How Keeping Up With the Joneses Can Actually Save You Money

By Emily Guy Birken on 6 November 2018 0 comments

When I was a new mom, I attended a parenting group where the father next to me mentioned putting aside $130 per month in his daughter's 529 college savings account. At the time, I had just opened my baby son's 529 account with a check from his grandparents, but it hadn't occurred to me to do a monthly transfer. I checked our finances to make sure we could spare $130 per month, and set up an automatic transfer.

It's been over seven years, and that monthly transfer is still going strong. When my younger son was born, we figured out a way to afford transferring $130 per month to his 529 account, too.

I'm sure the man I was sitting next to had no idea his throwaway remark would have such a profound effect on my kids' college savings accounts, but this experience proved that wanting to "keep up with the Joneses" can often be a good financial decision. I wanted to keep pace with another parent, so I worked to make sure my savings rate matched his.

Though keeping up with the Joneses often gets a bad rap, this sort of financial competition can help you save money and make better financial choices. Here's how to make it work for you.

Understanding anchoring

Part of the reason why the spending habits of others can be such a powerful trigger for financial decisions — both good and bad — is because of a cognitive bias known as anchoring. This quirk causes us to latch onto a the first number or price point we hear as the "normal" price for something.

For example, in the case of my 529 contributions, hearing the other parent say he puts aside $130 per month anchored that amount in my mind as an appropriate monthly contribution. Had he said that he put aside $30 or $350 per month instead, my anchoring bias would have latched onto those numbers as the contribution amount to strive for.

You often see anchoring working against your financial health when you compare yourself to the Joneses. Let's say that instead of 529 contributions, I had been discussing monthly car payments that day. If someone had told me they spent $650 per month on their car payment, that amount would have become the number I initially thought to be a reasonable amount to spend each month. With a $650 per month anchor, I might have ended up getting a far larger car loan than I could afford because my mental anchor was very high. (See also: 8 Ways to Build Your Financial Self Esteem)

Helpful comparisons

So if hearing others talk about how they save or spend money can give you a sense of what is normal or reasonable, here are two ways to make sure you're getting comparisons that will help, rather than hurt, your bottom line.

Seek out money role models

According to behavioral scientist Sarah Newcomb, Ph.D., author of the study The Comparison Trap: How Social Comparisons Affect Our Financial Well-Being, comparing yourself to someone you admire and respect (who is also similar to you, or has a professional or financial path that you can realistically follow) changes the way you feel about any differences in your financial lives. Instead of feeling as though you are not measuring up — as you would if comparing yourself with a peer who earns more or has more than you do — you will do a kind of aspirational comparison, where you think about how you can become more like your role model. (See also: 4 Money Lessons You Can Learn From the Joneses)

Figure out average spending among your peers

The website Status Money allows you to see how your finances compare with those of your peers, anonymously. This can help you understand which budget categories you're overspending on based on what is considered average, rather than based on any one individual. While a friend or family member can throw your sense of what's appropriate to spend out of whack, seeing what's average among all of your peers can give you much more clarity.

Choose your friends wisely

We all have friends who spend money like it's going out of style, and it's easy to feel like you need to keep up. And then there are friends who seem to egg you on to make purchases you don't need.

While there's nothing wrong with staying friends with these sorts of high rollers, it's important to recognize the effect they have on your budget, and make plans accordingly. Plan on seeing spendy friends in environments where you can't spend money — like at dinner parties or on nature hikes — so that the temptation to keep up is removed entirely.

Otherwise, surround yourself with people whose money habits you'd like to emulate. Then you'll feel no conflict between your desire to save and your desire to please your friends, since those two things will be in alignment. (See also: 5 Friend Types That Can Hurt Your Finances)

The Joneses can be a useful yardstick

Keeping up with the Joneses is a problem if you're simply trying to save face in a spending competition. But knowing exactly how much people save or how little they spend can give you a helpful metric for managing your own finances. The trick is to recognize when to use the example of the Joneses, and when to ignore it.

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