The Joneses Are Your Enemy

Photo by: Chapek Sergey

Probably the most self-destructive thing that a person can do for their financial future is to pay undue attention to what those around them are doing.  Obviously this has limits, but using your friends, family or neighbors as benchmarks for “success” can manifest itself in many ways and almost all of them can sabotage your financial progress.  You should always remember that what a person presents as their situation can be very different from their true situation.  Let’s look at some ways the Joneses can sabotage you.

Status Symbols

Typically when talking about “keeping up with the Joneses” we’re referring to buying status symbols.  Maybe your neighbor bought a new BMW, and it sure looks nice.  Or maybe you’d like to host the football watching party sometime, but your TV just doesn’t match up to your friends’.  These types of situations can inspire us to make purchasing decisions that may provide a short-term high for a lot of pain.

Almost all status symbols are depreciating in nature.  Your car and that new TV are going to lose their value over time.  The more purchases like that you can avoid the better your financial future is going to be.  This isn’t really very tricky, and most of us are aware of this, even if we don’t always follow through.

Debt

Debt is a less obvious way in which our neighbors and friends can influence us.  The Joneses can convince us that it’s reasonable to carry credit card debt or car notes.  The Joneses can also convince us that it’s perfectly reasonable to stretch our budget to make these payments.  When you use debt to finance the status symbols, the damage is multiplied.  Carrying debt for an investment like an education is one thing, carrying it for a television is quite another, especially given the kinds of interest rates credit cards charge.

Risk

One of the most insidious and pervasive ways your acquaintances can affect your financial future is by affecting your investment choices.  This is in many ways one of the driving forces of asset bubbles.  Take the dot-com boom and bust.  You neighbor might have bought a stock and is now making 50% per year on it.  He’s telling you you’re a fool to stay out of this market.  You know that those kinds of returns aren’t sustainable or realistic, but it seems like everyone else is reaping them.  Maybe it really is a new economy and you’re the only one being left out.  So of course you join in the bubble just in time for the bust and get the worst of it.

Letting other people’s returns affect your investment decisions is very dangerous.  When it comes to investments we seem to suffer a form of mass insanity.  Look at all the people buying houses with no money down and interest-only payments because everyone knows house prices always go up.  Deep down everyone knows there’s no such thing as a free lunch, but when it seems like everyone else is getting one, we can start to make very bad decisions.  It never pays to abandon your own principles just because the Joneses seem to be beating the system.  The system has a nasty habit of catching up with the Joneses.

4 Responses to “The Joneses Are Your Enemy”

1. Ashley says:

   August 31, 2009 at 4:09 pm

   The funny thing I’ve found is people trying to keep up, but the Joneses don’t even know that they exist. Most people are spending a bunch of money to keep up with people that could care less what they are doing. Sometimes the Joneses are just too self-absorbed to acknowledge what anyone else is doing.

2. Metal Briefcases says:

   September 2, 2009 at 4:16 pm

   i agree that this is a problem for many, including myself. It is very easy to look around at your friends and acquaintances and compare your own financial well being. If they have a nicer car or house, it is only natural to want something similar. You’ve been working hard too, so why shouldn’t you have these things too? The problem is that you might put these status symbols ahead of more practical investments. I made the mistake of investing in a nice car before buying an apartment. So now to keep up with my friends on the road, I am paying the price of more years of rent instead of paying off a mortgage.

3. Number Sleuth says:

   September 11, 2009 at 9:11 pm

   I think we can all learn something from the story The Tortoise and the Hare. That is: slow and steady wins the race. Nothing wrong with wanting to have nice things, but not to the exclusion of your disciplined and consistent investment plan.

4. ATV Auctions says:

   September 23, 2009 at 5:29 pm

   The Joneses may lead you to make bad financial decisions, but they can also act as motivation. By seeing what they have, you might be inspired to work that much harder. So it can be a negative or a positive depending on how you deal with it.