1. Is social media preventing you from getting wealthy?

Is social media preventing you from getting wealthy?

The aggregation of appreciating assets, in essence, is the key to getting wealthy.

By: | Published: August 12, 2016 1:37 PM
Social media Is social media and peer pressure making you spend beyond your means? Stop, and consider the loss of value that your reckless spending can cause. (Photo: Reuters)

Life is full of ups and downs. But life on social media, it seems, is largely about the ups.

Our timelines are run over by people trying to sculpt their online identities through a series of carefully chosen messages – messages that often reveal their upward mobility.

There’s great emphasis on sharing certain kinds of experiences: fine-dining, expensive holidays, parties, the purchase of a desired object – or anything that reveals them to be having a good time. Why do so many of us behave this way?

In an article on PsychologyToday.com, Pamela Rutledge points to people’s need for social validation, and the fear of missing out on the positive experiences of others.

Writing about people who should avoid or social media or restrict their usage of it, Rutledge says: “People who have problems with social media—whether it’s severe FOMO (fear of missing out), negative social comparison, need for validation or overuse—will have similar issues in other aspects of their life. Rather than avoid social media, it is more effective to identify behavioral problems and learn skills to address and manage them, such as goal setting, self-regulation, and self-control.”

Psychological studies have connected some self-centred social media behavior to narcissism, the production of oxytocin, and the primal need to bond and seek societal acceptance. But those topics are beyond the scope of this article, which is about personal finance.

So, coming to my point, it can be argued that carving a widely acceptable social media identity does not come cheap. And trying to seek that acceptance coupled with a lack of financial restraint could lead to terrible spending habits.

Let’s take a modern example: upgrading your cellphone. Most phone makers upgrade their models every year, adding new features that make us want to upgrade our handsets periodically. And when all your friends start upgrading, you feel the pressure to upgrade yourself. But smartphones don’t come cheap. A good one would set you back by around Rs. 30,000.

Consider the financial implications of such upgrades. A cellphone is a depreciating asset, meaning the older it gets, the more value it loses. Even a fully functional, well-preserved handset would fetch only a fraction of its cost in resale.

Now evaluate the cumulative loss of value from all your other lifestyle choices: fine dining for the sake of a great Instagram post, gadgets because they win you the approval of peers, luxury holidays because it suggests that you are financially strong, or even your car because what else is a better status symbol? What all these options are is money down the drain, never to come back. Little by little, these sunk costs accumulate into millions of rupees over the years.

Now, consider the flipside. What if you had taken the same Rs. 30,000 to make an investment where appreciation is certain? You could have bought gold, bonds, equity, savings certificates, bonds, or mutual funds. If you had purchased a market-linked investment in the last three years, you would have seen considerable appreciation in value due to the upswing in Indian markets. Those Rs 30,000 could have likely become Rs. 50,000, allowing you to not only to fulfill your desire of upgrading your cellphone but also leave you with plenty of cash to spare.

And now evaluate the cumulative effect of using all your spare money to purchase only appreciating assets and cutting down on spending that brings no return on investment. The aggregation of appreciating assets, in essence, is the key to getting wealthy. This way, you could finance the purchase of a house, plan an early retirement, and still save up enough to live out all your heart’s desires.

So—coming back to the premise of this piece—is social media and peer pressure making you spend beyond your means? Stop, and consider the loss of value that your reckless spending can cause. We labour so we may be able to enjoy our income. But limitless enjoyment and sparing no thought to our future fund requirements are recipes for financial disaster.

Spend, but within your means, and only because you need to; not because it gets you more Facebook likes.

The author is CEO of BankBazaar.com

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