What’s the best benchmark in setting expectations for wealth creation and other measures? Some people compare themselves to friends, relatives or colleagues. But that’s the wrong approach.
The writer Mark Twain once described comparison as “the death of joy”. In fact, one way to go crazy is to constantly compare yourself to others.
Playing the competition game in investment can be particularly dangerous because you can end up taking risks you don’t need to.
It’s hard not to compare ourselves to others based on visible spending or consumption because it is often the only yardstick available. Psychologists refer to this as social comparison theory. When an objective measurement isn’t an option, we compare ourselves to what we see around us. We rely on these visual shortcuts — cars, houses, vacations — to figure out where we fit. Have we done better or worse?
Why wealth management comparison should not matter
But our desire for validation comes with some serious blind spots. Income is relative to so many other factors that both the number of dollars earned and how they appear to be spent make for a worthless comparison. Your work colleague may drive an older car so he can retire early. Your cousin may earn $300,000 a year compared to your $150,000, but it comes with lots of work travel and weekend commitments. We simply don’t know.
Of course, we could make the comparison less personal. Someone could create an app that lets us track our financial data, pick a few variables and compare our status to other users. You could then discover that you make more than, say, 80 per cent of the people matching your profile.
But here’s the kicker. It doesn’t matter!
There is only one comparison that does matter. Do you have enough for you? Not enough for someone else, your work colleague or your cousin, but for you.
If the answer is yes, then it’s time to put away the yardstick and get on with life.