Financial planning - the influence of people around you.

Another major factor which restrains people from planning their finances is the influence of people around them. The influence people around you have over is very big. The people around you can be defined as your colleagues at work, classmates, associations members, your neighbors, friends, and fellow club members, among others. People who belong to the same group in any situation always look at others as role models or copy something from them. These role models influence how they dress, speak, and also influence their spending behavior. For example, women generally desire clothes they see other women wearing. Let me use my wife as an example here.

My wife and I have family friends just like many other couples do. However, we have one family friend that is closer to us than the others. After sometime, I noticed that my wife always wants to buy the same clothes her closest friend has whenever we go shopping. This is because her friend used to describe how the clothes fit her and the amount she paid for them. In order to show her that she can also afford them; my wife started buying the same clothes. At a stage, I was upset and I started complaining about this unnecessary competition. What annoys me most, though, was that there may be cheaper and more beautiful clothes for her to buy, but she wants exactly the types her friend is using. Generally, other items, such as, shoes, handbags, and jewelry are bought together with clothes in order to match. This can sum up to a big amount of money over time and can be an obstacle to financial planning, especially, if the apparels are expensive. This behavior is very common of women in every social class. I used apparels to give example here, but there are other situations where the same phenomenon occurs.      

Another example I observed carefully was the case of colleagues working in the same organization. It is unbelievable how this influence derived from implicit competition works. The workmates in the Organization I observed, especially the peers, drive cars whose costs are within the same range of values. For example, if one buys Toyota Corolla car of $35,000, others will try to buy cars in the same price range. Other cars in the same price range are Honda Accord or CRV, GM Cruze, Volkswagen, Ford Focus, among others. 

Another area of influence I noticed was the similarity among the neighborhoods in which these co-workers live. About 80% of the workers in this Organization live in wealthy neighborhoods. Although receiving the same salary, their family backgrounds are different.

Some come from poor families, others, from low-income families, and the rest from middle-class families. However, they drive brand new cars and pay expensive house rents. Looking at them from the outside, one will conclude that everything is alright with them. But, breaking down their expenses will reveal that they are struggling. Although having the same salary, they are involved in a competition which makes some of them spend more than they should as a result of differences in their background. Consequently, their financial planning is prejudiced. Let me use figures to illustrate my point. 

These workers I am using as an example receive the same monthly salary of $10,000 each. This salary may not be so high for workers in the developed countries, but certainly it is a lot for those living in the developing countries. From the monthly gross salary of $10,000, 30% go as tax, 10% as social security contribution, another 5% is set aside for pension plan contribution, leaving a net monthly salary or take home pay of $5,500 for the worker. From the net amount, the worker pays school fees of $2,500 for a child, pays condominium fee of $700 and mortgage of $1,000 monthly. He pays a monthly car leasing fee of $500, and $300 for a training course. What remains for him after these financial obligations is just $500. However, he has to buy groceries for the family, pay for his personal expenses, electricity bill, gasoline expenses, car insurance and maintenance fees, telephone bill, cable television subscription fee, newspaper subscription fee, gadgets for the family and for the only child he has. If his wife does not work, he cannot be able to buy groceries. Here is now the question. How can someone on such good salary not afford to have a good financial planning?

One of the reasons is the influence of the colleagues which made him or her live in an expensive neighborhood and bought an expensive car too. If not because of the influence of colleagues, he would have lived in a cheaper neighborhood where he would have bought a duplex which has no condominium fee. This would have also made him to send his child to a cheaper school and buy a used car instead of leasing a brand new car. On the whole, he could have saved condominium fee, mortgage payment, and $1,000 from tuition fee for his child. This would leave him a surplus of about $3,000 every month. This surplus will go into financial planning.       

So, try as much as possible to reduce these influences. On the contrary, your financial difficulty will continue irrespective of your income. Think about this!