If I asked you if your financial position was “Bad”, “Average”, or “Good” how would you answer? Sometimes it’s hard to determine exactly how you’re doing. Does having enough money to pay your bills each month qualify as “good”? Does carrying a credit card balance qualify as “bad”? I don’t know that there is any one correct answer to this.
To a large extent, how we feel about our financial position depends on the financial position of those around us. For example, we live in a predominantly working-class neighborhood in the city. Most of the homes are relatively small and inexpensive. Most of the people have a high-school education, there are a large number of renters, and you can just tell that a lot of people are struggling to get ahead. Looking from this perspective, our financial position is definitely “good”.
However, there are many other references points that I could use such as co-workers, family members, and friends. I could use some of these reference points and consider our financial position to be “good”, I could use others and consider our financial position to be “average”, and there are other reference points I could use and consider our financial position to be “bad”.
The point is that there are multiple ways of looking at the same set of facts. There are days where I feel like we aren’t doing so well, because I’m comparing us against a certain reference group. On the flip side there are days I feel like we’re doing very well, because I’m comparing us against a different reference group. But, to get a truly accurate picture of our financial situation I shouldn’t be using any reference group at all. Instead, I should just look at the numbers. Are we spending less than we earn? Is our net worth going up? Is our debt level going down? As long as we can answer “Yes” to all of those questions, it doesn’t really matter how we compare to anyone else.
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Modest Money
August 3, 2012 at 2:44 pm (UTC -4) Link to this comment
It is tough not to compare our position to others though. Competitiveness and envy are just natural human reactions. I consider myself to be in an average position, but I could definitely compare myself to different groups and be considered good or bad. You’re right though, it ultimately comes down to how well you are doing compared to your own needs, wants and goals.
Justin
August 5, 2012 at 11:43 am (UTC -4) Link to this comment
I definitely agree that comparing ourselves to others is tough not to do; it’s human nature. I just think we could all use a reminder every now and than that what really matters is how we’re doing compared to our own goals. And also that sometimes it’s good to compare yourself to those in worse shape than you. It really makes you take a step back and say, “Maybe I’m not doing as well as so and so, but I know I could be in a lot worse shape”. It’s important to realize that things could always be worse.
Lance@MoneyLife&More
August 3, 2012 at 2:47 pm (UTC -4) Link to this comment
Compared to the average person my age I am doing very well! Compared to where I want to be I would say I am doing average. Compared to the rest of the world I am doing amazing. All depends on how you choose to look at it!
Justin
August 5, 2012 at 11:45 am (UTC -4) Link to this comment
Very true. Compared to the vast majority of people in the world, everyone in the U.S. is doing great. I read an article just the other day that showed that even a large portion of U.S. families living in poverty still have air conditioning and at least one flat-panel television set.
Canadianbudgetbinder
August 3, 2012 at 3:18 pm (UTC -4) Link to this comment
We live in a neighbourhood where the homes are upwards of close to or over one million dollars, not ours. We see lots of boats, trailers and gadgets and the neighbours are always getting something new installed or renovated in their home. Do I care? Not one bit. I’ve never compared myself to what others have because I don’t know their situation. For all know they are mortgaged to the top and nothing to rub together. If I knew that answer was true I’d likely say I was in a great position but again, I don’t care. All I care about is sitting down, setting goals with my wife and doing our best to attain them at a speed we are comfortable with and that is SMART. There is no answer to your question the answer lies with-in. Lots to think about, great post. Cheers Mr.CBB
Justin
August 5, 2012 at 11:48 am (UTC -4) Link to this comment
Thanks for the feedback! You captured the essense of my post completely. It really does no good to compare what we have to others. For one thing, we don’t have enough information about other people to do an accurate comparison. Secondly, even if we did, it still wouldn’t really matter. The answer really does lie within.
Emily @ evolvingPF
August 3, 2012 at 8:50 pm (UTC -4) Link to this comment
I agree with your conclusions. If I compare myself to my grad student peers I would say we’re doing well because we save pretty aggressively and don’t have debt. But if I compare myself to some of my peers from college who got real jobs right out, I suspect our net worth and standard of living is much lower. But then I think that if I didn’t have to struggle for all this time with a low income I might not be as financially savvy, so if we had that high income we might not be as “good” with money. So overall I am happy that our net worth is increasing bit by bit every month and I hope we’ll hold on to the lessons we’ve learned when our income increases (one of the main purposes of our blog).
Justin
August 5, 2012 at 11:50 am (UTC -4) Link to this comment
There will always be people doing better than us, just like there will always be people doing worse than us. But as long as we’re doing what we knew we should be doing, that’s what really matters. And I agree that sometimes the struggle makes us really appreciate the lessons learned along the way.