Friday, July 11, 2008

The Trap of Trying to be Normal

When we’re uncertain, we tend to look at what others are doing to guide our choices. Most of the time this works well, but it can get us into trouble when it comes to finances.

If you’re at a banquet and you’re not sure whether to eat the strange orange stuff on the side of your plate, looking at what others are doing can be helpful. But, deciding to buy a hot stock because everybody else is buying it is usually a very bad idea.

Advertising tries to exploit our tendency to follow the crowd by giving us the sense that “everyone is doing it.” If it looks like all the beautiful people are drinking a certain beer and driving a certain pickup truck, then we’ll want these products.

When it comes to retirement, most people will have only a modest amount of money to live on. This is because there simply isn’t enough wealth to go around. I can’t say for sure who will retire in style and who won’t, but I can say for certain that the majority of people will have little savings and low income during retirement.

So, if you’re content to be forced to work after age 65 or to live very frugally, then just look around you to see what others are doing and follow suit. On the other hand, if you want an early retirement with a comfortable income, you’ll have to think for yourself. Gathering ideas from others is a good idea, but blindly following other people’s financial choices is dangerous.

3 comments:

  1. For most people, following others is what gets you in financial distress in the first place. I am a believer that you need to depart from the crowd to truly reach financial independance. (ie live below your means and don't keep up with the Jones')

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  2. MG: Well said. On the subject of keeping up with the Jones', I'm finding myself leaning the other way. Not only do I not feel compelled to own the things that other people own, I'm starting to resent my possessions. They soak up time and money to maintain, etc. Instead of going shopping, I'd rather fill up a garbage bag of stuff to get rid of.

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  3. There are Mr.and Mrs. Jones' all around my wife and I now. They are just starting to 'outwardly' move ahead of us lately. I have no plans to keep up with them..

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