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The Pitfalls of Comparing our Finances with Friends

The Pitfalls of Comparing our Finances with Friends

January 18, 2023
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The Pitfalls of Comparing our Finances with Friends

At any point in the year, it can be easy to get trapped in a social media spiral of comparing ourselves to our friends by seeing their posts about the “fabulous” trips they took over the holidays or the gifts they enjoyed. Along these lines, we can dive into a rabbit hole of self-doubt and low self-esteem if we feel like we aren’t doing as well as our friends are financially. We might want to talk to our friends to see what they’re investing in, or how much they are saving, to see how we compare. Take my advice, resist this urge. Unless your friend is a financial advisor and can offer impartial counsel, it’s usually a bad idea.

This article, “Why your Friends are (Usually) the Worst Place to Compare your Financial Habits” from the Money with Katie podcast and blog suggests our friends might not be the best people to talk to about our finances. This really hit home. In my work as a financial advisor, I often hear clients compare themselves to what their friends, family members or neighbors are doing. When I ask about their goals, I hear things like “I want to take trips like our neighbors do, or my friend says they have college all paid for and we aren’t close to this, or so-and-so has this much in their retirement accounts”. This is a starting point, to help define your goals. But don’t let others define them for you.

Believe me, it is tempting to feel like we need to keep up. Or, we aren’t on track, because our friends can take an annual vacation, have their kids in travel sports or are buying a vacation home.

We all feel the bite of jealousy or envy at different points in our lives. When it comes to personal finances, we are not immune, and I’d argue, it might be worse. As a society, we are constantly comparing ourselves to others - partly because it is so easy to see what others have (on social media). Also, the instant gratification nature of our society means we can buy anything instantly. And, with notifications, updates and texts, it all adds up to make many of us feel like we MUST have everything/the best, even if we can’t afford it!!

How do we handle it? I suggest keeping our eye on our own personal goals and keep moving toward them.

Define your Own Goals

We all have someone in our circle who seems to be “living the high life”. I suggest we use that a motivation, or an example of what we could be saving for with our financial plan. Part of our planning exercise is to ask what your long and short-term goals are. These include saving for vacations, the types of trips define the amount needed to save. We also ask what assets you currently have. We know some people have a head start, either from family savings, no student debt or loans, or a vacation home that is “in the family”.

It’s important to realize we are all at a different starting line. But it’s not a race to see who wins. It’s an internal competition to meet our goals.

I remind my clients it’s important to remember you never really know what’s going on in terms of how much their friends are really saving, what they’re personal comfort level is with debt, and more importantly if they are outliving their means! 

You Do You

Just like a relationship – you really never know what’s going on behind closed doors so therefore DO NOT COMPARE yourself to others! 

The Money with Katie blog has great advice… “just like we shouldn’t discern how “normal” our spending is by comparing it to what our friends are doing, we also can’t make statistically valid comparisons about lifestyle choices, either”.

She elaborates, “when it comes to comparison—your comparison gauge simply won’t function properly unless the person you’re using as a yardstick is yourself (unless there’s another person you know who had the exact same upbringing, resources, opportunities, unlucky breaks, and brain—then compare away).”

Your life experiences have brought you to where you are today. No one, except for a cloned twin will have made the same decisions. Even in families with the same financial upbringing, siblings can emerge with different ideas and priorities about money. This is to reiterate that financial decisions are personal and informed by many different factors, that vary from our friends’ circumstances.

Stick to your Plan

Lastly, I counsel my clients to stay the course you are on AND if someone makes you feel bad for not taking that lavish trip, or buying the expensive meals/items then they might not really be your friend after all.  For those of us who are familiar with the show Friends, one episode highlighted the dangers of trying to keep up with friends who spend their money differently. The group of six friends went out to dinner and Monica, Chandler and Ross ordered appetizers, drinks and dinner while Joey, Phoebe and Rachel all ordered a cup of soup and water. When the bill came, the three who were making more money, assumed they’d split the tab, while the others had to confess they couldn’t afford it. It was awkward but because it’s a sitcom, it was resolved with a joke and a laugh track. In real life, when you have a plan for your spending, you can avoid putting yourself in a situation where you are over-extended or not being honest about your priorities.

In the end, it can be a humbling but also gratifying experience to do what works for you. In personal finances, this means setting your goals and budget, regardless of what your friends are doing. Do you want to take that trip to St. Lucia like your neighbors did? If yes, then make it a priority in your planning and saving. You’ll end up enjoying the trip even more if you do.

And remember, a real friend should support you and love you no matter what your income is and how you budget your money.

 

 

Katy Ufferman (ChFC) is a chartered financial consultant with Maxwell Financial Management and leads the firm’s practice dedicated to helping women with their investments and retirement planning. She’s an advocate for helping women plan for their retirement, because her firm has found although more women are providing for their families when it comes to preparing for retirement, only 10% of women feel very confident in their ability to fully retire with a comfortable lifestyle. TransAmericaCenter.org, 2017

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.