Wednesday, January 25, 2012
Money Traps: The Unexpected Inevitability of Human Error
But what does this have to do with personal finance you ask?
Each and every one of us is human. Because of this, each and every one of us is prone to error.
If you're reading this, you've probably made some money mistakes in the past. I'll even go a step further and suggest that, at the time, many of those money mistakes seemed like they were good ideas.
Some examples of bad ideas that seemed like good ideas might be:
"Sure! Sign me up for the store credit card so I can save 10% on today's purchases. I know that I'll be disciplined enough to not max it out."
"You know, I think I need a pickup truck. I mean, I have a long commute for work, but how nice would it be to haul stuff when I want to?"
"A history of 10% returns! Send me the paperwork, and I'll fill it out, Mr. Madoff!"
Just as the athletes above were trying to do the right things to help their teams, yet failed, we also, even when we think we may be making good decisions, stand to screw up colossally.
Now wait just a cotton-picking minute, you may argue! The first two examples are obviously bad decisions to even the most casual observer!
Fair enough, but what about the third? In retrospect, it seems like more people should have been suspicious of Madoff's investing, but aren't arguments about the semi-reliability of past rates of returns similar to the current rhetoric that advises investors to seek out index funds? If the stock market tanks for an extended period of time, won't investment gurus wring their hands and talk about how foolish it was for people to seek out index funds?
As a personal example, one (admittedly) minor money error that I am prone to making is subscribing to too many magazines, especially when I find cheap subscription deals online. As I pointed out in a comment over at Shopping Detox, my spending money in this way has led me to receiving way too many magazines (Backpacker, though a fine periodical, is not something that I need to spend any money subscribing to since I don't spend that much [read: any] time camping or hiking).
So what shall we say then? Shall we throw our hands in the air, take all our money out of banks and investments, and bury it in our backyards? Heaven forbid.
For guidance, let's look back to the athletes who cost their teams the games. Even though the media and fans were quick to pounce on them for their failure, both of the athletes said in interviews that, while they take responsibility for their mistakes, anybody can make mistakes when it comes to their jobs. In this case, the fault is on them, if and when there's another mistake, it could just as easily be on somebody else.
I think that response is heartening. If you've made mistakes financially, you don't need to beat yourself up about it. Everybody makes mistakes. The trick is in resolving to carry on and keep trying your best even though you know that any choice you make could result in failure.
Such is being human; such is being alive. All we can do is keep trying our best.
What do you think? Are there any mistakes you've made that seemed like good ideas at the time? Let me know in the comments.
This post is part of a running feature on money traps. You can read an earlier entry here.
Photo by Monica's Dad.