How rich friends make you feel poor

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money, and join the discussion on the Women in Red message board.

Trying to live as if you have more money than you do may be one of the biggest causes of financial distress in America today, and nobody wants to talk about it.

So let's talk about it.

Readers of the Women in Red column may recall that Tricia, a single mom with three kids, is getting by on just more than $30,000 a year.

Though that's admirable, Tricia conceded recently that her struggle to stay financially sane isn't just about the size of her paychecks but also about coping with the wealth of people around her.

"One of my closest friends is a millionaire, and so is my boss," says Tricia, who lives in rural Pennsylvania. "It's not even about wanting to keep up with the Joneses, because I know I can't. But it's like looking in the window of Saks Fifth Avenue every day and thinking, 'I'll never be able to afford that.' "

Tricia earns $29,000 a year and gets sporadic child-support payments. Yet part of her job is to place bids on artwork for her boss -- often for amounts that are double her income. "He owns an original Norman Rockwell," she says.

Invisible influences

So Tricia's boss bids on artwork at Sotheby's -- big deal.

The hazard of living with your nose pressed against the glass of someone else's luxurious lifestyle isn't immediately apparent, but Tricia says it is a daily struggle to keep it from skewing her financial perspective. "I find myself looking at something and saying, 'Oh, it's only $200.' Then I look at my accounts, and I have to remind myself, 'You can't afford $200!' "

The real peril, Tricia says, is when you delude yourself into thinking that you can afford the things you see others buying without a second thought.

When Tricia's wealthy best friend casually dropped $80 on a pair of shoes, Tricia found herself splurging on shoes, too. And when she took her daughter to a student event in Washington, D.C., she overspent and raided her emergency fund for $500 to cover hotel and food expenses.

• Talk back: Does being around wealthier people cause you problems?

"You use rationales like, 'Oh, this is what people do.' But the truth is I could have made different choices. It's just hard," Tricia says. "At least I didn't put any of it on my credit card."

In fact, Tricia has stayed the course since last fall and continues to pay down her debts while adding to her savings. Her net worth has grown by almost $20,000, or 36%, in less than a year and a half, thanks mainly to an increase in home equity.

Tricia's finances 

	Spring '06	Fall '06	Spring '07	Summer '07	$ change*	% change*
Credit card debt	$1,900	$4,900	$4,900	$4,300	$2,400	126.3%
Car loan	$11,569	$10,485	$ 9,110	$7,999	-$3,570	-30.9%
Retirement	$15,008	$13,530	$14,800	$20,300	$5,292	35.3%
Other savings	None	$429	$2,800	$500	$500
Home equity	$41,400	$52,219	$56,407	$57,726	$16,326	39.4%
Net worth	$54,572	$61,342	$69,171	$74,290	$19,718	36.1%

*Between spring 2006 and summer 2007

Celebrity debt

The trouble is that when most people try to live beyond their means, whether for a day, a week or a decade, plastic eventually enters the picture.

That's what happened to Sheila Adam, who works in publishing in Los Angeles.

Although she was raised by parents who lived modestly -- and who endowed her with a $20,000 nest egg after she graduated from college -- Adam quickly wasted her windfall "chasing the glamorous life."

Adam spent about eight years working in the media and entertainment industries, she says, "and all I saw were people wearing Gucci and Dior." She bought all the glitzy celebrity magazines and got herself whatever was hip, hot or haute couture.

Soon, Adam had shopped her way into $15,000 in debt.

Looking back on it now, she says: "I don't know what I was thinking. I was in some kind of haze. I was in denial that I had all these bills."

Continued: Other people's money

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