We are hardwired to care about what other people think of us. It is part of our primitive caveman brain and goes back to when we lived in small communities and our survival depended on others liking us and not throwing us out to be eaten by the wolves. The problem is that our brain has not evolved to our new lifestyles. Survival for most of us no longer depends on others, yet we continue to do irrational things such as buying stupid stuff to impress people that are of no consequence to us.
Do you think your neighbour cares about the size of your pool, the model of your Mercedes, or where you spend your summer vacations? Do you feel your work colleagues will look down on you unless you wear Hugo Boss suits and Gucci loafers? We think that all these things will impress and ingratiate ourselves to these people.
Here are 3 reasons why this mindless spending is a losing strategy.
1) Your neighbour/colleague does not care about you
Life is hard and everyone has their heads down and is operating in survival mode. Their indifference to you has nothing to do with you. It is rooted in their own daily struggle against self-doubt, anxiety, and unfulfillment.
2) You don't need to ingratiate yourself with these people with the quality of your possessions and experiences
We no longer live in fear of being cast out to the wolves by the leader of the tribe. Our physical survival does not hinge on our relationships with the elders. Sure, success in the modern world is correlated with the strength of our social and professional relationships, but these relationships are based on our integrity, our conscientiousness, and who we are - not what we drive and where we live.
3) This spending can stand in the way of your financial freedom
Let's do a simple calculation. You believe that to impress your neighbour you need a German luxury car that costs R1 million. You finance it over 5 years at 9% interest and assume the resale value will be 40% of the purchase price. Your monthly payment will be R15,500. Your friend, who doesn't care about what anybody thinks of his car, buys a reliable Japanese vehicle for half the price. His monthly payment is half (R7,750) and invests the other half in a low-cost ETF that gains 10% per annum.
At the end of the 5-year period, you will have a German car worth R400,000. Your friend, on the other hand, will have a Japanese car worth R200,000 and an investment worth R600,000. Your friend has done twice as well and has shown the power of making money work for you.