Last week, just before Thanksgiving, I sent an article to people on my email list that you won’t find on the blog.
I was psyched to see how many of you wrote back saying you enjoyed the advice.
If you only saw the subject line or skimmed the email, you thought “oh it’s Thanksgiving and this guy is thanking me for reading his blog and reminding me to be thankful, blah blah blah.”
But if you actually read the email, hopefully you saw that there was a really useful nugget of wisdom contained within. I shared one simple technique that researchers have found will improve your mood, health, and finances (and it takes less than 10 minutes a week).
If you want that tip, you’ll have to subscribe. But I will tell you that last week’s email was about gratitude, and how grateful people are happier.
I shared that email (and the actionable advice) because it relates to the thing I find most interesting about personal finance—our individual relationships with money.
WE ALL COMPARE
What I’m about to tell you used to really piss me off.
Two of the most searched for and commented-on articles on this blog are:
I wrote these posts because readers are always telling me they want benchmarks. We all want to know “how we’re doing” compared to national averages or, more importantly, compared to other people our age.
So I gave them what they wanted. And then I regretted it.
If you read some of the comments on the two posts above, they get nasty. So nasty, in fact, that I closed them down on the 401k post. Here’s the start of one string:
Josh: I currently contract overseas, I have about 105K in saving and 20K in low risk investments. My 2001 car has been paid off and I have no debt. For being 25 with only some college and prior military I think I am on the right track.
Blake: lol! you are all liars… and i have 84 million under my mattress. you can’t even spell ‘savings’ correctly.
This degrades quickly into an immature barb-fest with more comments spent mocking other readers’ spelling than offering intelligent insights. In hindsight, I should’ve deleted more of them. But the pattern is interesting.
Many readers comment that they earn six figures at an early age (24, 25, 26 etc.) and already have a sizable amount saved. Many of them then ask others to validate that they’re doing well. Almost immediately, others earning far less want to shout out “yeah, Asshole, you’re doing fine.” Many people don’t put it so nicely.
What does this tell us?
- We love to compare ourselves to one another.
- We love to discover that we’re better off than other people.
- We love to hate people who are better off than we are.
So I used to read comments like this and get angry. I got pissed that people seemed to gloat about how much money they made and then I got pissed that people wrote such nasty responses (hiding behind anonymity of course).
I still don’t condone people gloating about their riches or trashing others for their financial situation, and I’m more quick to delete comments that are mean than I used to be. But I’m starting to understand where these comments come from.
We all want to feel like we’re better off than our friends.
For some of us, that means earning more money, or having a higher net worth.
For others, it means believing that the decision to be a math teacher instead of a hedge fund manager is more honorable and enriching.
And there is science behind this. When we reflect on ways that we’re better off than other people, we’re happy. But when we dwell on ways that we’re less fortunate than others, we get jealous, depressed, angry, etc.
As an example, research shows that money only makes you happy if you’re richer than your neighbors. People who have high incomes compared to others in their neighborhood are happier whereas people who earn less than their neighbors are less happy.
Knowing this, it seems we have two choices.
- Actually get richer than other people (or at least focus on the ways we are “richer” than other people).
- Stop comparing.
The latter choice is not new advice. It’s in the Ten Commandments! Don’t covet your neighbor’s house. But we’re so bad at it. Just read those comments.
If you truly want to be richer than your friends, stop comparing yourself to them.
But because that’s not easy to do, here are some other things you can do as well.
FOCUS ON WHAT YOU HAVE, NOT WHAT YOU DON’T
Let’s talk about the Occupy Movement.
I support it.
In the United States (and Europe too), the Middle Class is disappearing. I believe this presents a grave threat to our economic future. Without what economist Robert Reich calls the “basic bargain” in which employers pay their employees enough to purchase the products they produce (and a modest home, car etc.), people don’t spend money. And when people don’t spend money, small businesses can’t grow and create jobs, leaving more people without jobs at all. Wealth stays in the pockets of corporations and the superrich, and the average person gets poorer.
That said, let’s look for a minute at the movement’s motto: “we are the 99%”.
In the United States, you can earn a boatload of money and still be in the 99%. (I’ve heard various stats, but it sounds like the threshold of the 1% is an annual income of somewhere between $350 and $400k a year.) Of course the implied 1% are actually the 0.1% who earn much more than this…millions and billions.
But let’s stop for a moment and put things in perspective.
In 2011, the poverty line in the U.S. is $10,890 for an individual. Not a lot of money. In the U.S., it would be damned hard (impossible?) to survive on that.
But believe it or not, somebody earning $10,890 a year falls within the richest 13.12% of the world according to the Global Rich List.
And, if you make $47,500 a year or more, congratulations, YOU are in the richest 1% on a global scale.
This may not be comforting to the thousands of unemployed and underemployed college graduates. Nor the single mother whose sick child’s medical bills put her in bankruptcy because her job doesn’t have health insurance. Or the seniors on fixed incomes facing rising medical costs and reduced benefits. Nor the small business owner who is frustrated because she pays more federal taxes than corporations including GE and ExxonMobil.
But you—my readers—can use this.
Whatever your current financial challenges, start every day by focusing on what you have, not what you don’t.
You’ll worry less. You’ll spend less. You’ll be happier.
You’ll be in a better position to work towards your financial goals.
ACT, DON’T OBSESS
It’s good to have financial goals.
Money is not inherently evil.
Our desire to earn an honest buck is the oil in our economy’s engine.
Striving to earn more money because you want to be rewarded for your hard work is different than lusting after the car your friend drives. Money—and the quality of life money can buy—is a perfectly acceptable reward for hard work.
So if you want to earn more money, stop comparing yourself to others and stop hating people who have money.
Instead, figure out what one thing you can do to earn more and do it.
- Example 1: Spend the next three months focusing on high-value activities at work. Create a portfolio of your results. Ask for a raise.
- Example 2: Take a skill and turn it into a freelance business. Email five people you know who might need your services. Instead of outright selling to them, ask if that “kind of service” would ever be useful and if so, what exactly would they want? Then take their answer and offer to do it for them.
- Example 3: If you’re unemployed, underemployed or in a truly dead-end job, commit to doing what it takes to change your situation. It’s a brutal world out there, but my readers can beat it. Change cities if you have to. Network like mad. Offer to work for free for a month.
Why is this post titled “how to be richer than your friends?”
Because it got you to read it. We all play the comparison game. It’s human nature. But if you want to be more successful (and happier), turn it off.
Focus on what you have, not what you don’t. Focus on what you need to do to get where you want. Do it.