Perception of others and their situations or lifestyles can have a huge impact in how we ourselves feel and act. The recent exposure of Facebook’s secret mood manipulation experiment demonstrated just how easy it is to become affected by the experiences of others. Unfortunately this can also have an affect on our personal finances and financial futures. There are however a number of things to bear in mind which you can use to help avoid letting perception affect your financial reality.

Keeping up with the Joneses

The best know example and widely used expression relates to people trying to mimic their neighbors through assets or perceived wealth. If a neighbour arrives home in a big fancy car, the initial response of many is to desire and occasionally obtain a similar item for themselves. It doesn’t matter if this new car is funded through debt because no-body is going to see the credit card statements from outside. Instead all they see is their happy neighbour proudly driving around in an over-sized expensive chunk of metal while the gas bill goes unpaid and credit card letters start piling up.

How much is that new luxury purchase going to cost you? Now translate that cost into the time required for you to earn that much. Is a brand new 4×4 really worth 5 year’s worth of savings? Or even worse.. will that new purchase be funded through debt and cost you even more in repayments?

Everytime you purchase something with debt; you’re effectively stealing from your future self. Buying something funded from debt means your future self has to work longer/harder in order to fund the purchases of inpatient past self. Does this theft from the future to fund the present make you happier overall? Unlikely.

You Only Live Once

I hate this term in the way that it’s thrown around at the moment. When someone shouts YOLO, what they really mean is: Spend Now, Screw the Future. Too many people seek to justify their short-term focused mindsets by emphasising the need to live for today at the expense of tomorrow. Why is this? Why can’t people be happy with what they have today and save for tomorrow?

How many times have you walked down the street after work on a Friday and seen the bars full of people and thought to yourself:

‘Everyone else is out having a good time, why aren’t I?’

I feel it almost weekly however the problem is that your perception of the situation is extremely limited. When you walk past a bar, you only see the people who have actually gone out that night. You aren’t seeing the many others who have decided not to go out.. perhaps choosing instead to stay at home and invite friends over for a much cheaper evening. It looks like everyone has gone out to have a good time because they are the only people you’re able to see as you walk past on the way home.

Focus on the end goal

Life is a marathon, not a sprint. If you’re reading this; chances are that you are interested in obtaining financial independence or early retirement and so short term debt fueled purchases are only going to postpone the overall end goal. I often feel like I’m the only one really thinking about finances and early retirement because it’s not something discussed much amongst my friends and colleagues. However despite this perception that I could be unique in my journey, I know that the reality is there are many many more like me out there across the world. By resisting the urges to keep up with the Jonses or YOLO everytime I see someone else having a good time, I know it will bring me closer to the end goal.

What other situations are there which might give you a false perception of the reality, and how could this affect financial decisions?