Most of us make quick judgements from what we can see: the house on a desirable street, the new car on the driveway, the long-haul holidays and the restaurant meals appearing on social media.

Yet visible spending and financial security are not the same thing.

A luxury car may be financed. A holiday may still be sitting on a credit card. An impressive home may carry a substantial mortgage. Equally, the neighbour driving a ten-year-old hatchback may have pension assets, investments or savings quietly accumulating in the background.

We can see what people spend, but rarely the assets, liabilities and family circumstances behind it. That makes lifestyle a poor guide to someone’s real financial position.

When Does Debt Help – and When Does It Hinder?

Whether borrowing helps or harms depends mainly on what it is for, what it costs and whether the repayments are manageable.

Borrowing may strengthen someone’s long-term position when it is used carefully to acquire an asset or create an opportunity. A sustainable mortgage can provide a home while building equity. Borrowing for education or professional development may improve future earning potential, although the value will depend on the course, the funding arrangement and the individual’s circumstances. Business finance can support productive investment or expansion.

By contrast, expensive borrowing used to fund discretionary spending can weaken future finances, particularly when balances are carried from month to month. Credit card debt, unaffordable vehicle finance, buy-now-pay-later arrangements and personal loans can all become problematic when repayments leave little room for saving or unexpected costs.

The type of credit does not settle the question. A mortgage that stretches a household beyond its means is not helpful simply because property is involved. A credit card used for convenience and cleared in full each month is different from a persistent revolving balance.

Three questions are usually more useful than calling a debt ‘good’ or ‘bad’:

•  What is being financed?

•  What is the full cost, including interest, fees and the length of the commitment?

•  Will the borrowing improve or restrict the borrower’s future choices?

The Hidden Cost of Keeping Up

Borrowing is a normal part of modern financial life. According to the House of Commons Library, around 84% of UK adults had some form of credit or loan in the 12 months to May 2024.[1] Even after excluding student loans, informal borrowing, buy-now-pay-later arrangements and credit cards repaid in full each month, almost half of adults held regulated credit.

Those figures do not imply widespread irresponsibility. Mortgages, business lending and carefully managed credit can all serve useful purposes. They do, however, show why apparent prosperity should not automatically be mistaken for accumulated wealth.

The risk arises when we compare our full financial reality with somebody else’s visible consumption. If we assume others are progressing faster, it can be tempting to spend more, save less or borrow simply to maintain a similar appearance.

Lifestyle borrowing carries two costs. The first is the interest and fees paid today. The second is the loss of money that might otherwise have gone towards an emergency fund, a pension or long-term investments. Over time, that lost opportunity to save or invest may prove more significant than the purchase itself.

Debt consolidation shows why the behaviour surrounding a financial product matters. Replacing several expensive balances with one lower-rate loan may reduce interest costs and make repayments easier to manage. But it replaces the existing borrowing with a new liability; it does not make the debt disappear. If the cleared credit is then used again, the household may be left with both the consolidation loan and fresh balances.

Consolidation is therefore most effective when it is accompanied by an affordable repayment plan and no further reliance on the facilities that were cleared.

What Does This Mean for Retirement Planning?

These differences matter particularly when people start planning for retirement.

The 2026 Retirement Living Standards estimate that a two-person household would need annual after-tax spending of around £62,700 to fund the lifestyle described as ‘comfortable’.[2] The benchmark is intended to help people picture a lifestyle rather than prescribe a target for every household. It also excludes housing costs and social care, so personal requirements may be materially higher or lower.

Two full New State Pensions in the 2026/27 tax year would provide gross income of approximately £25,094 a year. They would meet part of the couple’s spending, but the amount required from private pensions, investments or savings cannot be calculated simply by subtracting that gross income from the after-tax spending standard.

The actual gap would depend on each person’s State Pension entitlement, the household’s tax position, how assets are divided between them and whether withdrawals come from pensions, ISAs, cash or taxable investments. Investment returns, inflation, charges and the length of retirement would also affect the level of capital required.

A rough calculation helps show the scale involved. Capitalising an annual gap of £37,600 at 5% produces a figure of £752,000. This is not a recommended withdrawal rate or a personal savings target, and it does not account for tax or changing expenditure. It merely shows how an ordinary-looking annual income requirement can translate into a substantial capital sum.

The standards also suggest that around 82% of the working population is on track to reach the minimum retirement lifestyle, while 23% may reach the moderate level and 9% the comfortable level. They are national projections, not forecasts for an individual, but they underline the value of reviewing retirement plans early.

Total household wealth can also give a misleading impression of retirement readiness. ONS figures include private pensions, housing and physical assets, not just liquid investments available to support spending. A household may appear wealthy on paper while having relatively little accessible income.

Focus on your Financial Position 

Financial planning is most useful when it replaces comparison with a clear view of your own position.

Two households may earn similar incomes and drive similar cars. One may own the car outright, contribute regularly to pensions and hold an emergency fund. The other may have several years of finance remaining and little capacity to absorb an unexpected bill. Their visible lifestyles are similar; their financial resilience is not.

The more useful comparison is with your own plan: what you own, what you owe, what you spend and what you want your money to support. It asks whether today’s spending supports or delays the life the household wants to fund later.

* This article is considered accurate at the time of publication. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. This article is for information purposes only and should not be considered personal financial advice. The suitability of any borrowing, pension or investment strategy depends on individual circumstances, objectives and attitude to risk. Tax rules and allowances can change, and their benefits depend on personal circumstances.

[1] House of Commons Library Research Briefing “Household debt: statistics and impact on economy”
[2] Retirement Living Standards 2026