5 Financial Lies People Tell Themselves

Accepting reality is a great habit for each of us to embrace.  The more we can see things for how they really are in life, the more likely we will be to succeed.

Being a typically optimistic person, I’ve usually woken up each day with the natural tendency to think about how it has the potential to be a really great day.  Not all the time, as there are some days you just know are going to be ones that you just have to get though.  But most days, yes.  That said, I’ve been taking a look at my own views on some things and lining them up with reality, and have been finding that blunt realism has its value and place at the table.  How I optimistically assume and hope things are doesn’t always match up with the pure, unvarnished, and sometimes brutal reality of things.

It’s not just me. I’d say this applies to all of us – and I mean each and every one of us.  We each have our own biases and perspectives that probably make it impossible to be 100% objective about everything.  Sure, maybe most things – but not all things.  This includes the way we approach health, relationships, and – yes, this too – money.

With respect to money, there is great value to being optimistic and reaching for the stars, so to speak.  If you expect to be exactly middle class, you won’t be wealthy.  If you expect to be wealthy, you have a chance to get there but you still might be middle class.  Having expectations and aligning behavior accordingly, is better than giving up before you start.

Back to that reality thing – it can only help if we balance optimism with reality.  Sometimes, our best moves can be made by avoiding the big mistakes.  Of course, recognition of such landmines requires that we be honest with ourselves and not tell ourselves financial lies.

Here are 5 financial lies we tell ourselves, and how they can impact us.

Financial Lie #1: Someday My Ship Will Sail In

No, it won’t.  There will be nobody to rescue us from anything financial.  Across the horizon, we won’t see a ship full of heroes that sail into the harbor of our lives, bestowing money upon us to bail us out of things or make us financially secure.  There is no “Prince Charming” to rescue us.  Be your own Prince Charming, whether you’re male or female!

I think that the illusion that someone will be there to take care of us is present with a lot of people.  It’s easy to just assume that things will work out, or that somebody or some “system” will help us when in need.  I’d say to that: just look at people that are homeless or begging.  Who’s taking care of them? Why would anyone take care of you or me, and who would that person or entity be?

This can also apply to aspirational thinking.  As if, someday we will just magically be rich.  Things generally don’t just happen to us magically.  Optimism without a realistic plan has marginal value.

This reminds me of a guy I knew a long time ago – as in 2 decades ago (yeah I’m getting older…realism, right?).  He expected to become a U.S. Senator someday, and seemed confident that he would be successful in that arena.  You just had to take one look at the guy and know that this would never happen (one could say the same thing about me…again realism).  If you talked with him for 5 minutes, it would cement your view that this would never happen.

Yet, he spoke with conviction that he saw himself doing this someday, as if he would be “discovered” as an up and coming political talent.  Clearly, he hadn’t thought it through well enough and had delusions of greatness.  Today, the guy is a regular middle class guy doing nothing out of the ordinary at all.  The ship never sailed in.

I think a better approach is to have dreams and try to achieve them, but be realistic about what you need to do to get there, and what your strengths and weaknesses are at the moment.  Don’t count on miracles happening without having a plan to make them happen, and be the captain of your own ship.

Financial Lie #2:  I’m Certain I Can Beat the Market

Why would anybody be sure that they could beat market returns?  Stats have shown that when looking at actively managed funds vs. index funds, in the majority of cases the latter perform better  This tells us that many professionals who specialize in this work can’t be counted on the beat the market averages.

So, if they can’t do it, why would you or I be highly confident that we could generate returns that outperform the market?  Is it that others are dumb, or perhaps not motivated enough? Or, is it that maybe we succeeded in one or two years and therefore think that we can always do it?

Now, I’m sure there are some people who can beat the market and do so.  There are plenty of very successful investors out there, and I do think much can be gained by examining historical trends and investing opportunistically.  However, counting on incredible returns to fuel future retirement dreams is delusional for most of us.

A better approach might be to consider near-historical averages as expected returns, and then strive to beat them by a little bit without blindly expecting it.

Financial Lie #3: I’ll Be Able to Work Into Old Age

No, most of us won’t be working when old.  If you’ve been visiting here for a while, you’ve probably noticed that I’ve expressed this view multiple times.

The idea that many of will probably need to work into old age is nothing to be embarrassed by, as it probably applies to most people at this point in time.  Not all, but most.  However, the disconnect is the opportunity to work when older might not be there for many people.  Sadly, being unemployable when older (ageism) is one issue, and a bigger one might be health.

