Life, liberty and the pursuit of happiness are the three unalienable rights in the US Declaration of Independence. These are replicated in various forms in the constitutional documents of many other countries, at least those that have regard to the quality of life of their citizens.
In fact, the pursuit of happiness is one of the key reasons so many people are focused on building wealth and striving for financial independence. Rightly or wrongly, many people still equate money with happiness. There are multiple studies out there that claim your happiness levels do not increase after you reach a specific amount of income. Income of $75,000 per year has been thrown around as that magic number. Various studies out there claim to prove that your level of happiness does not increase with incremental income after $75k.
Personally, I found the strong correlation between happiness and income extend well past the $75k/year mark. After all, $75k per year equates to only about £58k. If you live in London, you know that £58k can give you a decent lifestyle, but it certainly won’t be a life of privilege. To live a decent life in central London you need to aim for at least £200k+ per year in gross income.
Leaving income aside, there is one other factor that can be a major determinant of your level of happiness. Comparing yourself to others, also known as social comparison, is something that we humans do a lot of. After all, we are social creatures, and you can’t live in a society without fitting in. Fitting in inevitably implies comparing yourself to your brethren across a number of dimensions. It can also me very detrimental to your happiness levels for a number of reasons.
Why Comparison To Others Can Make You Unhappy
- Appearances may be deceiving. That person who looks incredibly successful / happy / healthy may be anything but. Maybe their high-flying job is very precarious, and they are at risk of being laid off at any moment. Perhaps those good looks are a result of performance enhancing drugs or unhealthy eating habits. Comparing yourself to others without having the full picture is a path down the rabbit hole.
- Lack of background. You don’t know how long people took to get where they are today. That person with a fantastic tennis game may have been practicing their game, rain or shine, for the past 20 years. The highly successful law firm partner may have been working 100-hour weeks since the day they graduated. Unless you know the path that people took to get where they are today and the sacrifices they made, you will not be able to compare yourself objectively.
- Ignoring innate traits / natural talent. Let’s face it – everyone has a unique trait or ability that can give them an edge. Some people are tall, some are good looking, some have a great sense of humour and some are just much smarter than you or I may be. No matter how hard you work, you will probably not become the next LeBron or Beyonce. Guess what – that’s okay! What isn’t okay is to keep comparing yourself to people who were born with a set of qualities you just cannot replicate through hard work.
- Lack of objective metrics. How do you measure happiness or good looks? What may look like success to you may not appear that way to others. Having a net worth of £1m is great if you started at zero. If you had £10m to begin with – not so much. Don’t waste your time trying to benchmark yourself to others when the criteria isn’t clear.
For the reasons above, comparing yourself to others can be a total waste of time at best of times. At worst, it could lead to depression and mental health issues. That’s why I strongly believe that temporal comparison beats social comparison any day of the week.
Temporal comparison is all about comparing yourself today to yourself yesterday. It’s all about continuous self-improvement, which focuses your time and effort on things you can control.
Keeping the above in mind, could it be that there advantages to social comparison? And could it be that social comparison when it relates to wealth building and your journey to FIRE is particularly helpful?
How Comparing Yourself To Others Can Be Helpful To You
- Benchmarking. Leaving natural talent aside, you want to make sure you are getting appropriate set of results for the time and effort that you put in. If you see someone who works out as much as you do yet gets much better results, wouldn’t you want to know why? And once you find out, would it not be silly to try and replicate what they are doing to achieve the same results?
- Learning. This is directly related to benchmarking above. It is much easier to look at what others are doing well and learn from them then spend your life stumbling around in the dark trying to figure everything out yourself. This is why we have schools, universities, on the job training and professional coaching.
- Inspiration. Seeing someone set ambitious goals and achieve them through hard work can inspire you to do the same. For the longest time, people believed running a four minute mile was impossible. Then Roger Bannister finally managed to break that mark in 1954. Within a year, another person did the same and now there are some high school athletes that can do it. This is inspiration at its best, and it wouldn’t be possible without social comparison.
- Better relationships. Asking others for help and advice can be a fantastic way of meeting new people and establishing quality relationships with them. Having high quality social relationships is one of the key determinants of happiness.
When it comes to the wealth building journey in particular, social comparison can be be a very powerful thing. You just have to make sure you are focused on the journey and ignore the starting points. After all, wealth building and financial independence are governed by a specific set of measurable, simple criteria such as spending habits, savings rate and investment returns.
If someone else in a similar situation can have a similar standard of living for less money, you may want to know why. If they manage to save more, it might be worthwhile trying to do the same. And if they invest their hard-earned money and get a higher return for the same level of risk, you definitely need to find out what they are doing!
As long as you objectively apply what others have accomplished to your own situation, you will avoid the factors that make comparison an exercise that leads to unhappiness. Instead, it becomes a tool for self-improvement and acceleration in your wealth building.
How Comparing Myself To Others Helped Me Accelerate My Wealth Building Journey
- Inspiration. Coming across the Financial Samurai blog was a defining experience on my own journey to FIRE. After all, my career trajectory mirrors that of Sam to a large extent. Having a role model that has walked the path I am planning for myself is important because it shows me that my goals are realistic and achievable.
- Learning new things. At the moment, my investment portfolio is primarily focused on stocks and physical real estate investments. Spending more time in the FIRE community made me consider other wealth building tools including real estate crowdsourcing, venture capital, blogging, e-books and other side hustles.
- Better relationships. I have never realized that there are a number of people in my social circle that are on the same journey to financial independence. Comparing my journey to theirs has led to some very insightful conversations, expanded perspectives and improved relationships with these people over the past few years.
At the end of the day, humans are social creatures. As such, comparing ourselves to others may simply be inevitable. Doing it properly will make sure it is not an exercise in futility but an endeavour that leads to a happier, more productive and successful life.
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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