Our journey to Financial Independence

Tag: FIRE

Comparing Yourself To Others Is Expensive

Why do we do anything? Is it from an innate desire to succeed or is it to show off?

No matter what I undertake – my brain tends to compare myself to others. How is John doing on this project? Will he succeed and where I failed? Although I’m able to control these impulses better nowadays… it has been quite the journey. I used to see life as a zero-sum game. For one to succeed others must fail. 

game cartridges
Photo by Kevin Bidwell

As I grew and took a step back, I realized how nonsensical it was. As time progressed humanity grew. Yet, we arguably have never seen as many successful people. Paradoxically, mental health has been on the decline. As a result, I’ve decided to dive into facts and studies.

Is comparing yourself always bad? And most importantly how can we solve it?

As always sources and complimentary information available at the bottom of the article.

What does the research say?

30 studies or more have shown that constant comparison leads to both mental and physical ailments. Not only are we pushed into a toxic spiral but the impact varies in every case. There is no concrete evidence that looking up to someone or on the opposite saying that you are doing better than someone else helps you grow. 

The best way to recognize our biases and decision trees is by accepting our flaws. True introspection is shown to have decreased the negative spiral. Furthermore, instead of nurturing hate, understanding that we can learn from our perceived foes is key.

Simon Sinek clarifies that it isn’t only social media that is to blame. He indicates that we have a tendency to psychologically self-harm by creating rivals and only focusing on their strengths. Looking inward and focusing on our strengths opens us up to growth. By doing so he was able to learn from his former rival.

Additionally, consistently looking up to others leads to unrealistic expectations. Contrary to what gurus say it’s unlikely you will have a private jet or become a billionaire.

Studies have shown it is unsustainable to draw motivation from unrealistic goals. As you constantly fail to achieve them. On the other hand, Research shows a change in perspective can counteract it. 

As we understand that comparison is a vicious circle how does it impact our finances and investments?

The Financial Impact of Comparing yourself

Weirdly enough constantly comparing yourself can cost you thousands. October 2020 was when I finally pulled the trigger on Instagram. I said goodbye to the temptation of showing off in Stories or posts. The amount I have saved isn’t quantifiable but my saving rate has increased and my impulse buys have diminished.

black and white people bar men comparing themselves to eachother
Photo by Gratisography

Purchasing behavior

Since then I’ve focused more on the utilitarian side of purchases. When shopping for groceries or medicine, I go to the store-brand. The quality is on par and no one will know the difference.

Although, my friends have purchased beautiful german cars. I realized that in the long run it will cost them more than a beat down car. Additionally, we earn the same income why spend more upfront?

Recently, I wrote about how much we can truly afford. As impulse and status buy often end up costing tenfold in the long run. You can learn more in “How Much Can You Really Afford”.

person shopping online
Photo by cottonbro

Furthermore, peer-pressure is a strong component in your purchase decision tree. By including and seeking the opinion of others we influence ourselves. This plays into the hand of marketers and “fake gurus” leading you to believe outlandish claims or programs. Multi-Level Marketing bases most of its strategy on this.

Additionally, studies have shown that we gravitate to shopping sprees to boost our self-esteem. This is built on the idea that something new will make you feel better. On the contrary, a study shared on the “Oxford Academy” shows that when you have low self-esteem you will gravitate to lower quality products. Therefore not only does comparing ourselves to others lead to lower self-esteem and impulsive purchases but it’s a vicious circle.

A Study by HEC Paris found that:

“We found that the willingness to pay for status products did result in self-repair, but only for the people who saw the ad with no tagline.”

Although, there is a positive impact from status products as soon as we let ourselves be influenced by external forces… the positive impact is lost. 

