Financial Envy

“Nothing obscures your financial judgment on investments more than the site of your neighbor getting rich.” – JP Morgan

A research study posed the following question: which new employee would be happier, the person making $36,000 in a firm where the starting salary is $40,000 or the one making $34,000 where the average is $30,000?

Around 80% said $34,000 would make them happier.

This is why Warren Buffett once said, “It’s not greed that drives the world, but envy.”

A few articles from the past week touched on this phenomenon and I think they can shed some light on this line of thinking.

A former Wall Street trader penned an honest op-ed in the New York Times to share his thoughts on money and his former career:

“In my last year on Wall Street my bonus was $3.6 million — and I was angry because it wasn’t big enough.”

He continued later:

“Still, I was nagged by envy. On a trading desk everyone sits together, from interns to managing directors. When the guy next to you makes $10 million, $1 million or $2 million doesn’t look so sweet.”

The trader from this story did eventually come to his senses and leave his job once he realized he was playing a game that would never end. Yet it was very difficult for him to make that move even though he knew it was the right thing to do.

Money is a powerful drug.

Another Times article shared a story from Vanguard founder John Bogle:

Yet Mr. Bogle, who worked in high school and through Princeton University, said his own sense of enough came from not wanting very many things in life, even after creating the second-largest mutual fund company in the world, next to Fidelity Investments.

 “I am not saying in any way that I’ve taken vows of poverty,” he said. “I just don’t need any more.”

Bogle left billions of dollars on the table by setting up Vanguard as a shareholder-owned firm. He could have structured it to eventually take the company public and become insanely rich through an IPO, but chose to do right by his clients (the investors) instead of himself.

Millions of people invested with Vanguard are better off because of this decision.

Finally, MarketWatch profiled Mr. Money Mustache.  He retired at the tender age of 30 by saving roughly 80% of his income and living on expenses of $25,000 a year (which includes his wife and child).

A few quotes from the article outline his thought process and how he did it:

“Since I valued freedom and financial strength, this automatically ruled out quite a few purchases.”

“But if you understand the fundamentals of what it means to be a happy person, you realize that buying more stuff for yourself has no relationship at all to how happy you are. These fundamentals include things like close relationships with other people, health, rewarding work, a chance to be creative and help others.”

All of these stories come from the extremes — a millionaire Wall Street trader, the founder of a mutual fund company and a highly frugal young man.

Yet all of the stories intersect at one of the most important topics that can control how you handle your finances: knowing what is enough to minimize the toxic envy in your life.

Envy can lead a trader to pursue more money than he ever thought was possible because those around him were making even more.

The power of knowing when enough is enough can lead an up and comer in the world of finance to create a trillion dollar mutual fund company with the sole goal of reducing expenses for investors as opposed to maximizing profits for the company.

Knowing how much is enough also means you can sacrifice spending on material possessions to focus on other areas of your life that have a far greater impact on your overall happiness.

I realize all of these stories don’t fit perfectly into your personal situation. Personal finance is personal because it’s situational. However, the general theme from these articles is a good lesson in focusing on your own situation instead of those around you.

It’s better to compare your current self to your previous self than to someone else with completely different circumstances. If you are improving, moving up the corporate ranks, saving more, whatever, you can count that as progress against your own prior situation.

Charlie Munger has some great thoughts on gaining the correct perspective:

“There’s an old saying, ‘What good is envy? It’s the one sin you can’t have any fun at.’ It’s 100% destructive. Resentment is crazy. Revenge is crazy. Envy is crazy. If you get those things out of your life early, life works a lot better.”

This is not an easy perspective to acquire. I fall prey to envy all the time, but it’s something I’m working on. Getting rid of envy and jealousy can relieve tons of useless stress and wasted energy.

Sources:
Having enough, but hungry for more (NY Times)
For the love of money (NY Times)
How to retire early – 35 years early (MarketWatch)