Why Your Friends are (Usually) the Worst Place to Compare Your Financial Habits
When I originally published this post in February 2021, my thesis was pretty simple: Comparing your financial situation and decisions to the gals you wine down with on Bachelor Monday probably won’t net highly favorable results, because you’re selecting your “financial frame of reference” based on unrelated qualifications.
As I revisit the idea in January 2023, I realize I omitted a pretty substantial aspect of the interplay between our friendships and our money. More on that shortly.
Let me start by saying this: I’m sure your friends are great. In fact, you’ve probably hand-selected them because they’re great. They’re probably great listeners. They probably make you laugh. They probably know how to have a good time.
But you know what they truly may or may not be? Good with money.
“As humans, we tend to apply a tribal mentality to our decision-making: We compare ourselves to the people around us to gauge how we’re doing. In practice, it feels reasonable enough, but in objective reality, it’s silly.”
Basing your financial decisions on your friends would be a little bit like going to your high school reunion and soliciting people for skincare advice—sure, you have something in common with these people (namely, experiencing your zitty awkward phase together), and there may be a dermatologist present…but the selection criteria (high school) has nothing to do with the topic at hand.
Unfortunately, this is how many of us judge our own financial decisions, by craning our neck around to look at the seven people we hang out with regularly and asking, “Well, what are they doing?”
And you know what? You shouldn’t choose your friends based on how they interact with money (despite what all the hardo Twitter thinkboiz will tell you about “the types of friends you should have in your thirties”). If you like Paula as a friend because she’s the first one to take her top off and hop on the mechanical bull, that’s a good enough reason for me (also, is she free this Friday?).
But unless “financially savvy” is a primary criterion on which you select your friendships, whether or not your friends are “good with money” is a statistical crapshoot.
As humans, we tend to apply a tribal mentality to our decision-making: We compare ourselves to the people around us to gauge how we’re doing.
In practice, it feels reasonable enough, but in objective reality, it’s silly.
If I make $50,000 per year and I have three friends who make $35,000, I might feel pretty high and mighty (because with respect to the three people I’m comparing myself to, I’m doing great).
But those three people were randomly selected by me for completely different, unrelated reasons, and they don’t represent—with any level of accuracy—an actual comparison standard for the type of income I could be striving for.
After all, if I’m a software developer making $50,000 and the current median salary is $110,000, I should be comparing myself to other developers—and likely many more than three of them—to determine if my salary is fair and if I’m doing well for myself.
Your friends are an arbitrary comparison standard when it comes to money, but it’s the default standard most of us subconsciously use.
How this comparison mindset can negatively impact your spending habits
The salary example is a rather innocuous one. Where things can become real dicey, real fast is when we start judging our investing and spending decisions based on what our social circle is doing.
Roughly half of Americans who register as having “higher financial literacy” still spend more than they earn, which means the sheer probability that you’re friends with someone who has right ‘n tight financial habits is low—just by nature of the fact that there aren’t many people who are excellent at personal finance in general (let this be your motivation to be the friend who’s good at money!).
Let’s use a super common example: If all of your friends live in nice apartments and pay $2,400 to $2,600 in rent, what’s your assumption about a “normal” rent payment? Probably about $2,500.
But your income and goals might be better suited by the $2,000 range (even if you make as much as they do!). Because of human psychology, though, you’ll likely anchor to the figure that feels familiar.
Based on the friends you’ve surveyed, $2,500 is more or less “average”—even though it might not be right for you (and may not be right for them, either).
The same goes for cars, going out, and shopping, because it’s natural to behave the way your larger social circle behaves, perceiving their behavior as “normal” and “acceptable” because it’s common in your frame of reference. On a broader scale, this is how society as a whole works— it’s human nature.
How this comparison mindset can negatively impact your saving and investing habits
As a natural extension of spending more, you’ll be saving less—but the #danger comes into play when nobody you’re friends with discusses investing with any sort of regularity. I feel like a broken Suze Orman VHS tape, but it’s true: The way most people hear about the places, things, and habits they engage in? Their social circle.
I repeat: I am not advocating for finding new friends who work in wealth management and make 7-figure salaries. I’m merely making a case for resisting the urge to use your pals as a proxy for judging your financial decisions, and instead taking your #MoneyMatters into your own hands.
