Nov 242016
 

Comparing Finances

Money is like a lot like religion or politics; everyone has a passionate opinion about their own personal finances, but it’s not always easy to talk openly about it without social consequences. For example, the company I work for discourages open discussions about compensation and benefits. This makes sense from¬†a corporate point of view because of the loss aversion theory. Psychologists and behavioral economists have found that we tend to feel loss about twice as intensely as we experience gain.

16-11-loss-aversion-theory-graph

We can imagine how this will play out if two employees were to find out that one of them was making more than the other. The worker making less would feel twice as bad about his job as the other worker would feel good. So this would lower the overall morale in the workplace and create negative sentiment towards management. ūüôĀ Furthermore, some people have a cognitive bias known as the Dunning-Kruger effect where they think they’re more competent than they really¬†are, which could lead to misunderstandings.

This is why income, net worth, and other topics related to personal finance are often seen as taboo. We are told to not compare ourselves with others. But pretending to live in a bubble can alienate us from the rest of the world and become self destructive over time. In reality it can be very advantageous to compare our income, investments, and expenses to everyone else around us. Here are some reasons why comparing personal finances is useful.

  1. You can get the best deals. You¬†compare employee benefits when choosing whom to work for. You compare prices when shopping. You compare company profits when choosing which stocks to buy. So by knowing what your co-workers are earning you’ll get a better grasp of what your labor is worth. By knowing how much your friends spend on cars you’ll have a better idea of where to find the best car deals for yourself.
  2. You¬†can see the big picture. By comparing your finances with others, you will be able to determine for sure if¬†things are¬†really expensive, or you’re¬†just poor.¬†ūüėõ
  3. You can improve your own finances.¬†By comparing your financial progress to others you will be able to learn from different people over time. You will know who’s really good at budgeting, and who is the most successful at investing. You can then¬†apply newly learned practices to your own life.

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Feb 282013
 

I often like to compare lifestyles between different countries. I think where each of us are born has a huge impact on not only our own lives but also how we influence those around us. I recently found this ifitweremyhome.com¬†that compares countries and the average lifestyles of people from all over the world. Coincidentally Canada is currently featured as their country of the week lol. It’s a pretty nifty tool if you want to do some research on another country before you move, or even just go there for a vacation. You can compare Mexico to Australia, United Kingdom to South Korea, etc.. Below lists some of the things it said¬†comparing US and Canada (my comments in italics).

If I lived in the US instead of Canada I would……

Spend 83% more money on health care.
Our government recently announced that health insurance premiums are going up 4% next year. At first I wasn’t too happy about this because over the last 12 years our MSP premiums have almost doubled. However NOW since I realize it’s still relatively cheap I would have no complaints even if they raised it by 10% because that’s still a discount compared to alternatives ūüôā
Experience 40% more of a class divide.
I think this is why we’re generally perceived to be more friendly. Even when we get angry we’re nice about it. Unfortunately it also makes for some boring politics sometimes.
13_02_comparison_upsetHave 35% more babies.
Americans have about 138 births per 10,000 people every year. Canadians only have about 103. Not sure exactly why but some people are talking about immigration reform to help grow our population. Why do you think Canadians aren’t having as many children as our southern neighbors?
Have 23% more chance of dying in infancy
The number of deaths of infants under 1 year old in a given year per 1,000 live births in the US is 6.14 while in Canada it is 4.99.
Use 21% less electricity
Makes sense. It’s colder up here in the winter. ~Brrrr~
Make 20% more money
Maybe this is why a lot of smart people finish their studies in Canada and then move to the US to find career opportunities.
Die 3 years sooner
Maybe you live longer in colder temperatures ūüôā
Consume 6% less oil
Looks like Canadians aren’t as environmentally friendly as we would like to be
Work 72 hours longer each year
That works out to about 6 hours a month.

So ideally if you want to have the best of both places, you should be born in Canada. Spend your working years in the US. And then move back to Canada to retire and live out the rest of your life. But of course life has too many moving parts to put it that simply. It’s hard to say which country really is better to live in. Both Canada and the US have their pros and cons.

Mar 272012
 

Compared with other nations, developed countries are the best places to live for anyone who wants an equal opportunity to become successful. Yet some people in these countries like Canada and the US are still upset about income inequality, a lack of proper health care, education, and a poor standard of living for the minority, despite the fact that the same problems exist everywhere else in the world but much worse. I think it’s all relative. People generally compare themselves with their friends, families, and neighbors. Of course they never feel like they make enough, because there will always be someone they know who makes more than them. Maybe they should try comparing their income to the national median instead. The typical Canadian living alone only makes about $30K a year.

img source: cdn.runt-of-the-web.com

I try not to compare my finances with others. But in reality, my quality of life¬†depends¬†on the wealth of others around me. The reason I don’t feel rich is because I live in one of the¬†most unaffordable¬†cities¬†in North America. In the 4 years that I’ve been saving and investing, I have built up a net worth around $100K. By the time I’m 30 years old I plan to reach $400K. The average household net worth here is over¬†half a million dollars.¬†So $400K wont buy me a lot here. Once I pay off my mortgage, I will have enough money left over to maybe provide 10 years of living expenses for myself.

But what if I moved to Florida, and had the same $400K. Well I can get a 2 bedroom condo with similar¬†amenities as my current home,¬†and similar strata fees (HOA) for just $100K. Since I won’t have a mortgage, my yearly expenses should be below $15K. This is because my total living expenses now, minus my current mortgage is below $15K a year. Plus isn’t everything in the US cheaper? Which means I can invest my remaining $300K into inflation protected securites (i bonds perhaps) which will take me 20 years to use up.

Even better, I can take my $400K and move to somewhere like Mexico or China where the average salary is¬†less than half¬†of what the average Canadian or American makes. I can go for 30 years or more without running out of money. Of course I can always go broke buying luxuries, anywhere in the world, but as for basic living expenses, the less fortunate people are around me, the richer I will feel. That’s why we’re lead to compare our lives to others, not just other people, but other people in our immediate surroundings. Sounds kind of shallow and narcissistic but is this just a part of human nature?

Macleans has an income comparison calculator. Click here to see where you fit.
If you’re making more than $30K then you’re probably already making more than most Canadians (*^.^*). What I plan to do one day is move to a smaller city when I retire, where my money can go further. In short, want to feel rich? Don’t live in expensive places.