We all know about keeping up with the Joneses and what havoc that can wreak on personal finance. When you try to keep up with the Jones’, you spend money you probably don’t have to get all the latest trappings others have, even though those others may be financially strapped.
Yet there is a flip side that no one really talks about. In the reverse, you surround yourself with people who have less than you do, and because you have more, you think you are in a much better financial position than you really are. Dave Ramsey hints at this when he routinely tells callers not to get financial advice from broke people.
I have a coworker I will call Victoria. Victoria has worked at her job for quite a few years, and she is ready to retire. (I can’t really blame her; I am ready to quit and stay home with my kids.) Victoria has struggled most of her life financially. She never really put away for retirement until 20 years ago. She has personally put away about $50,000 in a retirement fund and she will get about $2,400 from her work pension and social security a month. She is 60 now and thinks this amount of money will hold her over just fine for the rest of her life. However, she owes $70,000 on her house and has 19 years left on her mortgage. She has an emergency fund of about $2,000.
When she tells me of her plans to retire in the next year or two, I listen as she rattles off all of her financial information. I warn her that her cost of living may go up when she retires because she wants to travel and socialize quite a bit. Then there are the increased medical costs that are associated with aging.
Victoria assures me she will be just fine and once told me why she is so confident that her retirement is secure—all of her friends are retired and are getting less than she would be earning in retirement. Because of this, she feels she has no worries. She also tells me that people like Suze Orman have an unrealistic view of retirement because a person can never save as much money as Orman suggests. She scoffs at the idea of a 6 month emergency fund. Meanwhile, she is renovating a part of her house and eating out several nights a week.
We are all in charge of our financial destiny, but it is important to avoid comparing to other people. Keeping up with the Jones’ can make you feel insecure and desperate to measure up. The flip side will find you perhaps feeling overly confident and therefore prone to financial missteps.
I worry about Victoria. I hope she has a happy retirement, and I know it is important to retire while still young enough to enjoy it. I also know if she is going to go through with her plan to retire in the next year or two, she should be saving all she can, but she is not because she sees herself as much more financially secure than her friends. I hope she is not making a mistake and that she has enough to see her through many more years.