( reading time: 7 min 5 sec )
Who would pursue an illusion? How can we spot an illusion?
When gardening, sufficient water is necessary for our food to grow. While we rely on rain for this water, planning and preparing ahead of time is wise. Similarly, having enough income to cover our expenses is essential when budgeting. If our debt increases month after month, it indicates a growing reliance on an uncertain future. We look at the things we have acquired without seeing the ever-increasing risk related to growing debt.
We will share some ways we think our budget is working when it is not. Then, we will look at the keys to getting into the driver’s seat and going where we want intentionally.
The Success Mirage
Have you heard the story of a person walking through a desert, growing increasingly thirsty in the scorching heat? They become hopeful upon spotting what appears to be a water hole ahead, thinking it will replenish their lost water. Initially, the mirage seems to be moving farther away, yet it remains visible. Eventually, they realize that it is merely an illusion.
Lower Interest Rates
With budgeting, we tend to do the same thing. Let’s say someone convinces you to use your home equity to buy all the things you want at a lower interest rate. We drain our resources, expecting these lower interest rates to leave more money in our bank than before we made the purchases.
We don’t see that it only works if we would have made the same purchases either way for the same amount. They promote things like this as free money without financial impact. We feel successful because the cost of buying stuff with home equity loans is less than that of a straight loan or standard credit card.
Next, with the illusion in our view, we make more significant purchases and more often. We are draining our home equity because, mathematically, the cost of the things we acquire is lower. We don’t realize our most expensive personal asset, our home, is what we put at risk. Our financial situation isn’t more secure because it is a home equity loan. The home is literally collateral for repayment, thus the lower interest.
To Build My Credit Score
Here are some valuable questions we should be asking about our credit scores.
- What is a higher credit score beneficial for?
- How much of a credit score do you need for what goal?
- What is the cost of a higher credit score?
- Is a credit score the only path to your goals?
If you watch television these days, you must have seen different services promising people the life they always desired by moving from no credit to an excellent credit score. The commercials are selling the benefits with no mention of the costs.
The commercials also fail to mention that things purchased today on tomorrow’s income make the residual load of expenses drain away our surplus. Financial peace doesn’t come from what we owe money for; it comes from an optimized income-to-load ratio.
It is easy to create an illusion in our minds, with or without others driving it. Debt via a loan or a credit card allows us to get today things we cannot afford yet. We believe we can afford the payments and acquire them early with creative financing.
In 2008, there was a financial crisis caused in part because lenders were lending more money than people could predictably afford. Now, there are more laws to prevent that. Why didn’t the people with a high school education know enough math to realize they were borrowing too much money?
We are humans with the same emotional challenges to our logic. Are we still giving too much of our surplus to residual debt load? Could we use that surplus to achieve tomorrow what we rush in early to accomplish with credit?
These illusions bring me to a question: Do we really want to build a credit score or more buying power sooner than we could afford otherwise?
For Stability
Have you ever heard someone say they are buying a new car because they don’t want to risk the cost of repairs on a used car? We are not saying that is always incorrect. We are also not sold that expensive vehicles with many extra options express the priority of saving money on repairs.
Likewise, we see people buying homes because there is more stability in owning than renting. The usual thing these days is to have your purchase power pre-approved. Knowing what they can afford, many people look for and buy a home at the top of their pre-approved limit.
We know there were more expensive cars and more expensive homes on the market. The more expensive options don’t express the priority of these purchases was stability.
The End of An Illusion
Knowing a bigger, fancier car, house, boat, plane, or our own spaceship would be fun is not a bad thing. Today, we have two billionaires who have spaceships. One of them has sold rides to others to go into space. I am sure it was fun for all those who took the journey, one for the low cost of 28 million dollars.
If we make our fantasies as valuable as reality, our future will be fragile. Psychologists speak about confirmation bias. When we want to believe something, we have the ability to find confirmation outside of reason. This is why the thirsty desert traveler chases the watering hole where there is no water. Thirst is a powerful motive, and wanting the water to be there makes it easier to replace reason with ‘What if?’
President Regan was known for the quote, ‘Trust but verify.’ When we verify, it doesn’t mean we think the people in commercials are snake oil salesmen. It doesn’t mean we believe credit card companies or anyone else are scam artists. It means we recognize each of us needs to beware of personal bias blindness.
Illusion Detection
When our brains ask us to verify, or when we feel that something is not right, we should act on it. The unanswered question, when ignored, will make it easier and easier to ignore in the future. Some of this will be false confirmation bias, and others will resist dealing with the internal guilt of knowing we could have done better.
If we could have done better, that means in the future, we can do better. The future is affected by our past, but we still have influence today to reduce the negative impact of the past and apply positive influence in the present.
The Three MEs
In an earlier article on our site, we discussed the three MEs. Let’s consider that approach to doing a reality check. We know the benefits and the costs of most of our decisions. We don’t see the perspective of looking at it outside here and now.
YeM (me of yesterday) has made decisions that we appreciate, and a few we would not have made the same way if ME in the present controlled our past choices. YeM could have and should have chosen some of those decisions differently.
ToM (me of tomorrow) will have similar thoughts about the decisions we make today. Some of our present choices will be appreciated, and others will be motivation for anxiety. If we push our minds forward and ask how ToM will feel about a current decision, it will lift some of the illusion that seeks to capture our focus today.
Looking at our past, not with despair but to gain understanding, can help us look more objectively at how we will feel in the future. Future ME will want us to live and enjoy life, because ToM wants good memories. What ToM does not want is for us to forget tomorrow. We will carry the load of those decisions from the perspective of today. For ToM, the profit or the weight of our choices will be a present-day source of joy or regret.
Good Counsel
When we ask what others think, we naturally want to confirm a yes or a no. Having others support our decision may help ToM to blame someone other than ME for the choices we make today. Having someone else to blame will not make ToM happy about the decision; that is the real goal we should pursue.
It is better to know that we don’t have good counsel than to use the false assurance of the good intentions of those who just don’t know. Some people may have wisdom beyond the specific decision on related considerations we may not have considered.
Don’t Rush In
The impact of our decisions is a big consideration. Little decisions can have a big impact, and sometimes, what we hope is a big decision may have far less impact than we wanted. The easiest way to miss significance and side thoughts is to rush a decision.
Car salespeople have traditionally been taught if the customer leaves the lot, the odds are they will not come back. They are trained to get you to make a decision today. This is something we all recognize and do at times when we want others to make a decision we think they might not make if they are no longer under our influence.
Give your brain time to consider and remember things it might not in a rush. When a deal is unusually good, something fake usually goes into the offer. Those online once-in-a-lifetime, never-again deals are commonly misleading.
Personal Failure
I remember buying an online course that was offered for the best price it would ever be offered for. I also wanted to support the author because the course seemed valuable to offer to others. The course differed from what was promised, and the deals they offered to others have been so close that our once-in-a-lifetime savings were insignificant.
If we only made that kind of mistake once, it would be worth the price of learning. Sadly, we make these terrible choices repeatedly before we realize that others are not the only source of misinformation. They are triggering our confirmation bias and desire to act on fear of missing out, called FOMO, to sell.
Personal Success
With the tips here, we can change our outcomes. If our outcomes are usually good, we may have these and other guides helping us make better decisions.
Success can be real or an illusion. We need to be smart about our choices, and if we are not in a rush, then we have the power to make more clear-minded choices that will not just make ToM proud. They will also make Mom proud.
