The Madison Ave lifestyle is everywhere we look. You know what I’m talking about… Fast paced… Beautiful homes, beautiful new cars, two new motorcycles in the garage, a hot tub by the pool, fine dining every night… Everything you ever want right there at your beck and call. Advertisers are experts at tapping into our dreams of having the ability to live like this. (The glamor of a shiny new car on wet pavement at night is a sure sell.) But there is one group of advertisers that is especially good at making us believe that the Madison Ave. lifestyle is possible for everyone… The credit card companies.
Let’s take a look at some of their ads. There is a major credit card that everyone is familiar with. The catchphrase from his TV ad? “Be where you want to be!” And it usually shows people who are traveling the world, enjoying all that life (with credit cards) has to offer. Now what is this company trying to say here? They are trying to make you believe that this credit card will take you where you want to go in life.
I just received a pre-approved credit card application in the mail. The headline read “Get the credit you deserve!” It makes you feel great, doesn’t it? …Knowing that you deserve something. It makes you want to get up and fight, because it implies that you are not getting what you deserve right now. After all, credit is a constitutional right, isn’t it?
Here is an excerpt from another one I received in the mail the other day. Part of the sales letter read: “Only a select group of people will carry the gold card. It instantly identifies you as someone special, someone who has achieved a higher degree of financial freedom (emphasis added), and someone who expects higher levels of financial flexibility, convenience and service in all their dealings.”
Sounds great, right? Especially the financial freedom part. After all, isn’t financial freedom what we all want?
All of these advertising campaigns are based on one premise: “You can achieve a better lifestyle by using credit than by spending cash.”
Here’s a problem… This premise is a lie!
Here’s the reality: You can live better for a few years using credit, but then you’ll spend the rest of your life living below your means trying to pay it all off. It’s all an illusion.
Credit makes you believe that you’re doing well (or at least doing pretty well) because you have all these “stuff.” But here are the facts: If you make a credit card purchase of $2,000 at 19.8% and only make the minimum payments, it will take you 31 years to pay it off and you’ll pay $8,202 in interest! That means that when you use credit, you’re paying five times more than if you used cash.
Forward. I bought all that nice stuff on credit, and I’ll only use cash. Let’s see what happens. In the beginning, you will have one or two nice cars, a nice boat, nice furniture, and a great stereo, etc. And I will drive older cars. I will have “first American garage sale” furniture and clothing. And I’ll probably go without that bike that I would really love to have, because I don’t have the money to buy it.
From all appearances, it will seem that you are much more successful than me… At first. But what is really going on here? In a few short years I will not only catch up with you, but pass you by and leave you in the dust financially. This is because when you paid $10,000 for a $2,000 purchase with your credit card, I saved until I had the $2,000 to pay in cash. So I was able to invest the extra $8,000 you spent on interest. You had compound interest working against you, but I had compound interest working for me! (And that’s where you want to be!)
Ten or twenty years from now, you’ll be up to your earlobes in debt and still trying to live the illusory Madison Ave lifestyle. But I’ll be driving 4- or 5-year-old cars instead of new ones, while I calmly watch my investment portfolio grow by literally millions!
By then, I’ll be working because I want to, not because I have to. And I will be able to afford to buy almost anything I want… Cash! …While you’re sweating the economy and the next downsizing or looking for that next $50 raise, just so you can stay on top of all those credit card payments you’re making for things you bought years ago and probably already forgotten about anyway.
Are you starting to get the idea? Credit is not good for you. It promises (and offers) short-term gains. But it always brings long-term pain. By pursuing the Madison Ave lifestyle using credit, she’s actually drifting further away from it. Rich people understand this principle. That is why they are rich. There is a fascinating book called “The Millionaire Next Door” written by Thomas Stanley and William Danko. (Published by Paperbacks, a division of Simon & Schuster Inc.) The authors spent many years interviewing the wealthy. (Those with a net worth between $1-5 million). And some very interesting things have emerged from their study.
Let’s look at the car buying habits of the rich. What kind of car would you expect a millionaire to drive? An expensive, luxury car or an attractive foreign sports car? Well, Stanley and Danko have discovered that this is not the case at all. They have discovered that the most popular brand driven by the rich is Ford. And the most popular models are f-150 pickups and scouts!
Here’s what Stanley and Danko have to say: “How do millionaires buy cars? Approximately 81% buy their cars. The rest lease them. Only 23.5% of millionaires own new cars. Most have not bought a car in the last two years. In fact, 25.2% haven’t bought a motor vehicle in four or more years. How much do millionaires pay for these vehicles? Keep in mind that 30% spent $1 9,500 or less.
Also keep in mind that the average American buyer of a new motor vehicle paid more than $21,000 for their most recent purchase. This is not much less than the $24,800 millionaires pay! Also, not all of these millionaires bought new vehicles. How many indicated that their most recent vehicles were used? Almost 37 percent. In addition, many millionaires indicated that they recently dropped in price, that is, they bought vehicles at a lower price than before.” (pp. 112-113)
In other words, millionaires drive average vehicles! Why do they drive average and old cars instead of new and luxurious cars?
1. They are rich *because* they drive average old cars, and they know that if they bought new luxury cars all the time, they wouldn’t be rich.
2. They don’t feel like they have to maintain a status symbol or “keep up with the neighbors” because they know they are worth much more than the neighbors could ever dream of.
My wife recently spoke with a mechanic who dreamed of purchasing his own facility for his auto repair business. But, for him, it was just a dream. He could never afford it. However, in his driveway sat a beautiful new turbocharged 4×4 diesel truck with king cab and etc etc. In fact, he even joked about “mortgaging” his truck. But what he didn’t realize was that if he hadn’t bought the charm of that nice new truck, he could have bought his garage and owned his own business.
If she had driven an older truck and bought her own business, she would have finally had the freedom to drive whatever she wanted! Reaching the allure of the Madison Ave lifestyle prevented her from reaching the Madison Ave lifestyle.
To live the Madison Avenue lifestyle, you must first avoid the Madison Avenue lifestyle. Don’t spend $10,000 on a $2,000 purchase because you bought it using a credit card! Instead, save $2,000, buy it for cash, and invest the $8,000. Eliminate all your debt, including your mortgage, and then invest the money you’re now wasting paying interest.
If you do this consistently, you’ll have compound interest working for you instead of against you, and twenty years from now you’ll discover that you have a new address on Madison Avenue.