How comparing wealth with others can harm your finances

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A quick scroll through social media now easily facilitates keeping up with the Joneses. The constant exposure makes it challenging to avoid gauging your prosperity against theirs. Nonetheless, the very act of comparing wealth with others can actually sabotage our own financial journey.

At First Financial, we offer personalised financial planning services because the only wealth that holds true significance is your own. By concentrating on your objectives, aspirations, and preferences, we will assist you in achieving the retirement of your dreams so that you can enjoy life on your terms.

The comparison trap is the tendency to assess your financial (or other) well-being based on how it stacks up against neighbours, colleagues, family, friends or even strangers. While many acknowledge its potential negative emotional impact, people often overlook the harmful financial consequences of the comparison trap.

When people compare their wealth to others, they often use inaccurate benchmarks. For instance, a friend’s lavish lifestyle might seem like a sign of success, but it could hide heavy debt. This can lead to unrealistic financial goals and overspending in an attempt to keep up with peers who might not be as financially secure as they appear.

Falling into the comparison trap can quickly shift your focus away from personal financial goals. It often leads to prioritising short-term expenses while neglecting crucial long-term financial milestones such as saving for emergencies or retirement.

Constant comparison can trigger a range of negative emotions, such as envy, anxiety and feelings of inadequacy that can result in poor decision-making, impulsive financial choices and unaffordable emotional spending.

Another notable psychological impact is the development of a materialistic mindset. Sometimes, we can start prioritising short-term gratification and immediate acquisitions over the diligent preparation required for a financially secure future and an enjoyable retirement. This focus on immediate consumption can hinder long-term financial planning and wealth-building efforts.

Finally, the significant impact of constant comparison on stress and mental health cannot be understated. The emotional toll it exacts can be profound and can lead to depression, anxiety and a noticeable decline in overall life satisfaction. Navigating and making positive financial choices becomes far more challenging when you compromise your emotional well-being.

While directly comparing your financial situation to others can lead to unfavourable outcomes, it can be beneficial to have a grasp of general medians and statistics to assess your financial standing objectively. This approach is far more reliable than making assumptions by peering over the neighbour’s fence. However, if you’re interested, here are some medians and other statistics from the Australian Financial Review.

• The median full-time employee in Australia earned $78,800 in 2022, and the median part-time employee earned $32,400.
• To be in the top 1% of earners in Australia, you would need to be earning $253,066 or more per year.
• Of the 10% of taxpayers on more than $131,501, about 70% were men.
• Currently, the top earning industry in Australia is mining, followed by financial services, then professional, scientific and technical services.
• Due to its high concentration of public sector workers, ACT employees are the best paid workers in Australia, with a median wage of $93,600.
• The latest data from the ABS indicates the median household has a net wealth of $579,200.

You can begin building a solid financial foundation by defining your personal goals. Everyone’s aspirations vary, so it’s important to know what you want to accomplish. From the type of retirement you envision to the home that suits your needs, it’s essential for your goals to align with your values and lifestyle, as that will help determine whether you should prioritise saving, investing or debt repayment.

Once you’ve set your priorities, each of them becomes easier to sustain, and concentrating on your unique situation grants you the freedom to establish an emergency fund and save for retirement at your preferred pace.

To achieve this, enlist an experienced financial adviser who can guide you through long-term wealth-building strategies aligned with your goals. Starting early holds significant advantages, leveraging compounding and consistent saving and investing for long-term financial growth. The journey toward financial success is dynamic, demanding continuous attention and adjustments.

“Honestly, comparing yourself to anyone else is always going to be a recipe for disaster,” says James Wrigley, one of our Principals at First Financial. “The best advice I can give is, don’t worry about others. Focus on yourself.”

While it might be helpful to know where you stand with the current wage and household wealth statistics in Australia, it’s more important to have a clear financial direction. Regardless of your income or how much more Bob next door is making (and perhaps spending, too), you have the potential to secure your ideal retirement.

If you have fallen into the comparison trap, our experienced advisers at First Financial can help you find a way forward and retire when and how you choose. Talk to us today to discuss the goals and strategies that are right for you and your situation.

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