A couple of years ago, in one particularly expensive neighborhood, we saw homes that were bigger than we could believe: 15,000 square feet and more. This was right next to a golf club where memberships ran $75,000 a year. We were informed that everyone joined, because everyone joined. What if you didn't play golf? Well, you joined anyway, to socialize with the neighbors. That was simply part of the lifestyle.

We stopped at one particularly imposing custom-home still under construction, wondering about the future occupants. Where did this wealth come from? How many children did these people have, 20? Or, perhaps their extended family—sisters and cousins and aunts—would be living there too? Our brief tour disclosed wings and lobbies and sitting rooms for the usual number of bedrooms (why do the children need lobbies?) plus game rooms and media centers and anterooms galore. The more sensible 3,000 square feet-sized house at the end of the garden turned out to be the "butler's quarters."

Then we bumped into the owners. Gosh, they looked about 25! I just had to ask; it turned out they were 30-ish. They happily disclosed that their current home, not far away, was only 5,000 square feet. Too small, they insisted. How many kids did they have? Two. So, just what did they do for a living? One word explained it all: dot-com. We left, shaking our heads.

Some months later we thought we'd drive by to see whether that dot-com family had moved in yet. There was a big sign out-front. Construction had stopped mid-way and the big, unfinished house was for sale.

I was curious, so I dug deeper. It turns out that the dot-com IPO was valued at about $50 million, and this guy who was building the palace had sold about $3 million worth of stock during the offering, which valued his 20% stockholding at $10 million. When the stock crashed (to a fraction of the IPO price) and the company folded, his debts and commitments already exceeded the amount he had cashed in plus his stock value, and he was broke. They had made a 10% down payment on the $10 million home, and the bank was now the owner of the unfinished monstrosity. The dot-com "millionaire" was now looking for funding on his next venture.

This type of escalation up the ladder of life is not limited just to the filthy-rich. I remember many years ago, a colleague at work with a salary comparable to mine had a home that seemed much larger. Perhaps he was independently wealthy. Then we both got a similar pay raise, and I heard to my amazement that he was moving to an even larger home. I asked him how he did it and he replied, "The magic of monthly payments!" A few years later, during the aerospace layoffs, I bumped into him again. He had lost his job, his wife had left him, they had sold the house during the divorce, and he was selling office supplies to make a living—a casualty of lifestyle syndrome.

Our society boosts people into thinking that wealth accumulates and extrapolates endlessly. And borrowing is based on that misconception. Don't pay cash, when you can borrow and the interest is tax-deductible. When buying a car, many consider only the lease payments, not the price. If you can make the monthly payments, why not buy a boat?

In reality, most assets depreciate, while expenses and liabilities (including interest) mount mercilessly. Many millionaires go bust quite quickly because they don't seem to understand these simple truths. They simply succumb to the lure of the lifestyle.

I know one guy who lives in a relatively humble, rented home but has a luxury car and spends $25,000 a year to play at a tennis club. When I suggested that he could play tennis inexpensively in any one of several local venues, he insisted, "You have to live the lifestyle to meet the right people. Besides, they all see my car, but no one knows where I live!"

I know another lifestyle junkie, a leading light at the ballet and the opera, with another expensive habit: valet parking. When the valet service is free, he still tips the valet five dollars. On one occasion when we met for lunch, the parking lot was largely empty, so I parked right next to the front door, while my friend drove up and grandly handed his keys to the valet. After lunch, we came out together and I drove off right away while my friend waited impatiently for the valet, who was nowhere to be seen.

Now, I don't feel particularly humble or miserly, but I really don't understand the rationale of the luxury lifestyle. In fact, I remember the remark of a guy who ignored the champagne at a fancy reception and asked for a beer. "Hey!" he said, "I'm rich enough to drink what I want, not what looks good."

These days, when I see somebody posturing beyond their means, I remember a Texas cattleman's wisecrack: "Big hat, no cattle!"