As working professionals we spend a major part of our day living the corporate life.
Even at home your smartphone and laptop allow you to continue in your corporate avatar.
Given that our jobs occupy the major part of our waking hours it is only natural that our workplace behaviour seeps into our personal lives as well.
As a result the choices we make in our personal finance lives are dictated by what we experience at our workplaces on a daily basis.
Corporate life hurts your personal finances because it negatively influences the choices you make about your money.
Corporate Life Hurts You by Rewarding Complexity
In most companies the importance of any job is directly linked to the level of complexity that particular job has.
There are many things that increase a job’s complexity such as the financial, team or geographical responsibility.
Entry level jobs are relatively easy to handle and the level of difficulty rises as you move up in the organisation.
The level of compensation and responsibility that you get also rises with this rising level of job complexity helping you to fast-track your career.
How It Hurts You
Personal finance at its core is really simple. It can be boiled down to a single sentence:
That is all there is to it – Plain and Simple.
But it is this simplicity that makes it difficult for most professionals to accept it.
Given that we are continuously aiming for more complexity in our careers, we can’t accept simplicity in our personal finance.
So we jump from one fancy investment to another looking for some secret sauce of personal finance.
The financial investment industry loves this behaviour. Choosing hard to understand investments when making personal finance choices is exactly what they would like you to do.
Complexity only benefits the sellers of these investments through high fees and commissions.
It does NOT benefit you. When it comes to personal finance, complexity is your enemy not your friend.
Corporate Life Hurts You by Using Signalling
The most obvious signal of your worth to your employer is your salary.
But your salary slip is not something you can hang around your neck and walk around. So that information stays between you and the company. You don’t get to shout about that to everyone around you!
But we have an inherent need to show to others how important or successful we are. Social recognition of success is important in our society.
Therefore companies use “signalling” to allow specific employees (or group of employees) to showcase to the world how successful they are.
The most common signalling tools used in the corporate world are:
A dedicated parking spot for your car, an office cabin, a corner office, getting to fly business class or in some extreme cases a separate cafeteria section or elevator.
All of these allow the special ones to say to the world – I am successful and important.
How It Hurts You
Unlike your corporate life, your personal finance life offers no such signalling. The only way to show people how wealthy you are is by spending some of it.
A millionaire is not someone who has a million. It is someone who can spend a million.
This desire to show the world can lead you to spend your hard earned money in creating these success signals –
A fancy car, a cool house address or an exotic holiday!
Even worse, you may end up borrowing money to spend just to convey your financial status. That in turn can be harmful to your long term financial well-being.
If signalling is really important to you, then go ahead and spend the money. But do it in a conscious manner based on what you can really afford.
Remember – your employer pays for the signalling at your job, but YOU pay for the signalling outside of your job.
Corporate Life Hurts You by Encouraging Above Average Results
A familiar ritual of corporate life is the annual performance appraisal. Most companies follow this in one form or the other.
You get graded on a scale of 1 to 5 starting from “does not meet expectation” to an “outstanding” rating.
The vast majority of employees fall in the middle of the scale at 3 i.e. “meets expectations”.
Getting a score of 3 is an OK but not a great outcome. That is because the highest salary increments, promotions and bonuses are normally given out to employees who get a 4 or a 5.
Of course you know that – And so you try your best to do whatever it takes to end up with a rating of 4 or 5.
You are aiming for the very best as your performance rating.
How It Hurts You
Unlike your job where you can control your performance to a large extent, there is very little you can do to control how your “best investment product” will perform.
When it comes to your personal finances, chasing for the best financial product may not lead to the best outcome.
The time and effort you will spend looking for the best mutual fund, insurance or credit card is simply not worth it.
Unlike your corporate life, when it comes to personal finance the difference between the average and the best is not that great.
Moreover, what is a best fund one year can easily turn into worse than average the following year.
Choosing a financial product that is good enough is really good enough.
More important than searching for best stock idea or mutual fund is to just start with something that will give you at least an average return.
Over the long term, aiming for the best may leave you worse off than someone who just picks something that is good enough and gets started.
So don’t spend too much time searching for investments that will “exceed expectations” or will turn out to be “outstanding”.
Our corporate lives impact our behaviour in other parts of our daily lives. We tend to carry over our corporate behaviours into our personal finance lives as well.
This in turn can lead to money mistakes that impact our financial wellness and are best avoided.
When it comes to your money decisions it is best to leave out some aspects of your corporate behaviour.
Aim for simplicity.
Always think about the personal cost of signalling.
Realise that meeting expectations is a great outcome.
Dushyant Choudhary is the founder of dushyantnomics, an early retirement blog for professionals. Dushyant retired early from his 9-5 corporate life after a successful international career. He brings his knowledge and experience to his current role where he’s dedicated to helping professionals achieve a fulfilling retirement.