Surrounding yourself with rich friends is a well-known strategy for making more money.
By spending time with rich friends, the theory goes, you will automatically:
- See having lots of money as normal
- Get over negative money beliefs
- Think positively about growing your finances
- Try harder to improve your lot
- Copy what your rich friends do to get richer
In my 20s, I read through books about making money the way others of my generation popped certain feel-good pills.
And most of those books urged their readers to abandon friends who had a ‘poverty mindset’.
Instead, you should look to have rich friends going places.
It’s true that maverick self-made millionaires such as Richard Branson, Duncan Bannatyne, and Theo Paphitis don’t seem to need peers as role models.
What’s more, the modern networked economy has made it easier than ever for unsociable techno-nerds to make serious money. Just think of all the crypto-millionaires who mined made-up money in their basements.
But for most of us, moving in wealthier circles will raise our expectations – and potentially our bank balances.
Even Warren Buffett’s best friends include fellow billionaires Charlie Munger and Bill Gates.
A rich vein of study
There’s plenty of scientific research to back up this folksy-sounding advice.
To give a recent example, in a major study published in 2022 a team led by Harvard economist Raj Chetty studied the social networks of more than 70 million Facebook users to see if they could correlate their social capital with their financial wealth.
As Business Insider reports, out of three ways of measuring social capital:
…the only one actually linked to upward economic mobility is friendships with people from a higher socioeconomic status.
In fact, if lower-income kids grew up in areas that have the same economic connectedness as higher-income kids’ neighborhoods, their future earnings increase by an average of 20%.
According to Hugh Lauder of the University of Bath, Chetty’s research is a call to ensure schools are well-mixed in terms of socioeconomic background – albeit that’s difficult given how some parts of the country are far richer than others.
The alternative – an educational system where a lot of rich kids are segregated into their own schools – is bad for social mobility. (And for our politics).
One kink I noticed from the New Scientist reporting is that the Harvard team estimated income levels via the proxy data of each Facebook user’s mobile phone model.
More than 15 years as a personal finance blogger makes me wonder – were some of those apparently upwardly-mobile friends of richer people just flashing a fancy handset to keep up appearances?
Presumably the academics eliminated the risk of such social striving from affecting their results.
Big fish, small pond
There’s just one snag with the strategy of having richer friends, especially in childhood.
I’ll illustrate it via a slightly stylized story about an ex-girlfriend.
My ex – let’s call her Catherine – is a talented violin player. From the age of seven, she showed great promise with the instrument. By her early teens she was established as the best bow in town.
Catherine enjoyed being the lead violinist in her school orchestra. But she knew she could push her talent further than her school could take her. Most of her friends might as well as have been banging on saucepans for all they could inspire her.
Catherine’s teacher agreed she was being held back. He arranged for her to go to weekend classes in London at a fairly prestigious music school.
At last she’d be among musicians of her own caliber!
To cut a long story short, they were indeed better than her – and she didn’t like it one bit. No longer was Catherine the biggest fish in a small pond. In fact, by her own estimation she was the worst musician at the new school.
Catherine continued to attend the classes, because she was too ashamed to retreat to her old school colleagues. But she admits that her heart wasn’t in it. When she went to university, she didn’t even bother to join the music society.
Could Catherine have tried harder? Perhaps. Many people respond to competition, but some are too timid. A shy person, Catherine wilted in the light of others.
Yet the fact is she can play beautifully compared to 99% of people who ever pick up a violin.
Rich friends when you need them
If Catherine had never gone to the elite music classes, she’d probably have had a happier childhood. She might still be playing her violin today.
Similarly, you will make more money if you meet rich friends, but you’ll likely feel miserable.
As Financial Accountant magazine reported:
Researchers from Warwick Business School in the UK found that people who earned more than others in their “reference group” – that is, those of the same age, gender, religion or nationality – were more likely to feel happy with their lives.
