Planning Along with the Joneses:

How Understanding Our Peers Can Help Us Make Better Financial Decisions

Making decisions on our own can be exhausting. There’s even a term — decision fatigue — to describe how we can get worn down by even the smallest choices as they’re stacked on top of each other.

When it comes to big decisions, like what home to buy or which retirement account to fund, we especially want to know that our choices will be good ones. And because making those decisions independently can be exhausting and difficult, we often look to others as a benchmark to know we’re doing the right thing.

Sometimes looking to others leads us to follow the crowd, but in other situations, it gives us a necessary perspective.

In today’s post, I’m going to look at how understanding what’s important to other people, experiencing similar situations as yourself, can help you make better financial decisions.

Who We Look to When Making Decisions

Many of us tend to engage with friends, co-workers, and family when we need decisions support.

If you’ve just started a new job, you may turn to the person in the cubicle next to you to ask which 401(k) or benefits package they chose.

It’s also common to ask parents for advice. Depending on your relationship, you might turn to your father or mother when you’re considering what insurance policy to purchase. It’s likely they’ve been there before, and they can offer advice from experience.

We are social creatures, and not many of us enjoy going out on a limb and feeling alone. At the heart of it all, we’re looking for social validation of our choices when we engage in these types of conversations with people close to us.

Financial Planning with a Group Mentality

There’s a common joke among financial advisors that the best stock tips are overheard at dinner parties. Why? Because everyone loves to talk about what worked for them, but they’re much more hesitant to talk about their failures.

But what works for one person may not work for another. When you’re organizing your financial life, you don’t need to necessarily know the assets that someone else who is in a similar stage of life purchased; it’s more important that you understand the topics that are important to them.

The lesson here is that we need to see the true transparency behind what situations others are going through to understand why a financial works or doesn’t work.

As an example, someone approaching their retirement years would benefit from seeing what their peers are doing with long-term care planning, retirement income distribution, and how to make their money last for their entire retirement. The process of legacy planning is a priority for this group — not how many shares of Berkshire someone else owns.

It’s no different for a millennial starting their financial journey. They will be most helped by considering what other types of investments others in their community are making, like if they contribute to a Roth IRA or an HSA. Which will provide more tax advantages?

You can extend this line of thought to business owners. As a business owner myself, I know it’s helpful to talk with other entrepreneurs about what they’re doing as one way that I can get a better perspective on my own company. For a business owner, it may be helpful to see how other businesses structure their executive teams, what compensation plans they offer, and what benefits look like.

While information is only the first step, gaining that knowledge is critical in making better short and long-term decisions.

Assisting Decision-Making with Asset-Map

There are times when a client will walk into their financial advisor’s office and ask “What are other people like me doing?”

Traditionally, conversations like that may have been difficult to manage. While an advisor might have been able to reference other clients in a similar life stage in the abstract, they may not have had the research at their fingertips to offer a broader look.

By using Asset-Map, advisors and their clients can use Stencils to help make these more productive and lead to more informed financial decision-making.

Stencils add an additional layer of knowledge to a client’s financial plan by showing what others in a similar demographic and financial capacity are doing with their investments, insurance policies, and other critical financial instruments.

The idea is that if you know the types of financial topics that resonate with your peers, you will be better prepared to consider if they should apply to you and enhance your own financial plan.

Reviewing an Asset-Map Stencil can help clients feel more informed when they need to decide which accounts may be most beneficial for their current financial standing.

If you’d like to review a sample Stencil, click here to download one right now to see what the financial organization of peers of baby boomers or millennials looks like.