By Dr. Josh Daily, WCI ColumnistOne of the most repeated pieces of financial advice when shopping for a home is: “Buy the cheapest house in a nice neighborhood.” It sounds smart, frugal, and wise, right? In reality, this may be some of the worst financial advice you ever follow. Why? Because your home is not just where you live; it’s a launching pad for your lifestyle, your spending habits, and even your social circle. There’s a hidden force at play I like to call The Housing Ripple Effect, and it can stealthily derail even the most disciplined of savers.
Let’s break this down with some humor, personal anecdotes, and real talk—because, as we should know, the financial implications of homeownership aren’t just about the mortgage.
The Housing Ripple Effect: Why Your Home Choice Impacts More Than You Think
The theory behind buying the cheapest home in a nice neighborhood is that you’ll get the benefit of a great location without the high cost and that you'll possibly get greater home appreciation over time. But this advice ignores a critical part of human nature; we’re wired to compare ourselves to those around us.
You won’t just be buying the cheapest house on the street—you’ll be buying a comparison machine that shapes how you spend, how you live, and even how you parent. Trust me, that ripple effect is real.
Keeping Up with the (Literal) Next-Door Joneses
Let’s say you buy that cute, modest three-bedroom ranch in a ritzy subdivision. It’s got charm! But soon, you’ll notice that your neighbors’ brand-new Tesla or Yukon XL starts to make your reliable but aging Toyota Prius look a little sad. Suddenly, what was once a point of pride (“I’m frugal, and this old car will make me a millionaire!”) becomes a point of embarrassment—either for you (“Maybe I should upgrade?”) or, as in my case, for my son (“Dad, please don’t pick me up from school in your Prius; people will think we’re poor!”).
Plus, your neighbors are quick to point out all the safety features of their car. Before long, you’re asking yourself, “Don’t my kids deserve to drive in the safest car? I could never live with myself if something happened because I was cheap.”
More information here:
My 27-Year-Old Car Will Make Me a Multimillionaire
Should I Buy A Nice Car Or Save My Money?
Private School Pressure
Then, it becomes apparent that all your neighbors send their kids to that top-notch private school, and before you know it, you’re rethinking whether public school is really the best choice for your child. Don’t your children deserve the best education you can give them?
Let’s not forget social dynamics. You tend to become friends with the parents of your kids’ friends. So, if your children are living around, going to school with, and participating in activities with other kids in the neighborhood, you start to form close relationships with those same families. Your social circle is now tied to your home choice.
Spring Break in Europe?
Yes, your neighbors are doing that, too. Suddenly, renting a cabin at the local state park just doesn’t hold the same appeal. Next thing you know, the kids are no longer nagging you for Disney World; they’re talking about Paris and Rome. Don’t your kids deserve the cultural exposure that comes with travel?
Staying local for vacation? That starts to feel . . . small.
More information here:
WCI Travel Club: Momentous Trips to the Appalachian Trail, Washington DC, and Tokyo/Paris
Sneakerhead Culture Strikes
It’s not long before you’re hit with the ultimate gut punch: sneaker culture. Your kid comes home, eyes wide, saying, “Mom, Dad, everyone at school has Kobe Grinches, and I am getting teased for my shoes. Can I please get a pair?” (If you’re like me and don’t know what Kobe Grinches are, do a quick search—and prepare for some serious sticker shock.) You may have been perfectly content with $50 clearance sneakers before, but now, your child’s plea to fit in tugs at your heartstrings.
The Power of Proximity and Social Comparison
Here’s the kicker: the lifestyle of the people around you starts to become the baseline for your lifestyle. In psychology, this is called relative assessment. You don't measure what you have by an absolute standard but by how it stacks up to those around you. Suddenly, your financial goals are no longer guided by rational decisions but by what everyone else is doing.
Remember, humans are social creatures. Even if you think you’re immune, the social pressure to conform is sneaky. Those around you—whether it’s your neighbors, friends, or your kids’ friends—create the environment in which your financial habits live. It’s like being on a diet but living in a bakery. Good luck resisting.
Home Renovations and Upgrades
Your modest home starts out fine, but as you see your neighbors add sleek kitchen upgrades, a new pool, or a decked-out outdoor entertaining area, you start to feel the itch. It starts with something small—a new backsplash maybe—but then you think, “What’s the harm in upgrading the countertops, too?” Before you know it, you’re staring at a $50,000 home renovation you didn’t need but somehow justified.