Warwick professor of behavioural sciences Nick Powdthavee said that people actually care “very little” about the actual figure they earn, but they are concerned with how their income compares to those around them.
“For example, their sense of wellbeing is more likely to be influenced by whether they are fifth or 40th highest-paid person in their workplace, rather than their precise salary,” he explained.
So do you want to be rich or would you rather be happy?
Perhaps the best solution is to decide who your real friends are – as distinct from who is in your wealth creation circle.
Spend quality time with your true friends for a pick-me-up, and hang out with your rich friends when you see your income sliding!
Contrived? Maybe. It’s not easy being rich.
Interesting thought. From a challenge perspective, I agree. To become better at anything you need to learn from those better than you. Hanging with a ‘millionaire next door’ is going to be an ongoing learning experience. But, if you find yourself in the company of a jet-setter, you may fall into a ‘keeping up with jonese’ mentality. I’m sure that’s not what you were referring to.
Rich friends, not acquaintances make me feel good, not miserable. There’s a difference here. If you feel good you are surround by poor people, then you/one has a complex or low self esteem, and vice versa.
I don’t think I purposefully surround myself with rich or poor people. It’s just what happens.
The beauty of sports is that we focus on the gifts of the player, not of their backgrounds. Everybody should play some sports!
Sam
Hi guys – I trimmed my original post (I’m sensing readers can only read so many 1,000 word articles in week! 😉 ) but originally I cited scientific evidence that you’re made unhappier when your friends/peers are richer than you. Obviously everyone is unique, so maybe that’s not you Sam, but it’s pretty much a fact for the population as a whole. It’s all to do with deep and primitive ways in which we establish our ranking in the ‘tribe’.
Thanks for stopping by!
It is not easy to design or construct your social structures in this manner as these are two way relationships. These only work if your outlook and aspirations match the networks you are trying to be part of. But then, you already know what you want and are actively working to attain your goals, so the battle is already half won.
Is this the same scientist ex? She sure was talented….
Instead of the rich/poor comparison (since those levels can vary considerably) its about surrounding yourself with like-minded friends.
Quick example – they could think its necessary to purchase a big home. If that doesn’t ring with your own beliefs, you won’t be happy either way whether they’re rich or poor.
Based on the beginning of the article, this is not where I thought you’d end up. This is way better than what I thought you were saying. I pick my friends based on three important criteria:
1. Do I make them laugh?
2. Do they make me laugh?
3. Are we laughing at each other or with each other?
The demographics of a friend never come into play and I don’t speak cash that much….. but I am not rich either so who knows.
Anwyay I never contrive a friendship :).
Surely hanging out with rich friends would just make you spend all your hard earned cash keeping up with them!
@Forest – It’s pretty much impossible to keep spending like truly rich friends. It’s just odd to hang about with someone your own age of a similar background who earned £1 million last year. It’s more the psychological impact of that which makes hanging around with rich people bad for your morale even if it makes you want to try harder to keep up with them. Everything thinks they’re immune to this sort of thing (I certainly like to think so!) but most of us aren’t.
Thanks for your comments everyone, I’ll follow this up with a new post soon putting a bit more flesh on the ‘peer comparison’ issue.
Errr what? I have a rich friend and I dont think it is “normal” nor does it make me feel miserable. It makes me feel really lucky that I am friends with this person, and, I like her for who she is. I could care less about the fact that she is rich.
The benefits depend very much on what type of rich people you are spending time with. I grew up with a lot of wealthy families and they may be in the know when it comes to investment opportunities, but in my experience they don’t have anything to offer if you are trying to make money from scratch. You have probably heard of families going from rags to rags in 3 generations (I’ve heard it called the “Rags to Rags” rule and the “3 generation rule” but I don’t know if there is an official term for it). The first generation works it’s ass off to make money, the second generation maintains the money but doesn’t add to it and the third generation squanders the money and ends up poor again. Well when you reach a certain amount of money it becomes very hard for that third generation to waste ALL the families money. The kids I went to school with are in their late 20s and early 30s, have never worked a day in their lives and despite the sports cars and international trips they can’t spend the money faster than the investment firms (their hard working grandparents hired) can make it. They don’t have any advice on how to make, save or invest money themselves, though I’m sure their investment managers would have some advice for a price.
