Emotional Financial Management

We'd like to think humans are rational creatures, but in reality, we are all subject to bouts of irrational actions guided by very "human" emotions -- fear, jealousy, and greed, to name a few.

In my personal finance class we read about a study in which a group of people were asked the following question:

Would you rather recieve 10 days of vacation when all of your acquaintances get 5 days OR would you rather receive 20 days of vacation when all of your acquaintances get 40 days

In this situation, almost everyone responded "rationally," choosing to receive 20 days of vacation over 10 days.

As a follow up, the same group of people were asked the following question

Would you rather make $50,000 a year if all of your acquaintances made $25,000 a year OR woud you rater make $100,000 a year if all of your acquaintances made $200,000 a year?

A "rational" person would choose $100,000 because it is obviously twice as much money as the other option. In this study, however, an overwhelming number of people chose the first option because they would be making twice as much as other people. This shows the natural human reaction to judge your financial situation by comparing yourself to others. The emotions brought about by doing this can cause you to make a less than rational decision.

I admit that I compare my financial situation to others, but it is also important to remember that another person's financial situation may not be what you think. I look at co-workers who are buying $350,000 homes and driving nice cars and wonder how the heck they do it when I know they can't be making that much more than I do. Then I look at single parents successfully supporting a family on a single income and I wonder how the heck they do it when I am struggling to just support myself.

This is one of my favorite commercials that helps me answer my questions:


While this isn't the case in all situations, it helps me remember that I shouldn't compare myself to others...I can only keep trying to do the best that I can for myself.