Mind Your Decisions

On Making Comparisons with Your Money

1 November 2007

Recently, I learned that there are men who wax their backs and other delicate areas. I guess they do it to be clean-cut, but it seems extreme to me. I commented to my female friend that it sounds painful.

She replied, “Yeah, but men can’t complain since women wax their legs all the time.”

I started to agree with her until I thought about the logic of her statement. It runs along the same line as the childhood favorite, “Mom, I shouldn’t have to make my bed because my friends don’t.” That reason rarely works because parents know that correctness does not depend on others.

So I replied back to my friend, “You know what, I think men do deserve to complain. And so do women because waxing must be painful for them too.”

Pain management is personal. As far as I can tell, doctors rely heavily on patients for managing pain. They ask patients to rate their pain on a 1 to 10 scale. They do not simply rely on formulas and their own vast experience of treating patients. The idea is that the patient undergoing treatment is more relevant than the set of comparable patients the doctor has treated.

Why can’t we use that logic for managing our money? Managing money should be personal. No matter what other people do with their money, it is better that your own circumstances and preferences guide your spending habits. This sounds obvious but we all experience times when we make decisions by comparing with our friends.

I know someone who was considering buying an iPod. We were discussing the pros and cons. He was on the fence, but he was leaning toward buying it. Here are some of the reasons for why he wanted it:

“I don’t really need it, but my friends really love it and tell me that I will find uses for it once I get it”

“It seems expensive to me, but I told that to my friend and he told me not to be cheap”

“My friends make about the same money as I do, so I can afford it”

“I want to be responsible, but other people say that is dumb; they say I should just enjoy myself while I am young”

I wanted to tell him that he is really thinking the wrong way—it is better not to make comparisons. It is a trap to use other people’s reasons for your money. And I am sure he would have agreed with me. But I doubted the message would have stuck.

After all, it is natural for us to make comparisons because no one is an island. We are bound to have friends and family that encourage bad spending habits. We cannot always control our environment. What hope do we have of making better individual decisions?

I falter occasionally, but not as much as I used to. I now rely on two mental exercises to keep my financial discipline.

1. Ask if your comparison group is good with money

We often use our coworkers and friends as models because they are available to us. We fail to ask if they are actually good with their money. If you find yourself thinking an item is affordable because others have it, ask a few questions about other people:

Do they have credit card debt because they live beyond their means?

Are they saving enough for retirement?

Do they save in other areas where you spend more? Say, do they spend less on food whereas you are a gourmand?

After this exercise, I am reminded how many people struggle to pay for their lifestyles. An Experian-Gallup survey in April 2007 showed that only 13% of consumers usually pay the full amount on their credit card bills each month. I want to remain in that group of customers that avoids credit card debt, so I ignore pressure from financially irresponsible peers.

2. Avoid shopping with bad influences

I found this tip from a Money Magazine article:

The corollary is to be careful around folks who’ll reinforce your bad tendencies. No one’s suggesting that you start dumping friends and family members who spend too much. But it makes sense to avoid going clothes shopping with them.

“It’s like going with alcoholics to a bar,” says money therapist Olivia Mellan, author of Money Harmony. “You’ll be sucked into the group’s norm.”

The article has other tips, though I found them to be less useful.

Bottom line: whether you are waxing your back or considering a new purchase, try not to compare. Mind your own decisions.