Money Musings 💭 When our money behavior makes no sense 🤔
When I became a money coach over 10 years ago there were no other money coaches. People were very confused by what I was.
You’re not a financial advisor or financial planner? 🤔 Are you a life coach? Is it super woo woo or do you help me dive into the numbers?
People weren’t sure what to do with me.
The reason it was important to me to be a money coach was because personal finance is very much about our emotions and behaviors.
At the time and still to this day, so much of the financial education and advice assumes we make completely rational decisions around money. Hell, economics still makes those assumptions!
That’s bananas. 🍌🍌🍌
When we don’t account for the ways in which we may make irrational decisions around money, personal finance education is incomplete.
Here are some of the biases that may come up for you (and me) around money:
Loss aversion. We as investors hate losing money so much that we might sell an investment that’s down (even though we had planned on investing in it for the long-term) in order to prevent more loss. This is one of the dangers of human behavior in a down market.
Present bias. We tend to value the present more than the future. That’s why we may spend more money than we want for gratification now in the present rather than set money aside for retirement in the future.
Bandwagon bias. The tendency to join the bandwagon (or do what others are doing) rather than choose what makes sense for our own financial situation or values.
Tendency to avoid. Thinking / believing that if we don’t face something, it won’t be as painful. This can keep us from looking at our bills, making a plan to pay down our debt and other important financial well-being actions!
Relate to any of these? Me too! So what do we do?!
Knowing that we can be influenced by bias is half the battle. Look out for it. Give yourself time to make decisions. Talk to a trusted money buddy or financial professional.
If you’ve made a mistake in the past, try to learn from it rather than avoid it. How can you prevent making a similar mistake in the future?
This list of biases is by no means exhaustive. Have you noticed yourself acting in irrational ways around money? Hit reply and let me know!
MONEY MOVE OF THE WEEK
LET GO OF DEBT SHAME.
Debt and shame often go hand in hand. Sometimes we feel so much shame, we can’t even look at our debt or it can even make us physically ill.
But what is debt, really? Debt is just money you owe for something you bought. I’ll say it again.
Debt is just money you owe for something you bought.
That’s all it is. It doesn’t mean anything is wrong with you. It’s not bad. You’re not bad.
Here's how to let go of the shame.
1. What is your debt? Maybe it started with your expenses while you were going through school, or because your income didn’t cover your expenses during a certain period of your life. Maybe it’s mostly from one specific purchase.
2. Remember how much we have working against us in the first place when it comes to personal finance. It’s no wonder if we’re not thriving. Let’s give ourselves a break.
This week’s money move? Write yourself a quick love note, specifically about your debt.
YOU GOTTA SEE THIS
WATCH OUT FOR HIDDEN FEES.
A personal story: I went out to dinner last summer with my family and extended family - it was a group of around 15 people. When we got the bill, there was a credit card surcharge (that was not mentioned on the menu or anywhere until the bill came) calculated as a percentage of the total cost.
We were a large party who had drinks, apps, dinner and dessert so the charge was substantial - over $100. We asked the waiter about it and they said it was a new thing and information about it hadn't yet been added to the menu.
We asked them to remove the charge. They went and talked to the manager and they ended up refusing to remove the charge. I had seen credit card charges for small items but never as a percentage on large bills in restaurants.
Have you seen fees pop up on your bills lately?
I've personally seen credit card surcharges, health insurance fees, a COVID surcharge and even miscellaneous charges (with no explanation).
Here's what to do about them:
Read your bill (and check your statements). Being aware of the fees and what they are is a great first step. I also recommend checking your statements. You might recognize the restaurant on your bill but was there an extra accidental charge? This has happened to me a few times. I've also recently had my phone company say they were going to remove an erroneous charge and never did. I always check!
Budget for the additional cost. Businesses are adding in the extra fees in lieu of raising prices so either way, the cost to you, the consumer is going up. With inflation where it is and has been, the cost of many (if not most) items have gone up. We want to update our budgets accordingly.
Question the fees. If you feel the fee is unreasonable (like my percentage credit card surcharge) or you aren't okay with it, you can ask questions and request to have it removed. You may be able to find out about fees in advance via reviews but they are usually a surprise the first time. If you aren't happy with the fees, you can (if possible) choose not to go back. We definitely didn't return to the restaurant that charged us over $100 for using a credit card!
If you want to learn more, in a recent article, Farnoosh Torabi talks about where these fees come from and what to do about them (with some help from yours truly).