Money and the Art of Self-Deception

“The first principle is that you must not fool yourself and you are the easiest person to fool” – Richard Feynman

Of Course I’m Honest With Myself

“What do you mean, be honest with myself? I know everything about myself!” – That may very well be your first reaction to that quotation.  The reality is, we are often times our worst enemies. As human beings, our minds have a lot of defense mechanisms in place to help guard against internal conflicts. Self deception has many forms.

Even though you have had a lifetime to learn and are the world’s greatest expert on yourself, the problem is as individuals we are sometimes a terrible judge of our own habits, especially when it comes to money.

You may have a very inflated view of your knowledge of how money works, or may have some deeply ingrained bias that work against you when you constantly justify a certain pattern of spending. That is not a criticism – it is human nature!   Social scientists have identified many of the ingrained biases we must deal with on a daily basis.

Money is a Very Emotional Subject

That makes sense because as I have discussed previously, money is a very emotional topic for people. You may have heard not to talk about sex, food, politics, or religion with other people, but I think it is safe to include money in that list. Even among married couples and family, money can be a very controversial subject.

Look at how many people basically ignore their finances since they prefer an “out of sight, out of mind” mentality that keeps them from facing some harsh realities. This is especially true when it comes to investing. I have had many interesting discussions with clients on their views regarding various investment vehicles.

You may know people that have no problem going to Las Vegas and blowing hundreds at the casino fully expecting to win, only to come home empty handed. Meanwhile, mention the stock market and they avoid it like the plague because they are afraid to lose even a dime! Money makes us do some really crazy things.

The thing to focus on here is to be completely honest in assessing your spending habits and patterns. If you are not currently tracking your expenses, be sure to start doing it in some way. There are many ways to do it that are effective. Whether you use an app, a spreadsheet, or a notebook doesn’t really matter. It does not take perfection – it takes persistence.

The Art of Self Deception

When I first started tracking my finances, sometimes I would have a thought to not record a certain expense – maybe it was for some golf equipment I did not really need but wanted, a night out on the town with buddies where one drink turned into buying for the entire group, or blowing 20 bucks on lunch when I only wanted to spend $5.

I knew exactly what I had bought and exactly what the amount was, and yet here I was trying to “cover up” the expense with some self-deception. None of those things were “bad” or “evil” in and of themselves. It’s just that I was not being completely honest with assessing my decisions and my behavior.

Once I built the habit of recording everything, I was able to get a much better view into what I was thinking at the time and why I did what I did. Then I could look back and say for example “Well, I had really great intentions of being generous with my friends and buying dinner and drinks for everyone – unfortunately I did it with money I did not have that month.”

Presenting the Evidence

Another reason tracking your expenses helps is because the evidence is right there in front of you to help either support or blow your argument out of the water. For instance, you may say, “I do not spend that much eating out every month”, when the numbers clearly show that you do. My wife and I were shocked to discover how much we actually were spending on food each month. The numbers simply did not lie.

Many people face this when considering a home purchase. I have had discussions with clients that start with “I know I can afford to buy that house since it’s not unreasonable for the area”, when in fact it is not appropriate for their current financial situation. Emotion can be a sound guide or a cruel master. It is important to keep that voice in the back of your mind in check. A fast emotionally driven decision regarding a huge purchase can create a burden in a hurry.

Win the Battle Within

Our minds are amazing, but self-deception comes along in many forms to help guard us from conflicts. Being honest with yourself regarding money can be tough, but it is worth the effort. Start by taking notice of your reactions to financial topics. Instead of judging right away, be an observer. Make sure you are tracking your expenses and learn how to monitor your net worth. It may not always be fun, but the benefits can last a lifetime.

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