Realizing that most of my “want” purchases were based not on my desires but societal pressure has lead me to save substantially more. Since coming to this realization in September has helped me skyrocket my savings rate by 4%. Learn how to stop living paycheck to paycheck here. 5 Ways to Stop Living Paycheck to Paycheck.

pen business eyewear research
Photo by Anna Nekrashevich

Wealth insecurities

Whether it’s on social media or in the news we are constantly bombarded by wealth signals. To such an extent that we don’t question how the money was made or if it’s truly affordable. The problem is we only see the positive online.

From your colleague’s brand new car to the gains your favorite influencer has made. You never get to see their Profit & Loss (P&L) statement. Without that, it’s impossible to know their true position.

black calculator beside coins and notebook
Photo by olia danilevich

If an influencer was truly making 6 figures a month by trading or with dropshipping. They wouldn’t need to sell you a $50 course. Don’t get me wrong not all courses are scams. But it’s impossible to make a 2% gain daily constantly that would be over 600% a year. 

Warren Buffet is often regarded as the greatest investor of all time. Over the past 30 years, he has returned on average 20%. Which makes it highly unlikely that someone selling their signals would help you achieve anywhere near this. 

Constantly comparing ourselves to unachievable targets leads to us chasing returns. Asking the question “why haven’t I bought into Tesla, Dogecoin, or GME?” Without understanding that by the time a stock has hit the news you probably missed the train. And it’s ok! My friend Steve, the Frugal Expat, goes in-depth in his article “How Chasing Returns is a loser’s game” a brilliant read that shows how flawed this idea is.

Stop comparing yourself start building 

man working with turning machine and wood
Photo by Anna Shvets

Overall taking a step back and focusing on growth gives you time to build. It’s the main reason I don’t share the exact value of my Net Worth. Instead, I want to focus on growth, diversification, and progress as percentages. 

Recognising we all have a different path and expectations was what allowed me to truly embark on this journey. Wealth and Life aren’t a competition as nobody will ever walk the same path. I invite you to discover my Financial Origin Story to discover more of my philosophy. 

This research has comforted me in the idea that; although I’m not alone in the journey – it’s mine to travel. My key takeaways were:

  1. Comparison leads to impulse buys
  2. Envy leads to unnecessary risks
  3. Jealousy leads to a lack of productivity

How do you deal with comparing yourselves to others?


Sources

origin stories matter on old typewriter

My Financial Origin Story: Cent by Cent

First I’ve got to clear the air this article was inspired by the Monevator’s article “What’s your financial origin story?” The challenge has been taken up by Sovereign Quest and was an amazing opportunity for some self-reflection.

This introspection is definitely welcome as a thought experiment. Why have I fallen head over heels for personal finance? What motivates me to stick with it and more importantly what was the deciding factor?

Who am I?

My financial Origin Story starts here

At the time of writing this, I’m a 24-year-old Swiss expat based in London. I won’t divulge my exact net worth but I’m 2 years into my personal finance journey and loving it! By day, I strategize and grow revenue for hotels across Europe as a Cluster Revenue Manager and by night I work on Cent by Cent.

 Now that we know where I am, how about we discover how I got here?

My financial origin story starts in Lausanne Switzerland. Where I grew up in a blue-collar family. My paternal grandfather had started his butchery from scratch in his 30s. My father took over the shop early in my childhood and has been running it ever since.

Lightning struck twice as entrepreneurship ran on both sides of the family. With my maternal grandfather traveling to East Africa and setting up a company there.

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Photo by Heiner on Pexels.com

Being raised in not only a multicultural but business-minded environment meant I was exposed to “shop talk” from an early age. As a curious-minded kid, I would butt it and give my very “thoughtful” advice. At least I used to think it was… 

Money was never taboo at our table. My family would discuss investments, financial upswing, and downfalls alike. This candor and openness gave me the bug for good deals. To such an extent that some could see it as cheap. I see it as thrifty.

Every cent has a purpose

From my 11th birthday, the Christmas holidays were spent helping around the shop. The frenzy would go crescendo until the 24th of December. It was complete pandemonium and hard work. 

mother giving her daughter her allowance
Photo by Karolina Grabowska on Pexels.com

Although, some parents would have expected the help and given nothing in return. Mine saw it differently. In their eyes, any job deserves a reward. They taught my sister and me, that every franc had to be earned. Whether it was through chores, work at the shop, or in general.

