As a financial planner, I get a lot of questions that sound like this:
- Am I saving enough for retirement?
- Is my investment return enough?
- Am I saving enough for my child's education?
- What should my net worth be by the time I'm "X" age?
- How much should I have saved by the time I retire?
These are great questions, and sometimes when I dig deeper I find out they are motivated by a need to draw comparisons to others. As a relatively new business owner, I also tend to want to compare myself to other new business owners. Why is that?
We humans are really good at relative comparisons. We pat ourselves on the back if we're "above average". We like to hear that we're "normal". How can that be a bad thing?
The problem with relative comparisons in your finances is three-fold:
- Average really isn't that good when it comes to saving for retirement or any other goal, because depending on who makes up the average, over 50% of people may not have saved ANYTHING.
- Relative investment return doesn't tell you anything about whether or not you will meet your goals that you are saving for. Nor does the amount you have invested today.
- There will always be someone who makes more, saves more, spends less, or appears to be doing any combination of these three things better than you.
WHAT REALLY MATTERS
Every person is an individual when it comes to their finances. They bring their own history with money, their own habits and attitudes. They bring a unique perspective that is shaped by their values, goals, and plans for the future.
If you grew up in a single parent home, worked through college and borrowed money to pay for it, became successful in your career but perhaps decided to change to another one, and made some financial mistakes along the way (not that this is me or anything) ----
You are WAY different than someone who grew up with parents who taught you about investing, paid your way through college, loved your lucrative career your whole life, found saving easy and spending difficult, and seemed to make the right financial decision all. the. time.
The insidious part is that this type of thinking, in addition to not being contstructive, is destructive. It takes mental work to get yourself back into a positive frame of mind. It happens all the time in sports, and this article offers a great quote you can apply to your own life -
"I'm not even thinking about any other team.
We're trying to be the best version of ourselves."
What's the best version of yourself you are trying to become?
YOU get to decide what you value. Is it retiring early to sail the Mediterranean? Is it embarking on an encore career that you can enjoy until you die? Is it enjoying every moment of TODAY to the fullest? The comparison that matters is the absolute one that tells how you are tracking to meet those goals that are aligned with YOUR values.
YOU get to raise your kids how you want to, and decide if you want to encourage them to borrow some money for school to have some "skin in the game". You get to tell them you'll pay for public in-state tuition and nothing more. You need to prioritize saving for yourself and seeing the big financial picture over one single, emotion-fraught goal. It doesn't matter what the family down the street is doing.
YOU need to look at yourself in the mirror when your investments are rising AND falling - and choose how much risk you want to take. How much risk can you bear before you can't sleep at night? How much risk feels just right - THAT will dictate your potential return. It has nothing to do with what your neighbor's investments are, or whether your return is beating a benchmark.
What's the best version of yourself you are trying to become? Drop the burden of "should-ing" on yourself, and stop wondering if you're keeping up with the Joneses. Even the Joneses have financial challenges and self-doubt. You just might not be able to see them. They're probably comparing themselves to the Smiths.