Some rich people are down to earth and ready to carry you along while the other category are filled with pride and xenophobic thereby seeing any move you make in getting close as a big threat.
I have a lot of rich friends because of my education.But now I realise I must drop them for my own sanity.They patronise me terribly, and don’t really have a clue about how it feels to be poor..
Who needs it?
Interesting.
Not quite sure how you qualify ‘rich’. Assuming inherited money isn’t included, my thoughts sort of align with your violinist in as much as when I have mixed in such circles ( always through my wife’s contacts), it wasn’t a case of their bank balances it was more that I sensed a difference between me and them in terms of ambition, aspiration and determination.
They wanted more than me and tried harder. However unlike the violinist I had nothing to chuck in, nor did I have a teacher willing to help me on to the same path as them.
Usually they had a helping hand to start with, eg a family firm and an upbringing immersed in commercial activities. The parallel being the gift of musical talent.
The successful ones weren’t prone to self-doubt shall we say.
In other terms, I support @Forest and I have seen that happen, people who have to keep up the mess bills to stay in the circle. When they can’t do it anymore they drop out and are surprised they are not missed. An extreme example would be ‘Lucky’ Lucan I suppose.
Interesting article. I must admit from my own perspective I disagree a little. Are some of my friends richer than me? Probably. Are some poorer? Yes, certainly. I don’t know nor want to know. It doesn’t really impact things, more if we get on, make each other laugh, respect and support each other and enjoy shared interests and company. I’m lucky in many ways to have a fairly small circle of very close friends, mostly from school or uni, who we all known for a long time. Do they know if I’m ‘rich’ (and by global metrics I am – very)? No. I have no idea where I am in comparison and don’t want to know.
I’d rather be friends – and think i am generally – with someone humble and modest, than flashy and ‘rich’ – of course, some who appear rich almost likely isn’t, they just spend more for appearances. But it’s not really a consideration of friendship.
During my university days I was always around rich kids (business scions, heirs to family money, etc) and quickly learned to survive through a mask of indifference and a little put upon condescenscion (fawning admiration gets you nothing with that crowd). I learned that they were all human and had their own problems and failings. I think the comparison problem is real and one should never choose their friends by their wealth or social standing. Real friends find common interests and passions that go beyond money.
Another phenomenon is that, if you surround yourself with wealthier people, they might make you feel bad or immoral for hunting the money.
I come from a modest immigrant background. I had to consciously strategise and work for pretty much any achievement above minimum wage (not whining about it). If I am trying to talk about such matters with my middle class friends, let’s say investments, how to get a mortgage, how to negotiate a pay rise, I often feel being mildly shamed for “hustling”, which seems to be a bad thing in these circles. Sometimes it’s a relief to talk with someone less wealthy about such things: they probably can’t give practical advice, but at least they understand why I am doing it.
So my experience is that as you get richer, so you know more (even richer) people, and this makes you strive for more, etc.
Whether this makes you happy or not I don’t know; as you get richer you can do things that you enjoy, but it starts getting more and more expensive – I’ve just had to spend 7 figures on some stables for my wife (it’s a business, she tells me), and they’re lovely but not _that_ much better than, well, a 50k box.
I used to race cars a lot before kids came along, and went from spending probably 10k a year on it to over 600k – in the process “upgrading” the circle of people I raced with to the sort who were spending well into 7 figures and thought nothing of it. You then realise that what they’re doing to make the money isn’t wildly clever (in most cases) and that you can too – so off you go.
