Peer pressure can have a negative effect on your financial planning strategy.
Managing your money and planning your retirement must done in the way that is best for you, not your neighbor.
When I sit down with clients to review their finances, they often want to know how they’re doing compared with everyone else. But while some competition is healthy, such as when playing sports, using peer pressure as a spur to get ahead materialistically is not necessarily the healthiest mindset.
First of all, people have different goals. Families with two children will have different expenses from the family who has to feed, clothe, educate and marry off six children. Personal expenses vary depending on a slew of factors, such as where you live or if one or two spouses work. Even if you look at statistics, you might not get a clear picture of the situation. If you read that the average family has 1.6 cars – that doesn’t tell you if the car was bought new or used, how old it isCredit: Image: Ambro / FreeDigitalPhotos.net, and if it’s an old clunker or a luxury model.
“Keeping up with the Joneses”
“Keeping up with the Joneses” is often considered a euphemism for getting ahead with material goods. But instead of using your neighbors as a benchmark to see if your bank account is on target, compare your own financial picture to where you were one, two or five years ago. Is your savings growing? Are your expenses spiraling out of control? Do you need to re-evaluate and perhaps change your game plan?
As life unfolds in its unpredictable patterns, make sure that your goals and savings patterns change accordingly. If at one point you were content to live in your small apartment and drive a beat-up car, but now you have your eyes on a larger house, make sure that your savings program is keeping apace with your more expensive goals.
Another important consideration to keep in mind is your time frame. If at one point you thought that you would work until age 70, but your health begins to deteriorate in your 50s, you might have to seriously reconsider your savings and retirement plans.
Succeeding financially is a balancing act between sticking with a concrete plan and being flexible enough to react to life’s changes.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.