Your money is threatened by a Trojan horse that comes in the form of a wide grin, a wink and maybe a hug. This threat is like a computer virus. It runs without your awareness, takes hold of your operating system and undermines your intentions. This threat affects nearly everyone -- myself included.
I was recently in Las Vegas telling more than 50 NFL athletes how to turn sudden wealth into lasting wealth. In my keynote address, I identified some common threats –- such as divorce, lawsuits and injuries -- but I focused on this hidden threat.
It's been said that we are the average of the five people we're closest to. If you're making $40,000 a year, and all of your friends are making $100,000, you tend to to spend more than you can afford to match their lifestyle. You may start to buy the same types of clothes or the same kind of car. You might take up the same expensive hobbies or move into the same neighborhood. Contrary to what most financial advisers suggest, the biggest threat to creating lasting wealth is not your poor friends. It's your rich friends.
Such financial creep is hardwired within us. We are social creatures. We are constantly looking at others and learning and modeling from them. It's in our DNA through evolution and natural selection. Our ancestors who saw and learned from others about what worked and what didn't were the ones who survived. Animals do it, too.
Going Bananas Over a Grape
If you're unable to watch the video, imagine two monkeys in separate cages. A researcher gives the first monkey a slice of cucumber. The monkey grabs this and starts to eat it because monkeys like cucumbers. The researcher then gives a grape to the second monkey. The second monkey devours it because while monkeys enjoy cucumbers, they love grapes. The first monkey is looking but doesn't really think much of it. The researcher then gives another cucumber slice to the first monkey. The first monkey takes it a little more slowly and starts to eat it, but now he's watching the researcher and the other monkey more closely. The researcher then gives another grape to the second monkey. Again the second monkey gobbles it up.
If you watch the first monkey, you can tell something is not right. He's trying to figure out why he's getting cucumber slices and his buddy is getting grapes. Finally the researcher gives another cucumber slice to the first monkey. The first monkey takes it, looks at it, looks back at the researcher and throws the cucumber slice through the cage -- and it hits the researcher right on the chest. This monkey is irate. He does not understand why he is stuck with cucumber while his friend gets grapes.
Just two minutes before, he was thrilled with his cucumber. And now he is enraged. Why? It's called relative deprivation. We're constantly comparing ourselves to those in our immediate circle and looking for areas where we're not getting what we think we deserve.
Unsatisfied by a Dream Car
Let me give you a human example. Imagine someone who has worked hard for many years to buy a Porsche 911. He has finally saved enough to throw down $100,000 at the dealership and drive off in a new Porsche 911. The windows are down, the radio is up, and he's cruising. But when he drives into a parking lot, he pulls up next to ... what? A fancier car? A faster car? A more expensive car? He gets out of the Porsche, shuts the door and feels disappointed. It's an internal tug that whatever we have isn't quite good enough -- that maybe we're not good enough.
This seriously threatens our finances. You know what's going to happen to the guy with the Porsche. In three months, he's going to sell it at a huge loss and borrow money or lease a car that's much more expensive then he can afford.
This virus is almost impossible to delete. The best defense is awareness. The next time you buy something, ask yourself why you want what you are buying. Do you truly want it or are you just buying it so you look better or to assuage an internal battle to feel good enough?
The takeaway is to be conscious of how your environment and those around you affect your motives. Use money to create a better, fuller and richer life. Don't use money to attempt to keep up with friends or to mitigate feelings of inequity. It might not be fair that your friends enjoy grapes while you get cucumber, but if you act like the monkey, you'll have neither grapes nor cucumbers to eat.
Robert Pagliarini is a best-selling author and financial adviser who focuses on sudden wealth recipients. Connect with him on Twitter at @rpagliarini.
6 Little Changes You Can Make to Save Big Bucks
Monkeys' Behavior Reveals Hidden Threat to Our Wealth
Most of us spend a ton of time researching our options when we first sign up for a plan or policy, then forget all about it and make monthly payments like a robot. But this can cost you.
If you've been on the same cell phone plan for a while, or you haven't looked at the terms of your insurance policies (home, life, auto) since you got them, it's time to do a review. Your circumstances may have changed, and new plans or deductions may have come out since you first signed up. Call up customer service (or your agent) and have them walk you through your options if you're having trouble comparing things on your own.
One of the biggest budget sucks is our own forgetfulness. We miss payments and incur late fees because we've misplaced our statement or didn't manage to get our mail out in time. We fail to save as much as we'd like because we just never remember to do it.
The easiest way to save yourself some money (and hassle and stress) is to set it and forget it. Sign up for auto-pay so your monthly bills are automatically deducted from your checking account. Have a certain amount automatically transferred each month from your checking to your savings account. Remove the human error factor, and your budget will be better for it.
We charge so much nowadays -- whether on credit cards or debit cards -- that it's easy to spend a lot of money without really registering it. When you have a set amount of bills in your wallet, however, it's extremely easy to see how much you've spent so far this month and how much is left.
Take those budget categories of yours -- groceries, entertainment, etc. -- and turn them into real, physical envelopes. At the beginning of each month, put that month's allotment of cash into each envelope. When you're running low, you'll know you need to be careful with your purchases. When you're out, you're done spending on that category till next month.
If you're prone to impulse purchases, imposing a waiting period on yourself is an easy way to break the cycle.
For large purchases, a 30-day waiting list is best. Write down the item that's calling to you, then wait 30 days before allowing yourself to buy it. You may realize in that time that you don't need it after all. Or you may forget why it called to you in the first place.
For smaller impulse buys, like that fancy new product you spotted in the grocery aisle, follow a 10-second rule. Before the item can go into your cart, spend 10 full seconds asking yourself if you really need it and how you will use it. Simply analyzing why you're getting something can disrupt the siren call of a product.
It's all too easy to blow $5, $10, even $20 on something, whether it's an extra meal out or a coffee on the run. In the grand scheme of things, it "doesn't seem like much" to us. But if you start thinking of your money in terms of the time it took you to earn that money, suddenly you find yourself evaluating your spending choices a little closer.
Figure out what you make per hour if you're salaried (if you're hourly, this will be easy). Let's say you make $15 per hour. For every $15 you spend, you'll have to spend another hour of your time at work to pay for that item. A coffee a day for a week can cost you an hour or two. And bigger items, like that flat screen TV you're eyeing? You get the drift. Framing purchases in light of time spent can help you make sure something is worth it.
In the end, a budget is simply a means of making sure your money is working for you. It allows you to see how much you're brining in and allocate it towards the things that are most important to you. If you can hold those bigger goals in mind, everyday budgeting becomes easier.
If you're wondering whether or not to buy something, ask yourself if that money would be better spent towards your big goal. Put a visual reminder in your wallet to keep you on task-like a photo of a sandy beach if you're trying to save up money for a trip. Viewing your budget in terms of what it will allow you accomplish-not the things it won't allow you to buy, can revolutionize your spending.