Landscaping and Lawn Care
Then there’s the landscaping. When your neighbors are meticulously grooming their lawns, planting seasonal flowers, and bringing in professional landscaping services, it’s hard to not feel like your overgrown shrubs are a blight on the neighborhood. Suddenly, you’re shelling out hundreds of dollars a month just to keep your yard “respectable” by neighborhood standards.
Dining and Socializing
In your new neighborhood, social gatherings might revolve around upscale restaurants, catered events, or even private wine tastings. What was once a $40 night out at a family restaurant turns into a $200 tab for a five-course meal. The more you try to keep up, the more your entertainment budget spirals.
Children’s Activities
Your neighbors' kids are involved in everything: traveling club sports, private music lessons, and elite summer camps. Soon, you feel the pressure to enroll your kids in the same—after all, you don’t want them left behind. Extracurricular activities that once cost a few hundred dollars a year now drain thousands from your budget as you try to keep pace. Beyond the financial strain, there’s also the added cost of your time and energy spent ferrying kids to practices and traveling out of town for tournaments or performances.
It’s a Slippery Slope
When you live in a neighborhood where everyone is constantly upgrading, vacationing, and enrolling their kids in expensive extracurriculars, it doesn’t take long before you start to do the same. Bit by bit, your frugal nature slips away, replaced by the desire to “fit in.” And just like that, the financial security you thought you had built starts to erode under the weight of social norms and expectations.
The cheapest house in a nice neighborhood, all of a sudden, has caused expensive ripples that never even occurred to you.
I’m not saying you’re going to immediately start maxing out credit cards for lavish vacations and designer shoes—but the temptation to spend more on everything becomes ever-present. And with each step, your financial independence drifts a little further away.
More information here:
Building Wealth While Living in an Expensive Neighborhood
Avoiding the Housing Ripple Effect
So, what’s the solution? Does all of this mean you should live in a shack on the edge of town just to avoid the temptations of suburban excess? No. But it does mean you should carefully consider the impact of your community. Your neighbors matter—not just because they might lend you sugar, but because they indirectly influence your spending.
Here are a few tips for avoiding the Housing Ripple Effect:
- Know thyself: Be honest about your financial goals and what truly matters to you. If you want to prioritize savings, investing, or early retirement, living in a neighborhood where everyone is constantly upgrading their lifestyle might not be the best fit.
- Choose your community wisely: Look for neighborhoods that fit both your financial goals and lifestyle. That might mean an up-and-coming neighborhood, where the overall culture is more modest, or even a more diverse neighborhood where lifestyle pressures are less intense.
- Stay grounded in your own values: It’s easy to get swept up in the tide of social comparison, but remember, the goal is financial independence—not impressing the neighbors. Focus on what’s best for your family and your long-term goals, not just keeping up with the Joneses.
- Choose diverse friends: There are many reasons to prioritize diversity in friendships, but even from a purely self-interest perspective, it is much better for your financial well-being. Don’t just become friends with those in the middle-upper class. It’s good for you and for your kids to have meaningful friendships with people from many walks of life. Be intentional about participating in activities or choosing communities that offer diversity.
Think Beyond the Price Tag
The home you buy is not just a financial decision—it’s a lifestyle decision. And while the mortgage may fit neatly into your budget, the ripple effects of where you live can dramatically alter your financial landscape. Before you follow the old advice to buy the cheapest house in a nice neighborhood, remember the Housing Ripple Effect: where you live influences how you live. And that can make all the difference for your financial future.
If you’ve fallen into the trap of social comparison or you find yourself questioning whether you’re driving the right car or vacationing in the right spot, don’t worry—you’re not alone. The Housing Ripple Effect is subtle but powerful. With a little awareness, you can still get back on track toward financial independence without making huge waves in your financial life.
Have you ever felt the consequences of the Housing Ripple Effect? Did it hurt your financial goals? Or did you resist the temptations?
20th to 30th percentile in a nice neighborhood and keep it real / live below your means.
Also, paying a bunch of money to be in the best school in the best school district in your metro area, then forgoing the public school for a pricey private school that isn’t worth traveling a time zone to attend as a boarding school is really dumb.
“Stay grounded in your own values”. THIS is the key to this whole article.
If you are not the type to keep up with the joneses. You don’t care about fancy cars vacations clothes and kitchens and you would raise your children the same way….
If the above is YOU then buying the cheapest house in an expensive neighborhood can be the RIGHT thing to do. Better schools and better opportunities and networking for your kids if you go that route.