With respect to that latter, there is so much rationalization out there that it’s insane!  Sentiment along the lines of:

  • I keep myself healthy, so I’m sure I’ll be fine in the future
  • My uncle (or aunt, father, etc.) worked until he was 85, so I see no reason why I can’t do the same
  • Most people in my family haven’t had any major health issues when older, so I have genes on my side
  • I’m sure I’ll figure something out, I’ve always been resourceful

Those are expressions of belief that don’t factor in the reality that if you look around you at people in old age, many simply can’t work demanding jobs much less any jobs.  Just look – how many have health issues, or simply seem too tired mentally and physically to work?  Not to mention the ageism issue alluded to earlier.

Bottom line: that nobody can count on being able to work when older, and should plan as if it won’t be on option.  If we take care of ourselves and get some good luck, maybe it will end up being feasible and then it’s a bonus.

Financial Lie #4: Education is Overrated

First off, I would absolutely say that undergraduate programs are generally not a universal slam dunk in terms of financial ROI.  The costs have really escalated, and there are many programs that are simply not comparable investments to others that are much less expensive.  So, I would say choose wisely rather than don’t choose at all!

Beyond that, I’ve heard and read a bunch of things that sound like wishful thinking.  For example:

  • All that matters is what you can prove on the job, not a piece of paper like a degree
  • Nobody has time to go to graduate school
  • You can learn anything you need to know by searching online

There is some validity to each in many cases, but ultimately they’re also excuses.  Sure, what we actually do on the job matters a lot, but some doors just won’t open without the right credentials.  Yes, graduate school can be a daunting commitment of time and money, but some people seem to make it work and even go full time.  Of course we can learn so much by doing quick online searches, but that doesn’t always substitute for structured academic programs.

I know that education is pricey, and can leave people in big trouble with massive student loans.  That can lead many to ask if it’s worth the trouble.  My opinion is that education and wealth are correlated, and the former is more necessary than ever.  However, not all schools are created equal in terms of return on money spent.  The pricey private school just might be a much worse investment than its public school counterpart.

Financial Lie #5: It Makes Perfect Sense to Prioritize Buying a “Dream House”

A home, especially one that seems really cool to us, can be very enticing.  After all, we spend a large portion of our time in the place where we live.  Plus, in our society, where one lives seems to have some impact on status and perceived social ranking for some people.

Most people I know would probably really like to have a truly amazing home, myself included.  However, where I draw the line is when we start deviating too far from the wants vs. needs paradigm.  In terms of personal finance needs, it makes sense to spend on shelter for ourselves and family.  We need to live in a place that’s safe, has decent schools, etc.  But we don’t need to sacrifice other needs to go overboard on our home.

It’s the going overboard part that I think some people rationalize.  The concept of “dream home” is one that just seems funny sometimes.  Since when it is the unalienable right of each of us to live in the home of our dreams?  Isn’t it more important that we are able to retire someday, pay for health care, and raise our kids – while living in a home that meets our needs?

It really seems like many people buy a home based on what they can afford instead of based on how much they should spend.  My line of thinking is that it’s not understandable that anyone would choose to work an extra 5 years for retirement, or neglect to help their kids, just for a home that has more bells and whistles than another home.  It seems like a lie that people tell themselves, when deciding that it’s totally sensible and understandable to stretch financially and go into deep debt to buy a dream house.

My Questions for You

What do you think about these 5 financial lies that I think people tell themselves?  I’m curious where you might agree or disagree, and why.

Do you have any others to share?

Comments

  1. says

    I agree with all of them except education. Education is up to the individual to make it valuable. Education just prepares you or gives you the tools for success, it is still up to the individual.

    • Squirrelers says

      krantcents – true, you have a point. I would add that if two people are equally motivated and bright, but one has a higher level of education than the other, the former will have more doors open and would get the edge.

  2. says

    I agree with all of these – especially #2 & #3. Like you said, there are many successful investors out there, but for the mass public it simply is delusional to think that they can beat the market. I have seen way too many to try and only fail miserably as a result.

  3. says

    That’s a good list. I see #2 quite a lot and it’s generally from younger people who’ve never experienced a bad market and a significant loss. I don’t hear #3 as much but it is a topic I think about with my parents aging. We can hope for the best and take care of ourselves as best we can, but we just don’t know when our bodies will give out.

    • Squirrelers says

      Sydney – thanks. I know, we can hope for the best and really make a conscious decision to look out for our health. Given that we don’t know if that will be enough, I think it’s almost best to plan as if we won’t be able to. Better safe than sorry and stressed later!

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