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Sunday, April 30, 2017

The Dangers of Comparsion

Posted by Tim Stobbs on December 13, 2007

Despite our wishes to all get along in universal peace, there are always going to be arguments about things. For example, people start comparing things and then get upset by the results. A classic case came to mind this morning when I noticed a post over a Million Dollar Journey comparing PF bloggers net worths.

I give Frugal Trader credit that he also put up the ages of the people on the list to help assist people when comparing and a disclaimer that the calculations of each number might be a bit different. The danger of a list like this is when you start comparing yourself to someone else is not realizing what the detailed differences are.

Net worth is a bit of a slippery comparison method as each net worth will be completely different when you strip back the layers. For example, my own I know is heavily weighted by my house’s market value. So if I compare it to someone else who have more in stock and cash does it mean I’m worse off then they are? No, the fact is it doesn’t mean anything at all.

Everyone in life has a unique path financial speaking. Some have college paid by their parents, while others get student debts or skip going entirely. Some buy a house young and others wait or prefer to rent. Some have a couple of kids before they turn thirty and other don’t have they first until after thirty five. Each of these factors can have a huge impact on your net worth value and what makes up your net worth.

So when MoneySense magazine came out with their “wealth test” a few months ago I had a quick look at the results to see where my net worth compared. Generally speaking I didn’t really compare with the average person at all, but it doesn’t mean that the average person was wrong. We each choose to live our lives how we see fit and your net worth comes out of it. Also people have difference opportunities and skills which will define their net worth. For example, I don’t own many individual stocks, since I’ve never been that good at picking them until I did some reading on the subject, so now I’m trying.

In the end, your net worth is a number for you. It’s a sign post telling you your doing the right thing if it is going up on a year to year basis. If you do compare it to some one else, keep in mind the results could be meaningless if you looked into the details.  Beware the dangers our comparing yourself to others, you might just end up releasing feelings of fear or envy.

Comments

13 Responses to “The Dangers of Comparsion”
  1. Didn’t mean to stir up anything CD, just thought it would be an interesting post. :)

  2. Canadian Dream says:

    FT,

    It’s not a problem. I don’t care you put together the post. I just wanted to use it as a warning to people about getting caught up in comparing yourself to others.

    Tim

  3. Honestly, I don’t even bother to read net worth posts because (a) it’s none of my business and (b) it’s totally meaningless for me. The question is why do bloggers post these details? Do readers actually care to know?

  4. Warren says:

    As a reader I find it a fascinating insight, but only when coupled with the rest of the information that goes into a PF blog, like your financial goals, methods of getting there, etc.

  5. nobleea says:

    The PF blog net worth updates are interesting, more in how they calculate it that what the actual number is.

    But knowing net worths, etc for your age group is very important, I think. These are the people who are going to retire at the same time as you. They’ll be trying to buy the same retirement houses as you on a golf course or a lake (or wherever). It’s all well and good to say you shouldn’t compare yourself to others, but they are the competition. Who wants to have their retirement dreams compromised since they were consistently below average for net worth and savings/investments and now the competition has bid up the areas they wanted to retire?

    Maybe this sounds too competitive, but most people are petrified of discussing things like this. Comparing yourself to averages for the entire population/age group/etc are valid and necessary, I believe.

  6. I love comparing net worth with other people, and I believe it means a lot. There is not better way to measure your financial well-being.

    A little competitive spirit is not a bad thing, most of us are probably doing great compared with the general population just becuase we are willing to discuss and learn from eachother on these matters.

  7. Gary says:

    The totals sure look impressive. Lets wait see these totals in 5 or 10 years. Lots of things take place in the path of life. Remember you only have one life to live. Live it to its fullest. Missing out on life today is just another lost day.

  8. Canadian Dream says:

    Nobeela,

    I’m not saying you shouldn’t compare yourself. I’m just warning people this can be a dangerous game to play with your emotions.

    CC,

    It’s an interesting question. Who does really care or not? I personally post it for my own reference and goal setting. I’ve just never thought to ask if anyone cares to see it at all.

    MG,

    You are right on average most people reading these types of blogs have their stuff together. So if they aren’t beating the average they will be at some point.

    Gary,

    Excellent point. We should never forget to live now just for the sake of a number.

    Thanks everyone,
    Tim

  9. Jim says:

    ” So if I compare it to someone else who have more in stock and cash does it mean I’m worse off then they are? No, the fact is it doesn’t mean anything at all.”

    Actually it does mean SOMETHING. Obviously you’re ‘hurt’ about this comparison and not thinking rationally.

    Rationally, house net worth is NOT comparable to Stocks net worth.

    Not even CLOSE. Stocks you can liquidate tomorrow. How about a house? And where will you live? What about all the money/expense that are put into a house (daily almost?).

    Counting houses in net worth is just not smart unless you have a second/rental property.

    Also, people should be leery taking advice from people that aren’t, in actuality doing that well off themselves. Not counting your house net worth, how much are you worth and your advice? Sorry to be harsh.

  10. Canadian Dream says:

    Jim,

    I’m not insulted in the slightest. You are completely right that most of my net worth is tied to my house.

    Yet, I chose to structure my finances this way. I could have easily put a smaller down payment on this house and bought stocks with the difference. I chose instead to put down $40,000.

    That was what I was getting at. Everyone has his or her own priorities and goals. I dislike debt and know the local real estate market. So for me the decision was obvious.

    Besides, I’m not putting out advice to anyone. This blog is about sharing ideas and discussing things. I certainly don’t pretend to know it all or tell anyone that there is only one way to build your net worth.

    By the way, your comment did come across as harsh at the end. I appreciate your feedback, but I could do without the comments sounding like an attack. So in the future please try to keep it a tad bit more civil. Thanks.

    Tim

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