Prestige Syndrome and the Startling Difference between Vertical and Horizontal Wealth.

By Brad Beckstrom

If you read enough, eventually you come across some big concepts. Whenever I see one, I like to jot a quick note or clip entire articles in Evernote. Sometimes these ideas just sit there and I later come across them accidentally when searching for something else. One of the things I’ve been thinking about for a while is prestige or, more specifically, Prestige Syndrome. Syndrome is defined as “a group of symptoms that consistently occur together or a condition characterized by a set of associated symptoms”.  So, just for kicks, let’s take a look at something I like to call “Prestige Syndrome”.

Prestige Syndrome

Prestige Syndrome can be caused by earning more money and then feeling the need to spend that money to exude prestige, to do what rich people do. Continually upgrading your home, transportation, entertainment, and clothing choices to be aligned with that certain level of prestige that comes with your new higher-paying job.  Sometimes this lifestyle creep can be very subtle, spending away our discretionary income on luxuries that suddenly seem more affordable to us.

An even larger problem, especially in our country, is spending money you don’t have to exude prestige. This is also more commonly known as “ Keeping up with the Joneses”.  

We don’t have to look far to see examples of Prestige Syndrome. McMansions with three extra bedrooms and four extra bathrooms “just in case”.  Massively oversized SUVs primarily used to run to the grocery store and sit in traffic. Prestige Syndrome can occur at all income levels.

The interesting thing about Prestige Syndrome is that there is no top. If your friends and business associates own Gulfstream jets than Prestige Syndrome tells you you should own one. You’ve earned it, and you believe people do things differently at this income level. The spending levels simply increase with the career ladder. The McMansions, vacation homes, yachts, limo services, security, valets, and private jets are all just steps on this ladder.

Vertical Wealth

This ladder is what we call vertical wealth. Spending goes up as your income increases, often surpassing your income. This is how debt-fueled spending is created.

Often manifested in things like buying more house than you can afford, treating yourself to a new car every few years all on credit (just for that smell).  Even if you earn enough to pay cash for everything, once you accumulate enough stuff, you find yourself spending more and more to maintain it all. In essence, the stuff ends up owning you and now you’re working for stuff.  If your income is growing, or even expanding significantly, it may be easy to coast along and not notice any problems. That is until a setback. This could be loss of a job or a small business, being laid off because you’re 45 years old, loss of a major client, lawsuits, health issues or any number of challenges.  Health expenses alone are the number one cause of bankruptcy in the United States. This has become such a problem in our country that only 39% of Americans have enough savings to cover a $1000 emergency.  What about the rest of the country? A recent Fed study found that 40% of Americans would be unable to cover a $400 expense without borrowing money.  To add to this crisis, the average household saving rate in the US has hovered around 5% since the mid-90s.  A sad state of affairs.

Horizontal Wealth

In contrast, the concept of horizontal wealth means not letting increased income dictate your tastes or spending.  Your income can be on a vertical trajectory but your spending remains flat, your tastes and your lifestyle remain simple and unencumbered by stuff.  For the horizontally wealthy increased income, frugality, bonuses, even unexpected windfalls become opportunities to save and put the dollars to work. The big idea behind horizontal wealth is making savings your largest expense.  It’s not unusual for those pursuing financial independence through horizontal wealth to save between 25 and 40% of their income. If you do this effectively, every dollar in your savings and investment accounts become like an employee working for you, earning money every year. You can choose to spend $100 on a new pair of shoes or you can put that $100 to work in a low-cost total stock market index fund from companies like Vanguard or Fidelity, that will earn you on average $8 a year forever*.

Let’s apply this to a bigger purchase. You could easily spend $50,000 on a new SUV, after financing you’ve put $5000 down and will spend nearly $4000 in interest over the next 48 months. This is all before you buy your first tank of gas. As an alternative you can keep your 2004 sedan and invest this money over the same period of time in a S&P 500 low-cost index fund. Well, after just four years our vertically wealthy SUV owner has spent over $70,000 (including $200 month in increase insurance and fuel costs on an SUV that has lost about 50% of its value. Meanwhile, the horizontally wealthy 2004 sedan owner has built an investment account with nearly $75,000 in it that will earn (on average) 8% a year or $5600 per year forever. In addition, this money will continue to compound. At this point even if our sedan driver never added another penny to that total market index fund, after 25 years those dollars would’ve grown to nearly $514,000. All just for skipping that SUV purchase back in 2018 and investing the cost savings over just 4 years!

