Fooling Ourselves

I was scrolling through the SiriusXM radio dial while driving recently and found a song I hadn’t heard in at least 20 years.   Styx – Fooling Yourself  was playing as I was weaving in and out of traffic, trying to get home in time to meet my girlfriend at a reasonable time for sushi.  It seemed like the more I changed lanes and zoomed past a line of cars, I’d get behind a super slow car and the line of cars passed me by. 

One of the cars had an interesting paint job so it was (even to Captain Oblivious here) noticeable each time I passed him or he passed me.  He was staying in one lane and I was looking for the open hole, zipping through it and then looking for the next open hole.  After about 45 minutes, I ended up at a traffic light with the interestingly painted car next to me.  I could do nothing but laugh.  I was trying hard to beat the time on my GPS and put ground in between my car and the interesting one and at the end of the drive, we were next to each other at a traffic light.  I spent 45 minutes fooling myself, thinking that I had made progress.  This video article talks about the myth of lane changing being superior to staying in one lane.  The conclusion – while it can be helpful, it usually isn’t helpful in any meaningful way.

The whole concept of “fooling yourself” has significance or relevance in our personal financial lives too.  I’ve used that term with a few people who are doing the financial equivalent of changing lanes in hopes of making financial progress.  The reality is that they really aren’t doing things that are meaningful and there is a lot of time and effort spent on activities that don’t have much bang for the buck when considering a long time horizon.  Here are a few examples of things that I’ve seen recently in coaching sessions and the recommendations that were made to help those individuals make more progress.

  • The 0% balance transfer game.  People do this A LOT.  They transfer credit card balances to a 0% card in order to keep interest costs low.  That’s a good thing, but you can fool yourself into thinking you’re making progress because there is activity happening. Better than the illusion of progress, what can be done is to actually make real progress. Aggressively pay down the balances to $0 rather than play the transfer game. Just because you aren’t paying interest on the debt doesn’t mean that it isn’t a bad idea to keep that debt. Pay it off!
  • Constantly refinancing the mortgage.  I have met with people who have done 3 or 4 refi’s of their mortgage.  And….15 years after buying a house, still have 29 ½ years left on their mortgage. Sure, saving $100-200/month is a good idea sometimes, but if it adds 5 years on to your payments, maybe it isn’t such a great idea.  Instead of refinancing, how about adding extra principal to each mortgage payment and get the mortgage completely paid off prior to retirement. If there is no mortgage at retirement, your 401k & Social Security can stretch a whole lot further than with a mortgage to pay.
  • Buying at a discount. I have seen friends and neighbors come back from Costco or Sam’s club with gigantic cases of stuff that they got a great deal on.  Months later, I see half the case being thrown away.  How good are those bulk deals if you are not fully utilizing the products you buy? Sure you can save 30-40%, but you could save 100% if you don’t buy something you really don’t need.  I have had far too many conversations in my personal life that started with “Guess how much I saved when I bought this?”  The answer was never “100%!” This applies to the $25 or $50 off X coupons that retailers send out, as well as Groupon/Living Social/etc.   That “great bargain” may not be such a great bargain if you really didn’t need or want it or have room in your budget for whatever is purchased.
  • Actively trading investments. I see people making a lot of trades, shifting in and out of assets, and chasing returns, and when all of the activity is digested and analyzed, the returns are very rarely in excess of what could have been earned with a very low cost, low activity, low stress indexing strategy.  Rarely can an individual outperform the market consistently.   Does it happen?  Sure.  But how often?  Not very.

There are so many more things that we do that could be considered fooling ourselves.  I have a friend (yeah…I’ll say this is a “friend”) who sets his clocks a few minutes ahead of the real time because I’m (I mean my friend is) usually running a couple minutes late and needs a cushion in order to be punctual.  I know people who tinker with their bathroom scales to create the illusion of progress. It might be easier to simply face the truth (talking to myself, um, my friend with the clocks) and make actual progress rather than continue on the path of the grand illusion.  If you have any examples of this, feel free to use the comments section below.

 

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