Budget According to Your Priorities, Not Someone Else’s
When it comes time to get our finances in shape, we often look to others to make sure we are on the right track. Of course, comparing your situation to someone else’s can give you an idea of what yours should look like. But as writer Carl Richards reminds us, that can backfire, too.
Richards gives an example of his training. He works in a group for accountability, but he made the mistake of adjusting his exercise goals to the standards of others rather than his own limitations. Your finances can work the same way. For example, I spend too much money on restaurants and often justify it with the thought, “It’s okay, my friends go somewhere more often than me.” But my friends have different goals and priorities. There is no point in using their habits as a yardstick to measure.
Richards explains:
So much talk about money revolves around an often unspoken reality that we are trapped in unhealthy competition with other people. It seems that we cannot help ourselves, even if the business of our neighbors is not ours. So we end up using a yardstick that we think matters, but really has nothing to do with our goals.
I believe we need to take full advantage of the benefits of healthy accountability, but we need to learn to recognize when it crosses the line. For example, keeping track of your monthly expenses is a great way to increase accountability. But the goal is to focus on your own expenses, not having your friend just buy a new car.
Another example of this concept in action: deciding how much to save for retirement. When I first started, I saved a minimum (coincidence with the employer, and not even everything), and spent the rest of the money frivolously. Instead of realizing that the sooner I start saving, the better , I thought, “None of my acquaintances save for retirement, so I’m fine.” But what does my situation have to do with them? It makes sense to base your goals on your income, age, and future retirement plans.
Of course, it can help us get a rough idea of what we should do from others. Similar to financial rules , this can give you an idea of what your spending should look like. But the point is, personal finance advice is generally a private matter . Comparing yourself to others (or even a rule of thumb) is helpful, but plan your budget according to your priorities, numbers, and long-term goals.
Focus on Your Expenses, Not Others | New York Times