One of the greatest things about being a financial advisor (beyond the love of numbers and being able to talk about money all day) is that you actually get to see behind the front door of American households. I often tell people that what you see is not what you get. What you often see from social media, your neighbors and co-workers is outward displays of success. Big homes, luxury cars, nice clothes, fine dining, and chuckles all around. Life is grand!
What is actually going on behind the scenes is often a train wreck.
- Large mortgages
- home equity lines of credit
- maxed out credit cards, car loans and leases
- no emergency funds
- financial anxiety
What we know about financial happiness is quite intriguing. What we have learned is that happiness is not contingent on what you actually own in and of itself.
Financial happiness is based on what you own relative to someone else.
That is an interesting discovery of human behavior because it creates what I call an “arms race between third world countries.” Two neighbors may be strutting peacock feathers at BBQ’s and get-togethers. If Joe next door gets a new luxury car, guess what the neighbor wants suddenly? If all the kids in the neighborhood are going to private school and little Johnny is the only kid waiting for the school bus with Mom holding an umbrella over his head, guess who starts talking about sending little Johnny to private school?
If we pay attention to this behavioral trait, we can use self-reflection to ensure that we are acting in our own self-interest so we don’t get pulled into depths of debt by trying to keep up with the Jones’. That’s the issue with real wealth. Nobody really knows what the other person truly has (or doesn’t have). Everything is hidden and confidential. Nobody has a sign over their front door that reads, “Credit score 560…Home Equity line balance $58,000 with no more room on the VISA.”
You are the following;
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You are who you hang out with
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You are what you read
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You are what you think
If you hang out or try to hang out with people that are always trying to ramp up spending (without knowing that they are on track to blow themselves to smithereens), how does that benefit your own self-interest if you are focused on wealth and financial security? All it does is screw with your head that you aren’t as good as them when that actually isn’t the case at all. You are better than them because you are the person who is using restraint, discipline and your brain.
If you want to lower social pressure to spend, spend, spend, then hang out with people a rung or two below you on the social ladder. They will feel compelled to keep up with you but you won’t have any significant pressure to keep up with somebody who either is acting foolishly with their money OR actually has wealth that you don’t (which is also possible). Most people try and hang out with people a few rungs up the social ladder (they must feel more self-worth if they feel that someone wealthier wants to associate with them).
Be aware of this human behavior that anchors your financial happiness not based on what you own and enjoy but rather what you own compared to others. You’ll be doing yourself a big giant favor.