It all comes down to you and your families character. Do you have what it takes to resist financial temptation?
Enjoyed the post.
This neighborhood you are describing is not very common. I think the advice to buy the cheap house in the best neighborhood I always took to mean a really good school district, which by nature is usually a safe area. There are tons of those across America and doesn’t mean everyone is a decamillionaire. I grew up in one of the top school districts in our state in a town with extremely low crime rates and it was not a super wealthy area. Our home like most of the others was around $450k. Nowadays the houses in that area are around $600k. I would focus on those types of neighborhoods instead of this top 1% neighborhood you are describing which sounds like it is in upper Manhattan or an extremely rich area in Florida or California.
I suspect there is significant regional variation in how common these types of neighborhoods are and what they look like. I live in Arkansas, where the cost of living is relatively low. We bought our home for about $500K four years ago, and it’s now worth around $750K. In our neighborhood, we have what I’d consider an average to slightly above-average home. While our area is one of the more expensive neighborhoods in our city, it is certainly not the most expensive. While not every example in the article perfectly represents my neighborhood, most do. About 80% of the kids here attend private school, despite being zoned for a highly rated public school. Families typically drive two vehicles, usually in the $50K–$80K range, but instead of Teslas, the preferred choices in the South are four-wheel-drive trucks like the Silverado and large SUVs like the Yukon XL. Regular vacations to places like Europe or the Bahamas seem to be the norm, and many men spend significant money on hunting clubs and gear. Sports are another major expense. Kids often play on multiple traveling, competitive sports teams, costing families thousands of dollars annually and requiring countless weekends spent traveling. While fine dining isn’t necessarily a huge part of the culture, eating out multiple times per week is the norm. Some aspects of this spending culture don’t affect me much, but others definitely do. For example, I love fly fishing, and seeing how much my neighbors invest in their hobbies—especially hunting—helped me justify buying land on a nearby river to fish on. This dynamic may look different in other parts of the country, but I suspect the same underlying psychology is at play—we are all deeply influenced by the people we live around, whether we realize it or not.
I read this post with genuine interest, trying to acknowledge any pressures I hadn’t noticed living in an expensive neighborhood. 2 key takeaways: 1. So many of the stated pressures stemmed from the kids’ experiences. Without children, I don’t feel them. I also doubt my neighbors with kids feel them, since we don’t have tons of kids in the neighborhood and their (public) schoolmates are bussed in from all around. 2. It’s not about the price; it’s about the culture. My neighborhood is admittedly expensive and unnecessarily luxurious, but the culture is very practical. Many people retired here from a HCOL place, so this represents a bargain to them. Some moderate earners (e.g., nurses) bought before the prices shot up. Others are high earners who value the large lots for space or quiet. Everyone respects living within your means and tries to help one another do so (e.g., borrowing tools, giving advice, etc.). I feel much less lifestyle pressure than my friends in less expensive, manicured suburban subdivisions. They show off their new luxury cars to each other. In my neighborhood, some people drive beaters and others have lifts in their garages to store extra Porsches that no one mentions. And no one would dare pressure you about your landscaping.
It sounds like you live in a fantastic neighborhood! I’m struck by how many of the pressures I feel to spend more money seem to be directly tied to raising children. I also agree that it’s not as simple as saying expensive neighborhoods push us to spend more money, while cheaper neighborhoods do not. Rather, I think the key takeaway is that we are deeply influenced by the people we live near and form relationships with, and that dynamic can manifest in different ways across various neighborhoods. The most important thing is to factor this influence into your decision-making when choosing where to live, recognizing that your neighborhood shapes your financial habits in ways that go far beyond just the monthly payment.
I’d rather be a medium-sized fish in a small pond than a medium-sized fish in a big pond.
While some of the general reminders about resisting peer pressure and lifestyle creep continue to hold true, the post really does not back up its own title. If one should not buy the cheapest house in a nice neighborhood, would it somehow be better advice to buy a mid-range home in a nice neighborhood?? It sounds like the real advice the author is giving is simply to not buy ANY house in a nice neighborhood. Perhaps the title of the article should be “Don’t live in a nice neighborhood,” which is absurd. It would also then follow that one should not work in medicine, where one is surrounded buy highly paid fellow colleagues, and all those same pressures of lifestyle creep that come with it. Certainly working a low-paid job and living in a dumpy neighborhood is one way to insulate yourself from the pressure to keep up with neighbors/colleagues, but that’s throwing the baby out with the bathwater.