Your work won’t always pay off but you need to learn the value of each cent.

My father

Growing up I would, of course, spend my money on silly impulses from video games to sodas. Yet all these “blows” to my net worth were a learning step.

I might have spent a little too much money on Steam… But the hours of joy follow me to this day. Say what you will but managing an in-game economy in MMORPGs had a lot to do with my origin story as well.

As I got the university… I was able to find side jobs as a waiter, bar manager, or simply event staff. It was relatively well paid and allowed me to fund my backpacking trips.

man with backpack standing on stone near lake in highland
Photo by Rachel Claire on Pexels.com

My aim was to discover the world on a budget and on my dime. It led me to 3 continents and unforgettable experiences. When I say budget I mean it… I spent a month in Indonesia for a total cost of $1200 flights included.

Of course, I could have started investing earlier or saving aggressively. But the worthwhile investment in my eyes was to expand my mind and grow my knowledge of the world.

Money isn’t happiness

As I was graduating in 2018, I decided I wanted to leave Switzerland. Although, the cushy salaries were attractive – I could always come back. No departure is definitive but the risk of being locked in a golden prison was too high. I discuss this more in my article “Should I live Abroad? To Leave or Not To Leave”.

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Photo by Pixabay on Pexels.com

My dream was to work in a strategic role of some capacity. The opportunity to join a brand new graduate program in Revenue Management was perfect. So I packed my bags and flew out to London. On the way there I waved goodbye to Swiss Salaries. 

It was the financial kick in the butt… I was breaking even monthly sometimes saving as much as 10%. But always looking over my shoulder raised a red flag. It was time for a change in my financial philosophy. Down the rabbit hole of Personal Finance, I went. 

It started with Graham Stephan on YouTube, which led a couple of years later to starting Cent by Cent. 

light inside library
Photo by Janko Ferlic on Pexels.com

Throughout the first 18 months of my contract, I managed to settle my savings at 10% monthly. My Net Worth wasn’t going leaps and bounds but at least, I built my Emergency Fund. A safety net of 4.5 months of expenses saved up in case hard times hit! 

2020 the game changer

And oh boy did they… As 2020 came around I was promoted and saw a salary increase of 50%. A game-changer I would be able to save and invest almost 50% of my salary! 

man with fireworks
Photo by Rakicevic Nenad on Pexels.com

The only problem? My flatmate left leaving with a full rent to pay. I could have found a replacement right? Well… COVID-19 hit and no one was going anywhere. I quickly found myself on furlough and having my income match my expenses. 

For almost 6 months, my current account would show £100 before needing to reach into my emergency fund. I can’t tell you how happy I was to have my emergency fund. On the other hand, it was an amazing opportunity to review my expenses and learn to live a more frugal lifestyle. 

I realized that I miss very little. The opportunity to fly home once in a while, pay rent now that I moved in with my lovely girlfriend, and put food on the table. Those are the true essentials! Thankfully since October, I’ve returned to full-time employment. Since then I can proudly say that I’ve consistently been saving 40+% of my income. 

Where am I now?

I’ll be turning 25 in June… and although Financial Independence is a long way. The journey has been thrilling so far. Most of my investments sit with Vanguard in different ETFs and grow monthly. As I look to the future, I draw inspiration from practical guides and build my plans accordingly

It might take me more than 10 years to achieve Financial Independence but articles like “How To Become Financially Independent in 10 Years” are a source of practical inspiration.

Cent by Cent is yet to generate revenue but allows me to share what I’ve learnt so far. My net worth grows more every month and keeps me focused on my goal! Personal Finance might be personal but it’s a team effort. By working together and sharing our tips and tricks we all move forward. 

What is your Personal Finance Story? How far along of the journey are you?

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