Financial Literacy

Improve Your Finances: Look Up, Not Down

They say that you’re an average of your 5 closest friends.
Like anything “they” say, this soundbite has to be taken with a grain of salt. There’s undoubtedly some truth in it, like there is in every cliche, but most of the time it’s just simply not true. My interest in finance dwarfs the interest of my 5 closest friends. Their combined interest probably doesn’t even exceed mine. I’m much more interested in frugal living than my friends are, as evidenced by their choices in houses, cars and clothes. About once every few months I get some sort of backhanded compliment that I’m just a little different than everyone else. Not better or worse, but different.
As I’ve talked about approximately 4,367 times before (I really suck at these estimates) I’m serious about becoming wealthy. One of the main reasons I ventured into the world of online writing is because I wanted to join a community of like-minded people that wanted to improve their finances. There were hundreds of finance bloggers who were working towards one goal, so I naturally gravitated towards the community. And for some reason, the community embraced me. I’m thinking it’s mostly pity.

But yet, as I continue to read and participate in the discussion, I’ve started to notice a theme. It started with me noticing people online referring to themselves as “debt free except the mortgage” or “debt free except my student loans”, which is the equivalent of a drug addict saying they’re drug free except for cocaine.
Let’s assume they continue to make progress, and even pay off all their debt. To use a video game metaphor, that’s like beating the game on the easy level. Paying off debt is relatively straightforward. It requires persistence, and that’s about it. Once debt is paid off, it’s time to move up to the medium level of finance – building wealth.
And yet, this is where many people struggle. They lack direction without a debt payment forcing them to be fiscally responsible. They lack understanding of the big bad world of investing. They can’t tell the difference between a put option and a debenture, so they throw up their hands in defeat. Either they continue to save and put a large percentage of their portfolio in ultra-safe investments, or they loosen the purse strings and begin to spend.

How to improve your finances

How do you avoid becoming one of those people? The answer is pretty simple. You need to emulate the rich, rather than sitting on your laurels as being better than the poor.
This is the danger in labelling yourself as “debt free except ‘x'”. By doing that, you’ve trapped yourself in the mentality that paying off consumer debt is the end of your financial journey, rather than the beginning. Sure, paying off consumer debt is an accomplishment. Maybe it’s even a major accomplishment. But all it represents is getting back to even. You weren’t born with consumer debt. Most people spent at least a couple years as an adult without it. Congratulations, you’ve gotten back to the starting line. It’s now time to start the race.
Instead of looking down to all of your friends that are struggling financially, I think you should look up. Find someone who has actually made a significant dent in their quest for financial independence. Find a millionaire or two – maybe even a wealthy barber – and spend some time picking their brain. How did they get wealthy? What career did they have? Did they own their own business? Find what they did effectively and copy it faster than a Chinese pirating website.
Don’t concern yourself with what the mere mortals are doing with their finances. If you do, you’re just going to hold yourself back. Say you save $500 per month. You’re satisfied with that number, partially because none of your friends aren’t managing to save that much. But what if you could save $1000? Or $1500? You’ll set your goals too low simply because you’re doing better than everyone else.
Imagine if a professional golfer compared himself to a duffer at the local men’s league. He doesn’t need to practice! Look at how much better he is! It seems like kind of a silly comparison to make, but you’re guilty of the exact same thing when it comes to your finances. A professional golfer should be comparing his game to the best on the tour, it’s the only way he’s going to improve.
Moving forward is usually a bit of a struggle. If you’re not saving enough that it hurts a little, I’d maybe argue that you’re not saving enough. But if you can find a way to do it, consistently over the years, you can increase your lead on the people who just can’t get ahead. If you keep your eye on what’s ahead, you won’t even have time to notice what everyone behind you is doing. Which is probably for the best. Leave those people in the dust. Your finances will thank you.

Comments

  1. michaelvicarson

    Theres a simple function based off the assumption that specialized knowledge of the sort you’re talking about, by emulating great people, will yield great results. Let’s say that chatting with an investor would allow you to do 0.01% better than average just due to some of the insights you gain from that person. Depending on how much you have to invest that 0.01% difference over the life of your investment career discounted back at the average compound rate will show that the simple insight you gained from that conversation was worth an immense amount!

  2. Liquid Independence

    It’s more inspiring to compare yourself with millionaires too. People can always do more to reach their financial goals. It’s all in the mind.

  3. Doctor Stock

    Great points… there is something to be said about living completely debt free. Of course, depending on where you live (i.e. many Canadian places as you know) can impact your bottom line. Housing is the one huge cost for many people in Canadian cities. My same home in Fort Worth was 1/4 to 1/3 the price.

  4. Young and Thrifty

    Looking up to an accomplished person gives the motivation to continue pursuing success. It also gives you the “I can do it too” attitude. Its a great way to rouse up that last bit of self-confidence to keep going.

  5. Vicky

    If you are able to find people who are well on track to becoming financially independent, then I agree that talking with them will give you some inspiration. I have also found that they may not be who you expect; I know some waitresses raising families that have a higher net worth than some single engineers!

  6. Dr Dean

    Good read. You made some good points in ways I’d not thought of. Thanks for the perspective. As someone who is debt free except for…well, I’ll leave it at that.

  7. American Debt Project

    Well-written, I am definitely looking up, I have some friends of the same age who have built serious wealth…I’m finally starting to mimic their patterns. Not like a dancing monkey, I’m just learning to be smart with money and save more than I ever have.

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