One reason physicians choose their careers is to be able to live a nice neighborhood. I’d argue that it IS good advice to find a nice neighborhood—where one could comfortably afford a mid to high range home—and then buy one of the cheaper ones in that neighborhood. I think that is what the original advice was meant to convey. The real thing to avoid is upgrading to an extravagant neighborhood that one could only just barely afford to live in if they buy the cheapest house there.
Thank you for your thoughtful comment! I completely understand where you’re coming from, and I think we actually agree on many points. My goal was not to suggest that people shouldn’t live in a nice neighborhood, but rather to highlight how our financial and lifestyle decisions are often shaped by the people around us—sometimes in ways we don’t consciously realize. There is strong research showing that our happiness is largely relative—it depends not just on our absolute income or wealth, but also on how we perceive ourselves compared to those around us. A study by Erzo Luttmer (Luttmer, 2005) found that, even when controlling for an individual’s own income, having wealthier neighbors was associated with lower self-reported happiness. This suggests that when we constantly compare ourselves to those who have more, we may feel dissatisfied—even if we are doing well by objective standards. Additionally, the concept of “positional goods” (goods whose value is based on social comparison) plays a major role in how we perceive our financial well-being. Research has shown that when people engage in lifestyle comparisons, they often feel pressure to spend more just to keep up, rather than because the additional spending brings meaningful happiness (Young Foundation). This is why someone might feel happier buying a mid-range home in a middle-class neighborhood—where their lifestyle feels aligned with those around them—rather than buying the cheapest home in a very expensive neighborhood, where the gap between their spending habits and those of their neighbors may feel more pronounced. I completely agree that living in a nice neighborhood is a worthy goal, and many physicians work hard to achieve that lifestyle. I also don’t think physicians should intentionally avoid nice neighborhoods. Instead, the takeaway from my article is to be intentional about where you choose to live, knowing that your surroundings will inevitably shape your financial behaviors. A good middle ground is exactly what you described—finding a neighborhood where you can comfortably afford a mid-to-high-range home, rather than stretching your budget to live in an ultra-expensive area where you may feel constant financial pressure.
I think the point is that you shouldn’t necessarily stretch to get into the worst house in a nice neighborhood as there will be a lot of costs you’re not thinking about associated with that decision. I live in a pretty nice neighborhood but it’s a nice neighborhood that I can certainly afford. I probably have one of the nicer houses in it actually now that it’s been renovated.
Bottom line: Don’t buy stuff you can’t afford.
https://www.youtube.com/watch?v=R3ZJKN_5M44
and that includes the stuff you may feel pressured to buy if you live in a place surrounded by people wealthier than you.
This probably applies to choice of city too. Different if you live in New York City or San Francisco vs the rest of the US. Great places to live if you have plenty of money, but if you are a doctor living there that won’t be you unless you’re in a high income specialty.
I live in a nice neighborhood where the lower end homes like mine currently sell for $1.5M. We have 3 older teen kids and no one in our family feels self-conscious that we drive a 2006 Toyota Highlander Hybrid (our other vehicles are a 2012 Honda CR-V and 2012 Odyssey) or that every piece of furniture in our home was purchased used off NextDoor. An unexpected benefit of living in a nice neighborhood is that it’s easy to buy top quality furniture and rugs at a ridiculously low price. We once got a new sofa for free because a neighbor didn’t like the color. I’d say that our kids would be more self-conscious if their peers thought of them as being rich than poor. An unexpected downside of living in a nice neighborhood is that it’s not uncommon to be charged more for trades work (plumbing, HVAC, electrical) because of the “rich neighborhood tax”.
We were looking at quotes for an in-ground pool/hardscape/landscaping/fire pit. First guy to walk in throws a number off the top of his head. The sticker shock left me indignant; for sure this guy was raking us over the coals because of the neighborhood we live in. We chose to subcontract the work, and at the end of the day…that first guy was spot-on with his quote. LOL! Would have been a lot less stress to have him do it all rather than deal with individual contractors. Lesson learned.
This may be beyond the scope of this post, but on the subject of “choose diverse friends,” how do you do this in practice when there are significant wealth differences? I recently came into a sizable sum of money and haven’t told some of my friends. I would like to be able to treat them to dinners and such, but this gets weird for them. Any advice?
I will stop accepting invitations if a friend always pays. I recommend keeping your “treats” infrequent or limiting it to the first round of drinks or shared appetizers. We all have egos, whether we like to admit it or not.
I think there is a lot of wisdom in this article. Thank you.
One related idea.