Balance after 25 years in a tax advantaged account with 100% employer match during (4 year savings period), $1,027,271

If you really start thinking in terms of all the things you don’t need to buy, these numbers are just the beginning for someone who is pursuing the path to financial independence through horizontal wealth. This is due to the fact that you’re not just saving money on the SUV you didn’t buy, you’re saving money in other categories like housing, groceries, and clothing. All of these savings after being used to pay down any outstanding debt can then the invested in low-cost index funds. The earlier you start the more time your money has to compound in tax-advantaged investment accounts. You can further enhance your savings by taking advantage of any employer match 401(k) programs. If you’re able to deposit dollars pre-tax and have an employer match you have the ability to double the the numbers in the SUV example. With just one example I demonstrated how you could accumulate $1 million towards funding your retirement.  Anytime you see a neighbor with a luxury SUV, you can say “it really does look like a million bucks”.

A lot of retirement calculation examples I’ve seen are for younger workers just starting out.  We also need to account for the fact that people are living longer today so that 25 year horizontal example above could even apply to a 50-year-old with only four years left in the workforce. The important point is that your prime earning years don’t last forever, regardless of how great you are at your job. Younger workers, automation, trade wars, and outside economic factors can all derail your earning years. While you’re working it’s important to have a plan for horizontal wealth and investing so when the day comes that your earnings eventually stop, you’ll have dollars working for you instead of you working for them.

Catching Up

One last point, catching up is fine, but in order to smooth out your returns over time you need to invest over a long-term horizon. Stock market returns can vary widely year-to-year.  As an example, the S&P 500 has had an average return of 10% since 1928 but someone expecting to get that consistently over a short timeframe 5 to 10 years could be in for a very big disappointment or a nice surprise, like the average return of 16.2% over the last five years.  Building horizontal wealth requires a long-term commitment and a high savings rate.

This is doable. To be honest, over my working life I’ve rarely hit a 25% savings rate. The difference maker for me has been a buy-and-hold philosophy, consistent deposits through dollar cost averaging, frugality that over the years included house hacking, zero car payments, travel hacking, and real estate investing to supplement low cost index funds held in tax-advantaged retirement accounts.  

Oh, and I almost forgot, a definite lack of prestige.

The Frug

Financial Independence through Living Lean, Working Lean, and Traveling Lean
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Related Reading and Pratchett’s Personal story about Horizontal wealth.
A quick disclaimer — Any concepts presented on this blog are simply opinions and should not be considered as professional investment advice.  As with most other things in life, you are solely responsible for your own choices, make them thoughtfully.


  1. Very good stuff but you are being too kind with the SUV pricing. My tennis buddy just bought a nice Suburban and it cost $68,000. Another friend’s husband bought her a Porsche Cayenne SUV, it cost well over $100,000. $50,000 will not get you into a new Cadillac Escalade either. The lowest end model is over $75,000 and they go up to $98,000 if you get a few options! Me, my cars have over 100k miles on them. I bought me a new one the other day with 158k miles for $7,000 cash. That’s one reason I’m not working a 9 to 5 anymore and reached financial independence years ago. My only prestige is my portfolio.

    • Agreed. Yes I figured I was going a bit low but wanted to make sure I gave an average price most SUV owners could relate to. Thanks for the feedback.

  2. VT

    You are so right on! I love my older paid for minivan and don’t think a high dollar car would bring much greater happiness. Some people feel the need to impress others. I guess I hit the personality jackpot because I care very little about other people’s opinions of me.

    • The mental aspect is key. Think about it. Any car can be a nice car, If you take great care of it. My car’s been paid for for 10 years and it’s not hard to get over saving $500 per month, because that feels a lot better than a new car smell. If you keep a car long enough, eventually it will become a classic and you’ll actually start getting compliments on it. From where I’m standing it has for comfortable seats and gets me anywhere I need to go. That works for now.

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