How to make financial comparisons work for you

Aegon blog 14

Posted by

PensionGeeks

Published on

11 September 2021

It’s human nature to compare ourselves to others – these parallels are closely linked to our overall financial wellbeing. It would be very hard to stop making comparisons completely, but we can make better ones. Let us explain how.

How you see a situation matters

It’s not just about how much wealth (money and assets) you have but how you think this compares to others – even when we’re pretty well off.

You recently bought a car that you’re happy with – but then the next week you see a couple of your friends posting about their expensive brand-new cars on social media. Almost automatically you compare your car to theirs, which could make you feel as though you’re not ‘keeping up’. Or when a friend buys a larger home, while you’re renting a small flat, it would be easy to feel a little self-conscious about your own situation.

Both of these comparisons could affect your financial wellbeing and are not types of comparisons that are particularly healthy or helpful.1 They can damage your self-image by focusing on purchases that might not be right for you, or for this time in your life.

Instead, here are six tips to try the next time you feel yourself making unhelpful comparisons.

Tip 1: Understand the relationship between money and mindset

Healthy financial comparisons can help you take a more authentic look at how you judge yourself financially and spur you to make positive changes. To do this, it’s important to understand what it really takes to accomplish true financial comfort and harmony. It’s more than money, it’s a combination of the right ‘money building blocks’ and the right ‘mindset building blocks’.

The ‘money building blocks’ make it possible to pay for the things that matter to us, now and in the future. They include income, rainy-day fund, manageable debt, smart long-term savings, and valuables (like property) that make us feel secure long-term.

The mindset blocks allow us to pay attention to the things that matter to us. They include knowledge of what makes us happy, a solid picture of our future self, savvy social comparisons, a long-term plan, and strong nerves in a crisis.

By shifting your mindset in the way you compare yourself to others, you can improve your money mindset and improve your financial health in the process.

Tip 2: Compare your past self to your present self

How far have you come financially? Maybe when you first left school or university, you had lots of debt, but you’ve paid down most or all of it now. Maybe last year, you were eating out all the time – buying meals every day for lunch, and this year you’ve saved hundreds of pounds by preparing food at home.

Think about the smaller and bigger wins and use yourself as inspiration. You might be surprised at how much better you can manage your finances now, compared with the past.

Tip 3: Focus on gratitude

Gratitude is a way to appreciate what we have, rather than what we lack – it helps us refocus on what’s most important too. Make a point to think about how comfortable you are compared to others, and how much you already have that’s good in your life. Keeping a ‘gratitude journal’ isn’t just a trend – it’s been proven to increase optimism levels.2 In times like these, that’s needed more than ever.

It might also bring you comfort to know that earning more income doesn’t make people’s worries go away. More than half (55%) of average earners and more than one in three top earners still worry about money3.

Tip 4: Think about the long term

Financial wellbeing isn’t just about your financial position here and now – it’s also about your long-term ability to be financially well. It’s important we’re putting enough money away for things like retirement and later life.

You could improve your ability to think about the long term by trying to imagine the type of lifestyle you want in the future. Just one in three of us has a concrete picture of our future self in mind3. Income calculators and goal setting tools can help, as can asking what the future you in ten years’ time would thank you for doing today. This can help up make better financial decisions.

Tip 5: Find new role models

The more often we compare ourselves to other people who are better off than we are, the lower our financial wellbeing3. Instead, look for someone similar to you – maybe who lives close by, is similar in age and seems to have achieved the type of success you can. They could even be a family friend or a relative. Try to learn from their behavior and their choices.

When you’re trying to make financial decisions such as buying a house or car, think first about what your role model would think and do?

Tip 6: Honor your individuality

Know what matters most to you – and what brings you the most happiness in your life. That will look different for each of us. Interestingly, our research revealed that while the frequency of upward comparisons decreases significantly with wealth, despite being part of the 25% wealthiest people in their area – about one in five (19%)3 still compare their financial situation upwards.

It’s good to balance your time with activities that give you a sense of purpose (activities that make you feel useful) and activities that you find joyful. It’s important for a few financial reasons. Firstly, you’ll probably be less swayed to keep up when you see someone else’s nicer house / car / holiday / or wardrobe. Secondly, you’ll be able to spend (or save) your money in a more meaningful way – on things, people or hobbies that are most important to you. And thirdly you’ll be able to build up a better picture of how you might want to spend your retirement, and how much money you are likely to need to have a comfortable one.

It’s possible to make better comparisons

Remember, if you’re going to compare yourself no matter what, you can be more productive by finding better comparisons and role models. Stay mindful and concentrate on what you have now and how far you’ve likely come on your financial journey already. This will help you to stay focused on what your future goals are and how you can best achieve them.

Next up? Read our dedicated customer guide to find out more about how you can improve your financial wellbeing.

Sources

1 Conspicuous consumption and satisfaction, page 183-191. Data source, Journal of Economic Psychology, Rainer Winkelmann, February 2012.

2 Giving thanks can make you happier. Data source, Harvard Health Publishing, Harvard Medical School, November 2011.

3 All other statistics quoted in this article are from our ‘Aegon Financial Wellbeing Index’ research. The research was conducted in August and September 2020 amongst 10,446 UK residents.

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