“Keeping up with the Joneses” can unknowingly lead you into a trap.
It is undeniable that peer pressure can drastically affect a person’s money decisions. Most people don’t want to get left behind by their friends and co-worker. However, trying hard to keep up can drag your finances rock bottom.
Why You End Up in Social Status Trap
Conspicuous Consumption: Flaunting social power
Thorstein Veblen is a sociologist who described “conspicuous consumption” as a behavioral characteristic wherein a person uses public consumption of goods and services to show social power.
Gone are the days when a person can just use cash. No cash means no way to show off. It was that simple. However, we are now at the age when people can pretend to have higher financial status through credit cards and loans.
Financial psychologist, Brad Klontz, explained that people subconsciously compare themselves with the people around them. They look for confirmation of their social and economic status.
The “animal brain” takes over the rational thinking when we compare ourselves with other people. Just like a peacock flaunting its colorful tail, humans flaunt their social status with their possessions.
Illogical, but it does happen. It is our human nature to feel terrible when we are left behind.
Wealth Signal in Social Media: They can do it… I must also do it
Every day Facebook shows what your peers can buy and do with their money. How are you going to show off your financial status (may it be real or made up)?
Wealth signals indicate high social status. Seeing the posts on Facebook and other social media platforms trigger you to do the same.
Peer pressure is usually associated with teenagers, but it actually transpires to all ages.
Parents will get tutorial classes for their children because other parents do it.Young married couples get an expensive home because people their age do it too. Millennials travel the world because their news feed is filled with #TravelGoals.
The problem gets worse because social media can easily show you what other people have and can afford.
Forgotten Budget: Road to overspending
Budgeting is not fun at all. Klontz shared that our emotional brain responds to budgeting as it responds to diet. The word budgeting sends signals of deprivation, depression, and suffering.
The more you resist to buy something, the more it becomes irresistible. This implies scarcity and your brain want you to fill in the need. If uncontrolled, you’ll overspend and ruin your budget.
There are some of us who buy the newest iPhone model just to follow the trend. Not knowing that it’ll make you out of the budget. It is also hard to work in an office with people showing off their latest gadgets, fashionable clothes, and branded bags. Then on paydays, your coworkers would invite you to go out with them and have fun.
Many Singaporeans value their image and social status so much that they forget their budget. They don’t want to be left out just because they can’t afford something.
This is financially dangerous as people become more competitive. The fear of losing out creeps in them that it does not matter if basic needs are ignored. You may have a good social status but your financial status is ruined.
How can you escape?
Most people think that having a good social status give them a better financial status. However, this is a misconception that drags a person into a financial trap.
If you are looking to have a good financial status, then you must consider two factors: excess cash flow and earning assets.
Excess cash flow is the amount of money left after you have spent for your needs. The earning asset is the money working for you.
Have no savings because the FOMO (Fear of Missing Out) always gets into you? It all boils down to lifestyle, not your salary.
Jenny and Lianne are both earning $5,000 monthly.
Jenny only spends half of her salary for her daily needs. She’s friendly but she rarely goes out. She thinks that her valuables should not be replaced as long as it is still working. Every month, Jenny is able to save $2,500.
On the other hand, Lianne would spend almost everything to always be in style. She loves buying new gadgets. Her peers like her because she usually treats them to a restaurant. She always travels every time she gets a chance because her friends do it too. At the end of each month, her excess cash flow is only $500.
Remember that they have the same salary, but their lifestyles are different.
In Five Years
After five years, Jenny would have saved at least $150,000. She can use it to build her own business and invest. This way she can grow her money faster. Lianne, on the other hand, could only save around $30,000. While she can also build a business, her options will be limited due to low savings.
Who will have a better retirement plan? Who can have financial freedom?
Crash the Root of the Problem
The problem is it is hard to break out from the pressure of keeping with your social status. The simple solution is accepting the fact that you have to live within your means.
The underlying cause is more on the psychological side rather than the lack of financial skills. The fear of getting left out roots from low self-esteem.
Trying too hard to “keep up with the Joneses” will surely lead to overspending. Focus on other things such as saving for a business or investment rather than buying things which can only produce short term pleasure.
Most people want to step up their social class but they are only doing the opposite. Do not wait to reach rock bottom before you change your mindset and lifestyle.
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