The "Rich Friend" Myth

Since I’ve started working as a financial advisor, I’ve noticed that people seem more willing to open up to me about their financial situations — which I enjoy. It’s the reason I decided to work in this profession. I hope I can be someone people feel like they can trust with their financial struggles, dreams, and questions.

Whether it’s on a scheduled call for work or just a casual financial conversation with friends, a recurring topic has stood out to me recently. At some point in these conversations, people will bring up what I call their “rich friend.” This is usually a friend, a coworker, or a family member whom they think has it all figured out. The rich friend makes a lot of money, makes smart financial decisions, and employs the best investment strategies.

Again, this comes up often — everyone seems to have that “rich friend.” This is the person who we use as a reference point for our own financial situation. It’s difficult to gauge how we’re doing financially, so we pick someone in our life who we perceive is doing well and compare our situation to theirs. We think to ourselves, if only we could be doing what our rich friend is doing.

I have a couple of thoughts on this that I want to share.

First, how do you know they’re doing well financially?

Is it because they have a big house, a nice car, go on fancy vacations, or have great Instagram pictures?

I get that we often rely on these outward appearances to measure financial success because that’s the only information we have available. But those things don’t have anything to do with building wealth.

Or maybe you’ve talked with them about their income?

Most people don’t talk about their income, and when they do surveys show about one in three admit to exaggerating how much they make when talking to their friends. But even current income doesn’t correlate to building wealth.

So, you know what they buy and you may know how much money they make. That’s it. That’s all you know about them. And neither tells you how wealthy they are.

As Morgan Housel simply puts it, wealth is what you don’t see.

We see the cars people buy, the houses they live in, and the schools they choose to send their kids to. What we don’t see is their savings, their retirement accounts, or their investment portfolios. Wealth is hidden. It’s money not spent.

The hidden nature of wealth makes it hard to find good role models. Instead, it’s ingrained in our culture to equate nice stuff with financial success. When most people say they want to be a millionaire, what they usually mean is “I’d like to spend a million dollars.” And that is literally the opposite of being a millionaire.

My second thought is that I’ve never actually met this “rich friend.”

Working as an advisor, I get the opportunity to talk with people who are objectively better off financially than most. You would assume that they’re the rich friend in their peer group. However, they certainly don’t think they’re the rich friend.

Even if they’re truly doing better than most, they still have the same worries about spending, debt, and making the right decisions as anyone else. The numbers are just bigger. They have their own rich friend whom they perceive is doing far better than they are.

I’ve yet to talk to someone who thinks they have it all figured out and who isn’t stressed about some aspect of their financial situation. This leads me to believe that this “rich friend” doesn’t actually exist.

The point here is you can’t measure someone’s financial success from the outside.

The only way to win the social comparison game is to not play. Which, I admit, is easier said than done. Building wealth isn’t a competition, it’s a personal journey. The secret is knowing how much is enough for you, even if it may seem like less than those around you.

Thanks for reading!