Wishful Thinking
Posted by John Draper | Filed under Credit Wise
I’m a big believer in optimism. One of my mantras is:
Plan like a pessimist so you can live like an optimist.
But being optimistic and being delusional are very different things. Making financial decisions based on what you hope will happen isn’t Optimism. It’s Wishful Thinking.
Did you buy a home with zero down? Did you transfer your debt to your home by refinancing and then keep your credit cards active? Did you take advantage of a buy-now-pay-later and then let it expire? Then YOU fall into the category of Wishful Thinker.
People who believe that were we are now is where we’re going to stay — that the crazy times would continue indefinitely and huge home value gains would eventually take care of whatever problems they created for themselves by using credit — are Wishful Thinkers. If they had taken the time to consider that what we were experiencing with the rising home values wasn’t “normal”, they might not have been suckered into believing they could have it all at once.
Investing is another world in which Wishful Thinking does us no good. Chasing hot performers is how Wishful Thinkers end up losing lots of money.
Did you know that people are actually hardwired to over-react to recent events? This works if you’re a forager. If you’re looking for food the best place to look is where an animal was yesterday. But the economy is a different kettle of fish and no matter how often you hear that the markets are rationale, they are not.
Despite dire warnings not to do so, we continue to use our forager brains to consider what will happen next in the economy. No matter how much the experts talk about market cycles, investors cling to the idea, ill formed, that wherever we are today in the markets, that’s where we’ll stay. So if we’re in a rising market, the market will continue to soar, and as we have experience most recently, a downturn in the cycle can make people run screaming for the exits.
Wishful Thinkers also think that bad things can’t happen to good people. But they can. And they do. From divorce to illness, from job loss to creditors calling loans, there’s a lot of room for disaster. Even the little things like increases in gas costs, food costs, interest costs, can add up to a big fall, especially when your pay cheque hasn’t grown much. So if rising costs are pushing you further into debt because now you’re using your credit cards or lines of credit to buy food, just know that you got there because of your Wishful Thinking. Had you set aside some money for an emergency, instead of always believing There Will Be More Money, you would have found it a lot easier to deal with life’s curveballs.
Perhaps the Wishful Thinking I am most impatient with comes from the people who believe it’s okay to spend money they haven’t yet earned. People, if you can’t afford it today, it’s just going to be worse tomorrow when you add on the interest. Buying anything on credit when you know you won’t be able to pay the bill in full at the end of the month means you think that you will be able to afford to pay the bill later. More Wishful Thinking.
November 14, 2008 at 10:14 am
i am fighting hard not to be a wishful thinker. fighting it.
November 14, 2008 at 10:47 am
I love this mantra-this is what I tell my husband all the time!! He calls me a pessimist, but I really just want to be prepared for the worst-in my work I’ve seen too many “wishful thinkers” who are totally stymied emotionally, physically, and financially by an illness or injury.
November 14, 2008 at 1:35 pm
That’s a great mantra. I think I’ll be using it.
November 16, 2008 at 4:12 pm
I know SO many people that are wishful thinkers… I hate to think what happens when those payments come due. They say that they will certainly get a raise (or the kids will be out of diapers therefore cheaper)…. all sorts of excuses why thy can justify their mindsets.
I’m with you, I’d rather be optimistic, but PREPARED!
Of course, the passionate and emotional responses to something you really want to own can lead to a hopeful desire to buy these things and just “find a way” to pay later. I think we can all be guilty of that at least once… it’s the chronic wishful thinking that leads to spending so much more than you can make, and then if that is compounded with unexpected misfortune — OMG that is a terrible trap!!!
November 17, 2008 at 12:28 pm
“Fail to plan. Plan to fail.” is the catchphrase in our house. Although some of our decisions (like returning to school) cause short term belt-tightening and leave us with unfufilled wish lists! The long-term benefits will far outweigh any sacrifices made now, the benefits are two-fold, I am fulfilling a life-long dream with my spouse’s support and we will hopefully be in a far better earning situation in a few years.
The important thing is to take advice from Gail and plan for your life, don’t let your life run you.
November 18, 2008 at 2:29 am
I’ve pretty well lived my whole life like that. I’ve always thought carefully before taking on debt and worked hard to get rid of it as fast as possible. One of my strategies has been to keep making car payments into a separate savings account after my current car was paid for, allowing me to either have a large down payment or pay cash for my next car.
Planning like a pessimist is the main reason I was able to retire this spring at age 55. As long as you spend less than you make, you can make a lot of other mistakes without causing yourself a big problem.