Clearly I’m well into the 0.1% – but the vast bulk of people I’m friends with are too, so I don’t feel especially rich as a result, and thus everything is “normal”. Maybe if everyone I knew was doing OK but not spectacularly, it would make me feel like da man, but that’s not how life works.
They say that the least happy people are those who are looking after the super rich – lawyers, bankers and so on, who are earning big money by any reasonable standards, but who thus associate with people with $50m planes they could never afford, so they feel hard done by.
First world problems, as they say.
The Gore Vidal quote springs to mind, ‘whenever a friend succeeds, a little something in me dies’. I can bear rich friends, but not successful ones..
Conventional success is horrendously lacking in art. I can’t abide it, thankfully I’ve never had to experience it..
I recently read on some financial blog that Envy is the prime human driving force -coming before Greed
(Survival and Reproduction are 1&2 of course !)
If this is the case then associating with richer people than you is the way to go especially if more and more loot is your aim
Happiness of course is another story
xxd09
Some of the most useful conversations that I have had are from richer/more successful people.
They can help you break through your own glass ceilings in your career or put you on the right track with your investments.
However, we live in a world where social media is most (young) people’s reference point and it probably is rotten for your self confidence.
Even in the FIRE brigade, it’s hard to not feel envious of strangers who write about earning multiple times your and emergency funds more than your net worth.
Then again, I’m middle aged,.middle class and middle of the road with friends like that.
It is funny though that I can put a rank on our friends (sad but true) and I reckon that we are top – does that make me happy (yes, truthfully) but does it mean that I should upgrade my friends (no!?!)
I live a modest but comfortable life (FI, paid off house, no car etc) and have rich and poor friends – and frankly, it’s the social climbing middle classes which are the worst for your mental health. They are always striving for something which is just out of reach and have a scarcity mentality.
The phenomenon of your violinist ex is a common one. Apparently, academically talented people from modest backgrounds tend to do less well at top universities – and better at less well known ones.
I always like the quote “happiness is earning $100 dollars more than your wife’s sister’s husband”.
There’s also good evidence that getting a good degree from a Russell group Uni is better for your than struggling at oxbridge…. Big fish little pond…..
B
Interesting thought. I certainly don’t think like this and I suspect most ‘millionaires next door’ may be similar. Also there is possibly a distinction between the self made rich and the rich by inheritance types. The latter are lavish spenders rather than income generators.
There’s rich and there’s merely richer. To be a certain age and have missed the property boom is to be out of step with everyone around you in personal and public life. Everyone I socialize with, recreate with and work with, including everyone I manage at work from young juniors to seniors is markedly better off, and it’s just a facet of life to be understood and placed in the background, not obsessed over. There’s nothing new to be learned from it.
And to state the obvious, it is relative. Someone living hand to mouth, providing for others, worrying about being evicted would no doubt envy my ability to pay rent with ease, even for a finite time.
Well, you could make friends with a rich person then marry them. That would likely prove the postulate
I don’t think you can’t have both. Why not have rich friends and be happy. Be richer and still be happy. There’s the right mindset and balance for all things and all people – this I truly believe.
“For example, their sense of wellbeing is more likely to be influenced by whether they are fifth or 40th highest-paid person in their workplace, rather than their precise salary,” he explained.
Unfortunately we can’t escape our primate genetics. We want to be higher status than the people around us, and that’s the reason we chase wealth/power/esteem. Very little progress since we left the trees.
Not that we’ve ever discussed our salaries, but I’d say all my friends earn more than I do and I’m fine with that – their lives aren’t so different from mine, I enjoy their company and they enjoy mine.
A turning point in my life however was meeting my one rich friend (she turned down an entry in Who’s Who as she didn’t want her neighbours to know how old she was!).
A self-made multi-millionaire who grew up in foster homes, became a single mother of two but who built up her own successful business and retired in her early 50s.
She gave me valuable career and financial guidance and I attribute my positive outlook on life to her.