One of the common questions I get from new clients is, “How am I doing financially . . . compared to everyone else in my situation?”
Something in us loves to compare—and do whatever “everyone else is doing.” When it comes to finances, this is rarely wise:
- Right now, some 2 million homeowners are three months behind on their mortgage payments.
- Nearly half of all Americans are carrying credit card debt balances. And many of them make only the minimum payment each month.
- The median savings for a 50-year-old is about $117,000. But according to The Transamerica Center for Retirement Studies, someone that age should have savings of six to seven times their annual income.
See? Following the crowd when it comes to finances can lead to trouble! So why do people do it? Three reasons:
- Ignorance. That’s not an insult. If you grew up in an environment where money was never discussed or finances were constantly mishandled, how could you possibly know what to do? When people don’t learn the dangers of debt, or aren’t taught the importance of saving, they automatically imitate what they see “everyone else” doing.
- Insecurity. Some don’t lack knowledge. On the contrary, they have so much financial information, they’re paralyzed. When this happens to people who lack confidence, they start “counting” opinions rather than “weighing” them. They get swayed by the quantity of advice, instead of its quality. As a result, they tend to opt for short-term comfort in the company of the majority.
- Influence. If there’s one thing social media has taught us, it’s that groups don’t look favorably on members who “don’t fit in.” Sticking out will get you kicked out! For many, this kind of peer pressure stokes a powerful fear of being ridiculed or even ostracized. The result is unhealthy conformity.
How can you fight against these tendencies, and avoid becoming a kind of “financial lemming”? Three recommendations:
• Watch your emotions. Emotions serve a valid purpose, but that purpose isn’t to help you make big decisions under heavy pressure. In fact, strong, unchecked emotions like fear and insecurity will only push you towards “doing what everyone else is doing.”
Within a framework of wisdom, emotions help make life worth living. Without such a framework, they make life a living hell. So…
• Seek wisdom to form convictions. Strong opinions are a dime a dozen. But convictions based on wisdom are immensely valuable. What is wisdom? It’s good judgment that comes from one’s personal knowledge and experience. And how about this: You can also glean wisdom from the knowledge and experience of others!
As you form convictions based on wisdom (rather than “what everyone else is doing”), you can…
• Consider your specific situation. This is where real change happens. Right now, you face a unique set of circumstances, some of your own making and some over which you have no control.
You don’t get to choose your age, race, or family background. But you do have the power of choice when it comes to things like education and occupation…and how you handle the money you’ve got.
It may be that you need a financial plan. Without even knowing you, I can say this: Your plan should probably look very different from the way most people you know are living their financial lives.
So, stop asking “What is everyone else doing?” Instead, do what most people are NOT doing: Begin to formulate a wise financial plan.
To help you think through such issues, I’ve created a comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free if you’d like a copy. Just email me at bmoore@argentadvisors.com, and I’ll send it to you right away.
Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.
