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by Lyle Daly | Published on Jan. 29, 2023
Image source: Getty Images
It's a decision that rarely ends well.
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Some money mistakes aren't too big a deal in the grand scheme of things. Others can have huge financial repercussions, and they're the ones you want to avoid at all costs. Personal finance guru Ramit Sethi, author of I Will Teach You to Be Rich, recently pointed out one of those costly mistakes, and it's something that gets a lot of people into money trouble.
In an episode of Sethi's podcast, he was speaking with a couple who had purchased a vacation home. It ended up costing them quite a bit more money than they expected, so Sethi talked to them about why they bought it. They brought up how they live in a more modest home than their friends, and that even a friend who didn't make as much money had bought a nicer home than theirs.
Sethi immediately pointed out that "this is the beginning of every financial disaster." And, blunt as always, he added that "the worst thing in the world is finding out your friend who is stupider than you has more money."
Now, the disastrous part isn't finding out that your (possibly less intelligent) friend has more money than you. It's wanting what your friends have and basing your spending decisions on that. Or, as it's traditionally known, "keeping up with the Joneses."
In this case, the couple on Sethi's podcast were envious of their friends' homes. But there are many ways this feeling can manifest. People get jealous about cars, clothes, vacations, and much more. Social media hasn't helped matters, as it often contributes to this kind of lifestyle envy. A Point survey even found that 45% of respondents went into debt to buy something they saw on social media.
It's completely normal to want to keep up with the Joneses. Most people have probably dealt with this feeling at one time or another. It's acting on this impulse that's problematic.
Going back to that couple on Sethi's podcast, their vacation home went from a dream to a nightmare. It ended up putting a huge strain on their finances, to the point where their best option was to sell it, even though they'd end up losing $100,000.
That might seem like an extreme example, but it's not exactly out of the ordinary. Let's say your neighbor buys an incredible new car, and you decide you want one, too. The average new car price just hit nearly $50,000, and if it's a luxury vehicle you're after, the average is $66,660.
Even with smaller purchases, this can still become a bad habit that leads to bigger financial issues. Once you get into that mindset of "I deserve what my friends have," it's easy to keep using it to justify more and more spending.
To be clear, there's nothing wrong with spending money on things that make you happy. In fact, it's smart to set aside some money in your monthly budget for this. But there are a couple of caveats here.
First, they should be things that actually make you happy — not just things you buy to keep up with other people. And they should fit in your budget.
As mentioned earlier, lots of people feel lifestyle envy, and it's not always so easy to get rid of it. I've gone through it myself. Here are a few tips that have been helpful for me:
Spending money to compete with others is, just like Sethi says, a path to disaster. If you can avoid doing it, you'll be much happier and better off financially.
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Lyle is a writer specializing in credit cards, travel rewards programs, and banking. His work has also appeared on MSN Money, USA Today, and Yahoo! Finance.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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