Tuesday, March 28, 2017

Social Indifference: The Key to Wealth Building

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You set a budget for the month and every dollar is carefully planned. You want to save a certain amount for your emergency fund and allocate funds to help pay off a debt that’s weighing on your mind.

A few days later you see on social media that a former roommate just remodeled her kitchen and has the latest appliances. It looks like a magazine. You look around your plain rental kitchen and think about how nice a new refrigerator would be. That afternoon you’re scrolling through your feed and you see your cousin’s 108 pictures of her recent vacation to the Caribbean. You haven’t had a decent vacation in months, maybe years.

A coworker tweets about her expensive yoga membership, complete with a picture of her perfectly coordinated work out gear.

You buy an expensive coffee because you deserve it.

You go out to eat more than you should and don’t pay attention to what you are spending each time.

You see a sale at the mall and buy a new pair of shoes that you don’t need and may not even wear, but they look like an ad you saw. You imagine how impressed your boss will be when you wear them to the company party.

At the end of the month, you’ve pulled out whatever you managed to save to cover unpaid living expenses, and your debt continues with only the minimum payment.

What happened?

Social Media: The Modern "Keeping up with the Joneses"

Temptation is one of the biggest factors sabotaging well-laid financial plans. Resisting temptation, whether it’s that four dollar coffee when you have a coffee maker at home or the shiny new car when your ten year old car runs just fine, is one of the best indicators that you will be able to reach your financial goals.

We are heavily influenced by the people in our social circles, by close friends or acquaintances, and the world of social media has increased the range of those circles. While the various social media sites can help us stay in touch with people we might have drifted apart from, it also gives us a stylized look into their lives that isn’t always realistic.

You interact closely with only a few people from day to day, and those people’s lives are “averaged” for you pretty well. You see their highs and lows and get a more realistic picture of their current status.

On social media, people share only what’s considered impressive for their status. You see the new house, the vacation, the perfect portrait of children playing together, but this isn’t the whole picture. No one posts a picture of a fight. No one posts pictures of bills laying on the table.

We perceive that other people’s lives are more put together, and more successful, than ours and our envy erodes our ability to control our own temptations when it comes to purchases. When your acquaintance posts a picture of her expensive coffee every morning, it’s harder for you to stick to your coffee maker.

So what does this mean?

Time and time again, research shows that the biggest indicator of future wealth is believing that patient, disciplined money management is more important that outward displays of status. Someone’s ability to resist the material temptations of their neighbors, or friends on Social Media, is part of this disciplined approach to money.

And that’s getting harder to do when we are bombarded with images of real people getting the things we think we want.

To some extent, we can remove ourselves from the slick world of advertising. We see that these things are unrealistic and can make better choices about that vacation.

When it’s our cousin, we see a real person getting what we want and our resistance to temptation erodes. And we then take our cues on the timelines of our own lives by what we are seeing on our friend’s timelines.

Anxiety about success, and about hitting those successful marks at the right time in life, is no joke. We see only the peaks of other’s’ lives and we want those too. It’s easy to see how spending money becomes the answer. We spend the money. We hit that peak. We are happy.

Except we aren’t.

Long term happiness requires security and discipline. Buying a new phone because an acquaintance did doesn’t necessarily equal happiness for you. Really, few purchases we make can sustain our happiness for very long.

What was the last purchase you made? Do you even remember? How long did your feelings of happiness last? How long before you went searching for another new thing?

The truth is the happiness we see on social media is curated and selective. Measuring success against what you see on social media causes you to make very poor decisions about what your day-to-day life should look like and translates to a lot of extra expenses.

So how do we fix it?

Few purchases bring lasting joy. Although spending money causes an initial burst of happiness, that feeling is fleeting. If we repeat it over and over, we are left with a blown budget and poor control over our finances.

The solution to this is social indifference.

Social indifference is used to describe a person’s disregard for the actions of fellow humans. This can be taken to an extreme. For example, in a study last year by Colombia University, researchers found that although social indifference is difficult to prove, veterans are likely subject to this phenomena. People prefer token support such as saying thank you, or liking a certain cause on social media, but when presented with a real way to help with veteran issues, most walk away due to apathy.

