This is a pretty good list of money fails. I’m guilty of some of these reasons (probably #4, definitely #11, 12, 46, hopefully not #3); I’m sure we’re all guilty of a few.
I’d categorize the items in this list of ways we’re bad at managing money as falling under a couple of big umbrellas.
1. We just don’t know what we’re talking about. I think I’m making an effort to improve in this area. After all, I’ve read Your Money or Your Life, several Suze Orman books, and a few other miscellaneous financial titles. Then again, I could be suffering from confirmation bias and only selecting books that confirm what I already know. So part of our ignorance comes from lack of education, and that we can resolve. But part of our ignorance is an inability to perceive the world rationally. For example, we have a hard time perceiving real long term trends, like data from more than five years ago (let alone the past hundred years), so our beliefs about the world are mostly beliefs about our current situation, not valuable long term predictions. In Thinking, Fast and Slow, this was called substitution effect. When asked about a long term trend, our mind pulls up our current data to answer the question, whether or not it is relevant. So what we don’t know screws us up when it comes to money.
2. We’re bad at managing expectations. I was going to say “keeping up with the Joneses,” but I think there is more to it than just outward appearances. I have a hard time managing expectations when I think about a future full time position. It takes me about five minutes to allocate all of the additional money I could be earning, even before I’ve applied for the job! So managing my expectations is a bigger challenge (and a big source of failure) than keeping up with the Joneses.
3. With this also come materialistic expenses. I feel pretty good about this because I think I have pretty cheap hobbies for the most part. I appreciate a long walk with a friend more than catching up over drinks. With the exception of roller derby, my hobbies (reading, running, knitting) are pretty inexpensive.
4. Patience. #39 on this list contains an important piece of financial advice out there, “‘do nothing,’ are two of the most powerful words in investing.” I’m not a naturally patient person. When I’ve decided what I want, I want it immediately. This impatience has come back to bite me when I’ve rushed into a decision that maybe I should have waited, say, 24 hours to consider. I’m working on this. The other thing is that I forget I’m playing a long game, and I think other people fail to realize this as well. Life is long, hopefully, and even at 25, I have a long road ahead of me. Wanting everything (meaning here large bank accounts, good job, house, cat) immediately is a good way to go into debt. Take it slow, take it day by day.
This was not mentioned in the article, but it’s my favorite quote, so the rest of the night belongs to Lynda Barry who said, “The secret to happiness is low overhead and no debt.”