Over the weekend I spent some time at an event with folks much better off then myself or my family. That got me thinking. I hear a lot from personal finance gurus and others that you should be friends with those who are financially better off and learn their behaviors in order to improve your own. I thought a lot about this bit of advice as I conducted small talk at this particular charitable event.
On the ride home I thought further about my experience over the years with folks I think of as “Rich”. I’ve been to events where they parallel parked private jets, talked at lengths with celebrities and hundred millionaires, and regularly deal with executives at work that make more in a year then I have made in my career to date. Alternately we have friends that make minimum wage, live off government assistance, and barely make by. So I started to think of these friends in the context of the guru advice.
Friends Making Bad Financial Decisions
The first thing I noted was I’ve seen my share of both rich and poor make bad financial decisions. People I knew as rich that two decades later were in the poor house. Kids with a trust fund who are now rolling in debt. Self made millionaires starting over after a series of poor financial choices. So do as they say may not be the best advice. Some of the mistakes they’ve made would be a lot harder to recover from at my current stage in life. For example I certainly could not see restarting my financial position from 0 at my age.
I’ve seen similar mistakes from the opposite end of the scale. Living beyond your means. Justifying buying another car, or having another kid when you can’t afford it because it will work out. I’ve heard these words and seen the outcomes. So, I wouldn’t look for advice from them either.
Friends Making Good Financial Decisions
Mind you I’ve also seen the opposite, the poor person and rich person making good decisions that have changed their lives. However, many times these decisions were unique to their situations and not always applicable to my life. Occasionally, I see good decisions and want to follow them, but usually the most advice I find from their good decisions is the guidance that perseverance is the key to success.
Failures As Lessons
This doesn’t mean I can’t learn from either party. What it does mean is that I generally don’t learn from their successes. I tend to learn from their failures as I do from my own. The reality is the real lessons sink in from when they go wrong rather then when they go right. Thinking about loss aversion, that a loss has a bigger impact then a gain on one’s feeling of well being. Even the aspect of time has an impact, but I can never guarantee things will go pooorly later when I see the success now. Simply put, its easier to learn from the failures.
I’ve watched family and friends live on credit cards, so I use credit cards only as cash. I’ve seen others pull out of stocks during a stock market crash, hence I buy and hold. I watched as a friend declared bankruptcy after buying too much house, so we never bought a house we couldn’t pay the mortgage for on one income.
That all being said, going back to those gurus, I don’t choose my friends or associates based on their financial positions or their decisions. I also don’t like to see friends make bad choices. Wherever I can if they ask for it, I try to give them advice, and when they don’t want advice I at least lend an ear. Ultimately your friends are your friends because of your relationship with them. Their financial lives should have nothing to do with it.
Do you have examples of how you have learned from others? Do you choose friends based on their economic status?