In financial terms, everybody compares himself to their neighbors, colleagues, friends or family members. By doing this, unconsciously you are measuring your values and success and to see how you perform compared with people you know.
The need to own as many things as your neighbor or co-worker does can lead you to financial disaster. Consumer envy works rather strange: people don’t envy their simple-living neighbor’s savings, but they get jealous when they see their other neighbor who has a big house and luxury car. But the thing is, big homes and luxury cars mean a lot of debt, and you will also have a great deal of debt, if you are trying to keep up with your neighbor.
It is a better idea to keep up with the neighbor who has a small but well maintained home with an old car, but who has no debt, and can save a part from his paycheck every month. Despite the appearance, your simple-living neighbor is doing much better financially than the one who spends a lot on things he doesn’t need.
The Bureau of Labor Statistics showed that household consumption gap between the richest and poorest Americans is much smaller than the income gap. High income households spend 50 percent of their income on consumption, while low income households spend the double of their income on consumption. In other words, low-income Americans tend to have great debts, as they are spending more than they are making.
Looking to other people and saying “If they can do it, I can, too” is very dangerous: if you start to live after other people’s standards, you will not be able to achieve any of the financial goals you have. Instead looking to others, you will have to set your own priorities and values.
First, make a list with the things you want to achieve, from small to big things. You can include less costly things like going to vacation abroad each year, to big expenses like buying a yacht. Write down your financial goals also, like you want to have $10,000 in your bank account by the end of the year.
As a second step, put a price next to each item on your list: this way you will be making a budget, and this will help you see what things you can afford and what items are beyond your possibilities. Then set priorities: what are the most important things for you? Remember, you must think of your priorities, not your neighbor’s.
Then you should try to find ways to fit the most important things in your monthly budget: think about how you can earn more money, what you have to do to cut your costs or how can you get the thing you want at a cheaper price?