Do you want to be in debt? Of course not! What a silly question. No one does. So, why do so many people continue to drown in debt?
You know the answer, so let’s all say it together…
Their Expenses > Their Income
It’s simple and irrefutable math. However, sometimes the problem’s more psychological than mathematical.
My crash course in financial psychology 101 occurred when I worked in the collection department of a community bank a few years ago. In fact, I learned more about how the mind works and what holds us back during that job than I ever did in college (and I minored in Psychology). I guess I had never really considered the role our psyche plays in our pocketbook until then. Now that my eyes have been opened, I see the same stories play out everywhere…all the time.
Our mind can be a powerful tool to either help us overcome incredible obstacles or disable us from passing even the smallest hurdles. Here are 3 of the brain blocks that hurt our chances of finding financial freedom.
1. The “I Deserve It” Mentality
We all want nice things, but the key to financial responsibility is balancing what we want with what we can afford. However, sometimes the “I deserve it” mentality sneaks in and sabotages our efforts. This has become more and more prevalent in recent years as society continues to inform us all of the things that we’re missing out on. Advertisers consistently shout, “go ahead, you’re worth it.” We are made to believe that we MUST have a certain type of smart phone, drive a specific vehicle, or eat at a certain restaurant to be perceived as successful in this world. After awhile, we believe it. We believe that we deserve a $80,000 wedding, a $60,000 vehicle, and a $600,000 house because the nice people on TV say so. And, if you can’t believe Charlie Sheen, who can you believe?
I couldn’t tell you the number of people with very healthy incomes who I had to call month after month while working in collections. Most of them were struggling due to this mindset. I’ve talked to everyone from teachers with too many toys to doctors with $200,000 in credit card debt. One time I called a family to find out when they would be able to make their mortgage payment (consistently over 60 days late for 5 or 6 years), only to find out that they were on vacation in Cancun…again! When asked about it, they explained that just because they were behind on their mortgage doesn’t mean they don’t deserve a vacation like the rest of us.
Have you ever heard of camping?!
Take your expectations down a bit. Ambition is great, but contentment is better. Center your ambitions around helping others, creating something beautiful, providing for your family, or being a better spouse instead of owning this or that.
Not sure how to put it in perspective? Visit the non-tourist areas of Haiti, India, or just about anywhere in Africa. I went to the Dominican Republic to help build a school in college, and the things I saw struck me to the core and changed my viewpoint forever. It’ll cost you some money for the trip, but think of it as an investment, because it will redefine what you deserve. You’ll see people who have less than nothing by our standards and are often still able to put our smiles to shame.
80% of the people in Haiti live in poverty and, yet, there are 18 countries in the world that are poorer than Haiti! Did you know that every 3 seconds, someone in the world dies of starvation? Visiting a country where this is a struggle each and every day really makes those statistics real.
2. The “Live For The Moment” Mentality
This is the mindset that I struggled with in my early 20’s. I call it “Financial Willy-nillyness.” It’s common at that age. Don’t get me wrong – I think embracing each moment and not taking anything for granted is a splendid idea. That’s not the problem. I’m not talking about spontaneity. It’s financial spontaneity that’s the worry here.
At that age, I didn’t balance my checkbook, let alone create a budget or worry about my credit card balances. Why? Because I had no interest in worrying about the future. I hardly looked past next weekend, so I certainly wasn’t concerned about creating an emergency fund, savings account, or 401K. I assumed that I had enough money in my checking account, and for the most part I was correct, but my assumptions didn’t leave any room for leftovers. I used every penny and more.
Therefore, I wasn’t able to pay down my current debt, and I ended up racking up even more debt because each new emergency created a reason to use my credit cards. I was deep into the paycheck-to-paycheck lifestyle.
People choose to live this way because it’s easy. And living for the moment is more fun, right? But, it’s only fun for awhile. After that, it tends to be pretty miserable actually, as all of the perks that you used to enjoy are no longer a possibility. Living for the moment is short-lived. I ended up with around $40,000 in non-mortgage debt by my mid to late 20’s.
I’m 32 now and it’s all gone. Much of my recent success can be attributed to a willingness to budget, save, and track my expenses. A willingness to plan. I take great joy in planning ahead these days because I’ve seen the results. The irony is that my salary then and now has changed very little, which clearly demonstrates that there was extra income there all along.
Ask yourself these questions. How long will the “fun” be able to last? Wouldn’t new and exciting opportunities arise if you were able to get out of debt and have some disposable income?
Also, realize that much of the live-for-the-moment financial strategy is simply laziness disguised as spontaneity. Try making a budget and tracking your expenses for a couple months and see what happens. You’ll find that it’s painless and keeps you from being ignorant about your finances.
3. The “Woe Is Me” Mentality
I heard a lot of very sad stories while working in collections. Medical emergencies and lost jobs are two of the most common. It’s heartbreaking to hear what people have to go through. The goal of the next couple paragraphs is not to make light of their situations. The goal is to provide insight into why some people struggle for years and years after tragedy strikes.
Everyone on earth will end up neck deep in their share of truly difficult circumstances at some point in their life. It’s inevitable. During these times our finances often end up in shambles. If you haven’t been able to save enough, a lost job will most likely cause you to pile up debt. Even if you have planned ahead, a long layoff may very well wipe out your savings account. This is obviously a trying time for everyone. The key is how you respond after the storm is long gone.
The “woe is me” mentality is about those people that let past difficulties linger. I’ll give you an example. We have a customer who used to construct new homes. Once upon a time, he did very well for himself. He had nice income, a nice home, and plenty of disposable income. But, that was 7 or 8 years ago when the economy was flourishing and homes were being built left and right. He’s been on our collection lists every month since that time.
Recently I spoke to him about a plan going forward (one of the many times we’ve spoke over the years), and nearly every other statement referenced the good old days – how much he used to make, how cheap gas used to be, and on and on. The point of the meeting was to discuss the future. We were looking to help him in any way we could, but he couldn’t get past 2005. His mind was unable or unwilling to consider any of the alternatives and options that could help him. Unwilling to do anything but hope for a recovery, there’s a good chance his story will end with foreclosure.
I feel bad for him as I do for so many people who are struggling, but “woe is me” won’t help. Don’t let your mind get stuck in reverse. Instead of constantly reliving the past, make a plan to adapt to the future.
Make a new goal. Make it a reasonable and realistic goal, and focus your energy and creativity on making it happen. Keep your mind on the next step and look forward to the future. It has the chance to be bright.
The Bottom Line
Here’s the bottom line. We know what we need to do to get out of debt and live a more fulfilling life. We have no shortage of financial knowledge and resources at our finger tips. There’s only one thing standing in our way – our brain. Don’t let it play tricks on you.
Brain Image: FreeDigitalPhotos.net