There are two ways to estimate your future behavior. One is sort of “first principles reasoning” where you look at your values and personality and make a prediction. For example, “I am a frugal person. When I move to a nicer neighborhood, I will remain a frugal person. The only part of my budget that will change is my mortgage.”
The other is “who is currently in that situation? I’ll probably just do whatever they do.” So the prediction would be something like, “I’m a frugal person now. I am considering moving to a neighborhood where everyone sure seems to spend a lot on landscaping. I bet when I move to that neighborhood, I’ll spend a lot on landscaping too.”
Most people’s thought process is that they’re person number one, when in reality, most of us behave a lot more like person number two.
That’s good insight.
We live in a neighborhood that exploded in price, and now we’re getting gentrified out. Maybe instead of hand-wringing about lifestyle creep, try not being the person who causes it. The author sounds exactly like the people they’re ‘warning’ about.
That might be a bigger problem than one or even most WCIers can really do much about. Always good to think about though.
The article is literally about how individual choices impact your finances. Why not apply the same logic to how individual choices impact a community?
Sure. Just be sure to weigh competing priorities in a way that is consistent with your values.
What’s missing from this is that “Keeping up with the Joneses” can also be seen in a different light. I grew up middle class in an extremely niche, wealthy city. I was surrounded by leaders of industry, entrepreneurs, and the like—it showed me what was possible, gave me connections, and was invaluable in finding a path to a financially stable future. Clearly most people take this the wrong way and focus on the spending… but in the business world, connections are currency. Live within your means, and look for opportunities. You are much more likely to find them in a social circle comprised of leaders and executives.
That’s a good point.
I am in almost the opposite situation: a very nice home in a modest neighborhood. It is worth about 2x the value of most of the other homes. It was the only one available that would meet our needs at the time we moved here, and we are in a rural community.
It has been relatively easy to keep up with the Joneses here, as you might imagine, and we are on a fast track to meet our financial goals. I also really like my neighbors, who range the spectrum from construction contractors to school teachers to nurses, with a PA or two mixed in. As far as I know I am the only physician in my city limits. Both my wife and I grew up in financially challenged families, so we feel right at home here.
But there are challenges. We teach our kids about finances and let them know our family financial goals and milestones, but do we want them blabbing all over the neighborhood what our net worth is? I also understand that it may be difficult to sell this house someday, and we may have to accept a low offer or wait a long time on the market.
There are tradeoffs in every decision.
I hear you, but I think this really depends on your personality. Some people are natural contrarians who enjoy zigging while others zag. My neighbor drives a Range Rover; I drive my 10-year-old Camry with pride. My kids go to public school; theirs go to private. We travel cheap, they travel lavishly. None of it bothers me. If you’re truly disciplined and confident in your values, living among wealthier neighbors can actually keep you aspirational without breaking your budget.
We can keep up with the Joneses (if/when we want to) BECAUSE we bought the cheapest home in a nice neighborhood. 🙂
I came to say the same thing! We live in the cheapest house in our community, it has not been updated in decades while everyone else expanded their homes by building extensions and two-car garages. We are here for the public schools and it has lived up to our expectations, all three kids go to the neighborhood elementary just down the block. And we use the money we save for expensive vacations and high-end restaurants and extracurricular activities (music, sports) and it doesn’t hurt at all because our housing expenses are so low. I also don’t mind teaching the kids they cannot have all the fancy toys or gadgets their peers have, at some point they will need to learn this anyway.
I’ve been waiting for an article like this for a long time! This has been my experience exactly. My wife is the doc and we’ve watched some of her peers in her group choose the fancy neighborhoods and flashy cars, and then complain about how nobody is that friendly and everything feels like a competition. They also wonder how we can afford to take the vacations we do, when they have $80,000 cars, a ski house in the mountains, and kids getting private baseball coaching at age 6. We live in a nice house in a modest neighborhood. We’ve made upgrades along the way, but have kept things modest, since that’s what suits us and matches the neighborhood. This has allowed US to be the Joneses. We’re the ones taking enviable trips, we enjoy a 40-50% savings rate, and are looking at ways to loosen the purse strings. But moving into a ritzier neighborhood will not be how we do it!
It’s funny seeing neighbors keeping up with the Jones. I found when you worried about what everyone else is doing you forget to live your own life. I go against the grain with pride. I do what benefits my family and I, rather than impress someone else. I also found buying the least expensive home in a nice community is a great investment. This article assumes the least expensive home does come with nice finishes.. I