Taken to that extreme, social indifference is a negative thing. But if you pull back a little, you realize that there’s a happy medium between caring to the point of wanting what someone has, and caring so little that you have no empathy for those around you.

The trick is to care about people themselves, but not about their measures of success or their material possessions. When you hit this mark, you’ve discovered the way social indifference can be a wealth builder.

Think of it this way: if you hadn’t seen a bunch of pictures on social media of vacations, cars, and other material goods, would you be focused on those things?

Probably not.

Fighting the urge to keep up with perceived success presented on social media feeds requires a certain level of social indifference, or just not caring what other people are doing. This doesn’t mean that you stop caring about your friends' lives. It simply means that you recognize that these material things do not represent them or you. What brings your friend joy won’t necessarily bring you joy.

In fact, it may not even bring your friend joy either.

It’s difficult to make that change in your thinking, but the key is to ask yourself why you suddenly want an impulse purchase that you haven’t budgeted for or aren’t saving for. Is it because you genuinely need it, or is it because you’ve seen something like it floating around in your social media feed?

Asking this question reminds you of what your own needs and wants are, separate from other people. You retrain your brain to consider your situation separately.

While you don’t want your social indifference to be so high that you stop caring about your friends altogether, it’s important for you to maintain a certain level of indifference towards their purchases, or their measures of success. You want to be happy for your friends for their good fortune, but able to understand your own joy and your own situation.

That means sticking to your financial goals and letting the Joneses go their way. It’ll save you so much money.

An example of this on a bigger scale was the stock market downturn in August and September 2015. Investors who listened to panicked predictions followed scores of others in dumping low performing stocks. Those investors didn’t have the ability to listen to their own intuition, and instead followed what others were doing. They lost a lot of money in the subsequent recovery. Others did not listen to those predictions of doom. Investors who were able to make their own decisions despite the actions of others avoided that loss.

In fact, some of the best investors of all time are great examples of the power of social indifference. They frequently make moves in the stock market that run contrary to what everyone else is currently doing. They will buy during a downturn, and sell when the market seems to be booming. They tune out what people around them are doing, and it frequently works in their favor.

Millionaire Principles

Many of the most famous modern finance books, outline these principles as well. Having clearly outlined goals, along with self control to follow through, is one of the biggest indicators of wealth building.

People who underperform in terms of wealth building versus personal income and people who manage to build wealth regardless of income both have particular characteristics important to your finance journey.

Two big factors in the profiles of wealth-builders were the ability to spend less than they earn, and avoidance of status objects or status lifestyles. Under-accumulators frequently spent more than they earned, or at the very least, broke even at the end of the month.

They also participated in shows of status under the premise of spending what they make today. This is the leading cause of debt and lack of wealth building. Most under-performers are possessed by their possessions, and any new income only leads to more accumulation of possessions rather than long term wealth.

Measuring success using neighbors, or in the modern world our social media feeds, is a guaranteed formula for lack of wealth. Understanding that what other people have and do has no bearing on your own life is fundamental to finally breaking free of the paycheck-to-paycheck, personal debt cycle.

Retrain your Brain

- Ask yourself the right questions.

Why do I suddenly want this new thing? Why haven’t I wanted it before?

- Think of your possessions in terms of million dollar choices.

Think about long term choices that can cost you millions. Under-performers frequently trade inexpensive spending choices today for long term wealth. In simple terms, if the choice hadn’t been made, the under-performer would have a million dollars. For example, buying a four dollar coffee every morning may seem like an insignificant expense, but over the course of a year is just over $1400. If invested every year at a reasonable rate of return, that equals a portfolio of close to $1 million at retirement age.

- Rethink your “better off” idea

Many under-performers have the idea that they will be better off than their parents or the neighborhood where they grew up. If their parents lived in a small house, an under-performer wants a big house. If their parents drove an old car, the under-performer wants a new car. Instead of the understanding that lack of wealth is what caused their parents to make the choices that they did, it is only the material objects that measure success.

Instead, understand that secure financial status is what makes someone “better off.” You are not better off if you have the right possessions, but not the long term financial security.

Building a certain level of social indifference is key to finding your sweet spot in long term financial planning. Retraining your brain to find joy on your own terms outside of Social Media will help you finally break free of the cycle of financial insecurity.

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