"The key to wealth building is to live in a home that one can easily afford," she wrote, building upon her father, Thomas J. Stanley's, research. In his book, " Stop Acting Rich ," he said that one's home or neighborhood is their greatest detriment to building wealth.
"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," he wrote. "We take our consumption cues from our neighbors."
So if your high-income-producing, high-consuming neighbors roll up to the drive in a BMW or a Mercedes Benz, it's likely you'll feel the urge to do the same. This pressure to "keep up with the Joneses" can also be affected by lifestyle creep , the tendency to spend more whenever one earns more.
But it's not just neighborly influences that can affect one's overall wealth the home's price relative to your income also impacts your ability to accumulate wealth over time, Stanley Fallaw said.
If you want to make progress on building wealth, keep your housing costs low
Most of the millionaires she studied have never purchased a home that is more than triple the amount of their annual income. The median home value for millionaires in her latest study was $850,000 (3.4 times their current income), with a median original purchase price of $465,000.
So what constitutes an affordable home?
"Keeping housing costs low is smart, no matter how much money you have," she wrote. "The best financial move you can make is toliterallymove to a less expensive home."
But when buying a home, you should not only consider the cost of living, but how you measure your well-being within the city, community, and neighborhood, Stanley Fallaw said.
"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?"
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