Because none of my friends were investing a few years ago, the fact that I wasn’t didn’t feel out of line—and unfortunately, this bleeds into (questionable) investment advice, too. A recent Bloomberg piece pointed out that there’s some evidence that “crypto newbies” who ended up as the biggest losers were influenced by their friends and family to get into the game.
When it feels like everyone you know is minting millions overnight using little more than a black and green app and some newfangled shitcoin you’ve never heard of, the pull to join the parade of new money can be strong (and you won’t know how strong it is until it’s your friend chiding you not to “have fun staying poor”).
And if you are lucky enough to have a whiz of a finance aficionado in your social circle, by all means, take notes! But even if you don’t, you can create one by hiring an hourly, fee-only financial planner.
Friends, FOMO, and finances
Because here’s the other tough truth about money and friendship that’s clearer to me in 2023 than it was in 2021: Our social circle is usually the primary source of FOMO in our lives.
When we talk about keeping up with the Joneses, we’re not talking about some family you don’t know who have a cooler Buick than you. It’s easy to conjure an image of James and Lisa down the street, whom you barely know, and think, “Eh, I don’t care what they do with their money! I’m not susceptible to ‘keeping up with the Joneses syndrome.”
But “the Joneses” aren’t James and Lisa. “The Joneses” are the couple you get dinner with occasionally who just spent two weeks in St. Barts. Prior to dinner, you may have felt great about your lifestyle, work, and financial progress, but suddenly, you might feel like a failure. (“They’re always going on these lavish vacations! How are they doing that? Should we be going on fancy vacations? I don’t think I can afford to take time off right now…”)
A good way to go from “perfectly content” to “existential tailspin” in about two hours flat is to sit down for dinner with two people your age who appear to be living a (superficially) cooler life than you are.
“The Joneses” is your pal Bridget who just got a fat pay bump. You might have felt thrilled with your salary, but learning Bridget earns twice as much as you do would probably send a cubicle-sized grenade through your formerly wind-puffed sails.
“The Joneses” might be the family who just invited you to their housewarming party. Beforehand, you may have felt awesome about your new little rental spot, but after sipping Veuve in Kelly and Brad’s new 4-bedroom home with a fully renovated kitchen stocked with rose gold drawer pulls and a stainless steel touchscreen fridge, you’ll probably spend the ride home scrolling through the West Elm wormhole feeling like your house sucks by comparison and you know what, these throw pillows are on sale!
Of course, you probably also feel happy for your friends—but when you’re subconsciously using them as a measuring stick to decide how you’re doing, these emotions can get complicated.
It’s not as trite as claiming “comparison is the thief of joy,” because it’s more insidious than that—just like we shouldn’t discern how “normal” our spending is by comparing it to what our friends are doing, we also can’t make statistically valid comparisons about lifestyle choices, either.
It’s not just bad for your emotional state—it’s rationally invalid.
How you can be positively influenced without finding a new group of nerdy spreadsheet friends
Howdy, I’ll be your finance friend! The more you interact with this blog and the Money with Katie Instagram community, and listen to the podcast and book recommendations that pepper these pages, the more your circle of influence will expand. Just like friends can influence poor decisions, your internet “money friends” can influence good ones.
That is to say: Sometimes, your financial barometer can be a more intentionally curated collection of personal finance content and knowledge.
But other times—like when it comes to comparison—it can really only be you.
Your comparison gauge simply won’t function properly unless the person you’re using as a yardstick is yourself (unless there’s another person you know who had the exact same upbringing, resources, opportunities, unlucky breaks, and brain—then compare away).
Here are some questions to use as a journal prompt when you find yourself sucked into Kelly and Brad’s vortex of an awesome time and awesome shooters and awesome music:
What (and how) was I doing this time five years ago? How has my life changed since then? How has my financial progress evolved?
What would 5-years-ago-me say if they could see me now?
What concrete steps am I taking right now to make myself proud five years from now?
While it’s definitely hard (and maybe even unnatural) to extricate your own progress (or life) from someone else’s, doing so packs a dual benefit: You’ll feel better about you when you tunnel-vision your focus to your own life (and you’ll have an easier time feeling genuinely happy for your friends, too).
(And speaking of money and friendships, we’re covering the topic over on The Money with Katie Show this week, too. Tune in wherever you get your podcasts!)
