Jon, 30, had been making a steady climb into the world of luxury as a commercial-real-estate broker in New York City. Until this year, he had been earning in the high six figures, but his commissions nose-dived with the market. His love of the finer things, however, only grew. "You upgrade to Tod's, and you don't want to make the step back down," he says. "The first couple suits I had were from small shops in Soho that I would get on sale. Then I started buying Theory suits, which are between $750 and $1,000. Then I bought a Paul Smith Luxury suit, which was $2,000. I'd buy Hermès ties instead of Façonnable. My first watch was a Baume & Mercier, which was around $2,000. I'd see people who had bigger and more expensive watches, so my next watch was $6,000. And my last watch was $10,000."

Jon still has the means to live well, if a little more modestly than he'd like, but he'd rather heedlessly spend his way into the red. And he has company. "We've literally had people come in to see us with their tax work that shows they made $5 million last year—and they have no savings," says Domenic DiPiero, president of Newport Capital Group, a New Jersey wealth-management firm. According to his estimates, he's counseling 25 percent more millionaires who live paycheck-to-paycheck now than he was a year ago.

Being frugal is a buzz-kill; spending blindly, especially these days, is a buzz. "There's an addictive quality about it," Jon says.

Then there's the issue of simply proving you have a place in this rarefied world of the moneyed. Who wants to be the schmuck who panicked and ditched the Bugatti for a Beemer? As Paul puts it, "A BMW convertible feels like a sober Prius in an East Hampton parking lot." Similarly, Jon found that traveling to places like Las Vegas and Miami—where "Go for broke!" is practically a battle cry—is particularly pernicious. Spending means being one of the guys, and abstaining means getting left behind. "It's not good enough that you're staying at the best hotel. It has to be 'I'm in the Tower Suite at the Wynn.' Then you go to the pool, and it's another $300 for a cabana—and you want the good cabana, not the one on the second floor where no one can see you." The same kind of compulsive one-upmanship exists in all aspects of the overspender's life: stocking the cellar from the right vineyards, snagging a set of custom-made Bob Kramer knives, buying his girlfriend a Birkin for Christmas.