You Are Unique And So Are Your Finances

Let us take the case of Rahul and three of his friends from college. All of them have similar jobs and would most probably draw similar salaries. All of Rahul's friends recently bought SUVs in the Rs 15 to Rs 20 lakh range.

When Rahul wanted to upgrade his Maruti Swift, he realised that with his commitments he cannot upgrade to a car of that price range, but would have to settle for something within Rs 10 lakh. But that was not possible, was it? He met his friends often and how would it look if he would go to meet them in his budget car, while others were driving more expensive SUVs? So Rahul stretched his budget and got a car that he should possibly not have bought and it put a strain on his monthly cash flow.

To put in common parlance, Rahul in the above example is a victim of peer pressure. It can affect kids and adults too. According to social psychologist, happiness expert and author Wendy Treynor's original "identity shift effect" hypothesis, one's state of harmony is disrupted when faced with the threat of external conflict (social rejection) for failing to conform to a group standard. It basically explains how peer pressure works. The same may make someone who earns Rs 40,000, buy the latest iPhone for a monthly EMI of Rs 12,000.

When you see 'happiness expert' in her description, you know that peer pressure and how you react to it can also decide how happy you are. While on one hand you are most likely to be happy if you succumb to peer pressure, your finances may take a hit. In fact, in the long run, peer pressure can actually make you unhappy, even if you give in to it.

Peer pressure extends beyond the immediate peer group. Social media creates unrealistic spending expectations and the pressure to maintain a certain image. Since most social media fosters materialism, it encourages social comparison even more, ultimately affecting happiness and also one's financial condition.

In case of Rahul, he was justified to think that he can afford the car that he bought without straining his monthly cash flow, but what he might have failed to realise is that though he has a similar salary, he would be having some expenses his friends might not be having or he might be investing more than his friends.

But this is a trap many may fall into, and one would argue that there is no point in earning money if one does not spend it.

One way of not falling into this comparison game, is to very clearly define your goals. You may be planning to buy a house, hence need to save on its down payment. You may be planning to do two foreign trips every year, or you might be trying to save up an amount more than what you need in your retirement to have a buffer for medical expenses. If you are sure of these goals and how they matter to you, you are more likely to focus on them, rather than spending money just to compete with your peers.

The other thing you can do is to have a budget and ensure that you stick to it. For example, let us say you earn Rs 1 lakh and you plan to invest 30 per cent of your income. So, you have Rs 70,000 to spend every month. All your expenses should be covered with Rs 70,000. In case you plan to buy a more expensive car, you would need to see how you can reduce your expenses to ensure that you stay within the budget. That could mean eating out once every week instead of twice every week. Or reducing your discretionary expenses in some other way.

To sum it up, forget keeping up with the Joneses! Focus on your financial dreams. Set goals, create a budget, and invest in your future, not fleeting trends.