It’s all relative

There was a study carried out in 1998 in which the researchers looked at people’s concerns on where they stood relative to everyone else. One of the questions asked was, if you knew what everyone else in your company earned, which salary would you prefer to have:

A. Earn €50,000, while others earned €25,000

B. Earn €100,000, while others earned €200,000

The answer to this is obvious, have more money. But 50% of participants chose option A. Having less money is more important if they earned more relative to everyone else than actually having more money.

Behaviour coaching

A huge part of our work as financial planners is to get people to concentrate on themselves and stop looking at what other people have. It is of no relevance to your family’s future or wellbeing on what other people are doing. In fact, trying to keep up with the Joneses is detrimental to what you can achieve in life. Instead of saving and building wealth for your future happiness, you are spending money on objects that you think you want.

The work that we do on people’s attitude to money is now just as important to making sure they have the correct structures and investment strategies.

Always someone wealthier

When my son started going to the gym, I told him to never gauge the weight he could lift against against others in the gym. There will always be someone stronger than you. Do your own programme and assess your progress against yourself and not against others.

It is the same with wealth. There will always be someone wealthier than you are. Even if you are the top earner in your company, that won’t be enough for you. You will be looking at what other people earn in other companies and be jealous of what they earn.

Where is the joy?

Everyone around your area is driving the latest SUV. You have the one that was in vogue 8 years ago. You need to upgrade so you are the same as everyone else. How will that make you feel when you have made the upgrade? It won’t bring you any joy, it is relief that you are feeling. You are the same as everyone else, no longer different. What happens when the next new shiny thing comes along? More stress and anxiety, especially if you can’t afford to buy it because all your money has gone on your SUV.

Some of my wealthiest clients have modest homes and modest cars. They have built their wealth over the years by saving and not spending (they do enjoy life, but don’t spend excessively relative to their income). Material items aren’t important to them. Look at Warren Buffett, one of the richest people in the world. He could have moved his business to New York and lived in a penthouse apartment in Manhattan. He never moved from the house he bought in 1958 and runs Berkshire Hathaway, one of the most successful companies in American history from Omaha, Nebraska. He also drives a 10 year old car, a car that he bought cheap as it had hail damage.

 

Steven Barrett

17 June 2024