I’M DOING RELATIVELY well—and therein lies the problem. No, it isn’t the “doing well” part that’s the issue. Rather, the problem lies with that all-corrupting word “relatively.”
We’re constantly reminded of how we stack up against others. Early in life, that can be useful. If we aren’t cut out to be professional athletes, effective leaders, academic stars or market-beating investors—this last one would include almost all of us—it’s good to find that out, so we don’t spend countless years pursuing goals we’re unlikely to achieve.
But much of the time, this comparison stuff is a source of misery. Consider four benchmarks against which we measure ourselves.
Relative to our peers. Yes, we may have attended a more prestigious college and enjoyed more career success than others in our age cohort. But there will also be folks who have fared far better. The risk: We find ourselves disparaging some for the goals they didn’t achieve, while resenting others for the success they’ve enjoyed.
Neither contempt nor jealousy is admirable, and we’ll likely suffer a touch of shame for harboring either emotion—and deservedly so. Such comparisons can also leave us feeling worse about our own achievements, which is silly, because this ignores a crucial consideration. What price did the successful pay for their accomplishments? What bad luck hampered those who achieved less?
If we only take notice of the visible record of success or failure, we see just part of the story. The high achievers may have worked long hours and shortchanged other parts of their life, while the apparent laggards may have been handicapped by ill-health or the demands of family.
Relative to our friends, family and neighbors. As we cast a judgmental eye across those in our social circle, we’ll likely find ourselves pondering our financial standing relative to these folks—or, at least, as best we can ascertain it. At issue is the age-old pitfall of “keeping up with the Joneses,” with its insidious impact on both our spending and our sense of financial contentment.
Way too much spending seems to be driven by signaling, as folks attempt to telegraph their financial success to others. But, of course, such spending is the enemy of wealth accumulation, because it inevitably leaves us poorer. In fact, as we learned from The Millionaire Next Door and elsewhere, those who live modestly can have surprisingly impressive bank balances, while those who live large are often far less rich than they appear.
I fear that, when we compare ourselves to those around us, there’s another unfortunate effect: We’re less likely to engage in activities that we might enjoy, but which we simply aren’t good at. There are many things I’m mediocre or terrible at, including singing, bowling, drawing, cooking and dancing. But such things can be fun, even if we aren’t good at them, and yet fear of how we compare to others may stop us from even trying.
Relative to the market indexes. It’s hard to do a proper comparison between our portfolios and an appropriate market index, given the money that flows in and out of our financial accounts and our portfolio’s precise mix of stocks, bonds and other assets. For those who buy individual stocks and actively managed funds, this can be a drawback, because it can allow them to simply imagine they’re beating the market and thereby persist with their foolishness.
But if we do actually know how our investments are performing relative to “the market,” however defined, that can also be a drawback. How so? It assumes that our performance relative to the market is what matters, rather than, say, our results relative to what we need to meet our financial goals. The danger: Even if a more conservative strategy might ensure we have plenty for retirement and our other goals, we might continue to take high risk in pursuit of high returns—and potentially suffer a devastating reversal of fortunes.
Relative to how we fared earlier. At various points in our life, we peak—and, if we aren’t careful, we’ll spend the rest of our life looking back at those all-time highs.
I’ll never run another half-marathon at a sub-six-minute pace. I’m pretty sure no book I write will match the sales of my 2016 book, How to Think About Money, and I doubt I’ll ever again have that sense that I’ve got the world’s attention, which occurred the few times I appeared on national television. Even HumbleDollar may have peaked. The site garnered 510,000 pageviews this past February, and I’m not sure it’ll ever surpass that number.
If we aren’t careful, these high watermarks can be a source of grinding dissatisfaction. We run as fast as we can on what psychologists call the hedonic treadmill, but whatever success we enjoy provides only fleeting happiness, and that’s doubly so if today’s successes pale next to yesterday’s victories.
How can we avoid the pitfalls of comparison? I believe the solution lies in absolutes. We need to forget how we compare to others and to our own past, and instead set absolute goals for ourselves.
What are the career accomplishments that’ll allow us to proclaim victory? What net worth would we consider enough? If possible, we should set these goals far ahead of time and then write them down. That way, we may avoid the temptation to later move the goal posts, either because we see others doing better or because we grow disgruntled with our own achievements.