When I work in plain text accounting, it’s often the numbers that are front and center. In contrast, however, when it comes to personal finance, there is a very strong aspect of human behavior to it.
This human behavior is illustrated in a book that I am currently reading: A Wealth of Well Being: A Holistic Approach to Behavioral Finance.
The thing that struck me in the book was a study that showed the effects of someone winning the lottery. As you might expect, the person who won the lottery spent more money after winning. No surprise there. However, the people who lived near the winner also spent more money after their neighbor hit the jackpot. The neighbors didn’t have more money, but they spent in anyway.
The takeaway for me is that what the people around us are doing has a strong influence on us. I am skeptical that just knowing about this phenomenon is sufficient to inoculate ourselves. However, sometimes you have control of what social circles you move in. And your choice there may make a difference to the bottom line of your plain text accounting. Finally, make your spending decisions relative to your income and savings, not what you see others spending.