “especially if your income fluctuates from month to month. You’ll know you’ve got the money in the bank to cover anything unexpected.”

Mistake No. 5: Not adequately planning for retirement

The American Dream focuses on what you have now, but what about your future?

Too many people put off saving for retirement. It seems a long way off, and if they’ve bought into the American Dream, they’re probably hoping they’ll be richer in the future. Some might even think they’ll just carry on working forever, but however good your health is right now, things could change.

“As many as 60% of Americans have at least one chronic disease,” points out Raihan Masroor, founder and CEO at Your Doctors Online. “Forty percent of Americans have two or more chronic diseases. These don’t just have financial impacts in terms of healthcare, they can also make it a lot harder to earn as much money as you want.”

Tip: If your employer offers a 401(k) match, take full advantage of it — it’s basically free money. If you’re self-employed, look into options like an IRA.

How to turn your finances around

If chasing the American Dream has left you feeling stressed about your finances, here are three steps to help turn things around:

Step No. 1: Create a personal definition of success

Forget what ads and social media tell you — what does financial success mean to you? What could you be truly proud of yourself for achieving?

Maybe it’s having a fully funded emergency fund, traveling without adding to your debt or retiring early. Defining success on your own terms will help you make smarter financial decisions.

Step No. 2: Track your expenses for a full month (or longer)

Do you know how much you’re spending each month? And do you know what exactly you’re spending money on? Take a full month (or longer, if you can) to track every dollar you spend.

As you track your money, watch for things like subscriptions you’re not using, impulse purchases that you didn’t really need or want and anything that’s costing more than you realized.

Understanding where your money is going is the first step to making meaningful changes.

Step No. 3: Start to save (or increase your savings)

Even if you can save only a little right now, start somewhere. Perhaps you’ve discovered you were paying $10 a month for a TV streaming service you never use. Cancel that and send the $10 straight to your savings account. A low amount like that might seem hardly worth it, but you can gradually increase your savings over time.

If you already have savings, challenge yourself to increase your contributions. Small, consistent efforts add up over time. You could start by saving a single penny on day one, then increase what you’re saving by just one cent each day: After three years, you’d have well over $600.

Don’t let your American Dream turn into a nightmare for your finances. By all means, work hard and chase success, but do it on your own terms.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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