Financial Denial – Are You There?

financial denial

Find Out If You Are In Financial Denial.

If you can’t understand why you don’t have money left over after you pay your bills, you could be in financial denial. “NO!” you say,”I know where I stand with money and I don’t kid myself.”

That may be true, but if you aren’t able to save money each month and if you are living with financial pressure month in and month out, read on and find out what financial denial is and be sure you aren’t there.

financial denial

What is financial denial?

…In short, financial denial is living beyond your means. It’s living in a way that your finances can’t sustain. Most of us don’t even realize it’s happening, either. One of the biggest contributors to financial denial is the concept of keeping up with the Joneses. Or as I like to call it, keeping up with the Wantlings.

We see other people of similar social status to us living in giant homes and driving brand new cars. Yet they can’t possibly make any more than we do. These people are what I call ‘fake rich’. They’re in financial denial. Yet for some reason we mimic their lifestyles.

In doing this, you may be able to stay afloat for now…

…But eventually your whole financial world is going to come crumbling down. You may also be working for a long time to compensate for that lifestyle. Early retirement isn’t even a thought.

Factors contributing to financial denial

These subliminal, societal pressures have created new societal norms. Or what we think should be norms. This means, for example, that paying a monthly fee to own the latest iPhone and have 10 gigs of data to go with it is normal. It means leasing a brand new car every 2-3 years is normal. It means making your first home a new-build in a brand new development normal.

Does that seem normal to you?

It’s not. It shouldn’t be, at least. One of the biggest factors contributing to financial denial is the concept of monthly payments. If you can afford the monthly payment, you must be able to afford that item, right? Wrong. When I bought my car last year, the sales rep kept pitching the “monthly payment” to me. It was his main selling point…

…Same goes for debt. Many of us don’t seem to look at the big picture of our debt. Meaning, how much we owe in total. So your total mortgage balance might be $250,000, but your payment is only $900. Do we even stop to think that we have $250,000 in debt?

This applies to any kind of debt. Student loans, car loans, credit card debt, etc. Are you looking at the overall balances and really thinking about the debt you have? Or are you just focusing on affording the monthly payments?

And what about the iPhone? Apple charges about $34 per month to “own” the latest iPhone. You can “upgrade” to the newest one each year if:

you’ve paid half the phone off, and
you continue to pay the monthly fee

This is a goldmine for Apple, and a terrible deal for you as the consumer. It’s putting you in financial denial. The cost of a new iPhone now is $750. That’s right, $750. What if Apple said “nope, sorry, no monthly payments this time. You have to pay for the iPhone in cash.”

Would you still spend that kind of money on a phone? I know I wouldn’t.

Then there’s car leasing. This is the biggest sucker for people in financial denial. You get a new car every year for just a couple hundred bucks a month. I’ll tell you what – if it sounds too good to be true, it is. And leasing is too good to be true. Not only is the effective interest rate insanely high, but when you turn the car in, you may get hit with more fees and you’ll likely continue your lease payments by leasing yet another new car.
– via Money Mozart

Some Common Areas of Financial Denial

Here are two common areas of financial denial and some advice on ways to avoid them. The more you understand the ways people get pulled into bad financial decisions, the easier it is to stay away from them.

No matter what your financial picture today, you can learn ways to turn it around. It can be done. Many have done it before you. You don’t ever have to wander into these two areas of financial denial.

You need to be real with yourself. In what areas of your life are you in denial? Here are some common denials that can utterly ruin you financially.

“I Need to Buy a Brand-New Car”

Uh, no. You don’t need to buy a brand new car.

You might say, “Well, I need reliable transportation!” Listen, reliable transportation does not equal a brand-new car. Let me let you in on a little secret: there are plenty of reliable used cars for sale.

I once had a client call me telling me he needed to cash out his IRA to buy a brand new truck. I wasn’t enthusiastic, to say the least. He then said he could gamble at a casino, win the money back, and put that back into his IRA.

The likelihood of this actually working? Close to zero.

We all know how brand-new cars lose such a huge chunk of their value once their new owners drive them off the lot. So why not buy a used car, even if it’s just a little used, and save a whole lot of money?

I actually bought a 2007 Tahoe in 2008 that was previously owned by the dealer. It had 12,000 miles on it and I saved $14,000 off the sticker price just because it was used for a little bit. And guess what? Even though it’s used it’s still a reliable car!

The last thing you want is an expensive car payment because you decided to buy new instead of used. That car payment will eat away at your ability to save and invest that money – and you can imagine how much money you could have made investing it instead of spending it.

Don’t be in denial. You really shouldn’t buy that brand new car.

“I Don’t Need an Emergency Fund”

If you’re living paycheck to paycheck, by definition you cannot pay for emergencies. Now, you can certainly borrow for emergencies – but that’s a situation you want to avoid if at all possible.

Don’t be in denial. If you don’t have an emergency fund (most financial advisers recommend three to eight months of expenses), you need to start building one up as soon as possible.

How do you build up cash when you’re living paycheck to paycheck? Slowly, over time.

You do that by starting a budget and sticking to it. Pay attention to where you’re spending your money and cut back recurring expenses like cable television and expensive smartphone bills. Do what you can to save money and throw it into your emergency fund.

Remember, the first step to avoiding financial ruin is to admit you have a problem. Once you do that, you can start opening your mind to some steps to change your situation for the better. Do it! Many people have before you, will you join them? – via Credit.com

Do you have a good understanding of all of your finances? Do you have an emergency fund?

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