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Millionaire Money Habits

November 25th, 2007 at 4:38 pm

Is Financial Peer Pressure Keeping You Poor?

Aren’t friends great? Especially friends who like to spend lots of money. Sure it’s a lot of fun to take that impulsive trip to Vegas, and going out to eat with your friends is a great way to catch up. But if your goal is to obtain wealth, catching up with friends can be costly and inhibit your ability to get rich and retire young.

When you associate with people who spend money extravagantly there tends to be a bit of spending-reciprocity that occurs. In other words, when people you hang around with throw money around, you feel the compulsion to behave similarly. Likewise, a shared frugal behavior can occur when you surround yourself with people who watch and track their spending. Maybe it’s a learned behavior through modeling, or maybe it’s just a result of how you use your time together.

Consider when you are with friends who spend a lot of money, regardless if it’s because they are rich and can afford to waste money or simply because they have poor money habits. They pick up tabs, suggest costly entertainment activities and make regular, unnecessary purchases. As a result you feel the need to reciprocate (Wealth and the Law of Reciprocity) and pitch-in now and again. Maybe you feel the need to spend because you don’t want to be perceived as a mooch and need to be accepted in your social group. Maybe it’s because you would feel better if you pitched in your share. Maybe you get caught up in the excitement of spending money, or maybe you just momentarily forgot about your budget and long term goals. Regardless of the case, people can feel a certain amount of obligation to spend when surrounded by spenders.

When you hang around with spenders, you will find yourself participating in activities that require money. Going to the movies somehow ends up being a $100 trip, a night out to a baseball game requires buying drinks and souvenirs when you would have been just as happy watching the game at home. You get the point — associating with hyper-consumers leads to hyper-consumption. Unfortunately the financial pressures to hang out with your friends, who might actually be broke, can drive you into debt and prevent you from reaching your financial goals.

The good news is the flip side is also true. Surrounding yourself with people who have similar goals can help you reach your goals more quickly. Associate with investors, and you will find yourself doing things that make your money grow because that is what you spend your time discussing and doing together. Similarly, you can influence the behavior of your friends. If you make it a point to discuss and behave in a way that is congruent with your financial goals, your friends will act similarly.

Millionaire Money Habit: Be aware of the situations you find yourself in and resist financial peer pressure. The next time you plan to visit your friends, consider discussing your long-term money goals and how you plan to get there. Then follow-up by recommending low-cost alternatives to expensive activities that can be just as enjoyable. Chances are they don’t even realize their poor money habits.

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  • Jen
    3:20 pm on February 2nd, 2008 1

    My friends always spend more than me, and I do feel like a cheap skate. But they make a lot more than me, and I don’t think they really care that I don’t have as much to throw around


  1. 103rd festival of frugality : plonkee money


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