Let’s talk about our dumb money moves. Ways in which you blew part of your money or all of your money then later looked at yourself and you for sure felt dumb.
How have you dug yourself in a deep financial hole in the past? As you think about yours, lemme tell you about my dumbest money moves.
Back in 2018 when I was in debt and living paycheck to paycheck, I took a $200 loan from a friend. And used $75 to buy a designer backpack.
Lemme help you understand how dumb this move was.
Before receiving the loan, I had called the shop to place an order for the bag. The receptionist informed me that the bag was sold out and they had discontinued making that type of backpack. Instead of taking this as my cue to stop the purchase or stop shopping for stuff I couldn’t afford altogether, I went ahead to ask if they could make one just for me. Yes, even in debt, I had standards!
I had the pleasure of choosing the colour I wanted and other specs of the backpack. I placed my order and the lady said she’d get back to me about it after she talked to the factory manager. Yeah, I was willing to wait. And yes, that was also another window given to rethink my decision.
I needed that bag. I mean, I had convinced myself that it was a need. Not a want. I was going to do whatever it takes. At this point, I think I could have paid extra if that’s what it’d take.
A day later I was informed that the factory manager had agreed to make ‘just 1 more for me.’ Madam boss! By then I had received the money so I made the payment. I sat pretty and waited for my bag to be custom-made.
I still own that bag. It’s one of the quality possessions that will serve me for several years. It was a long-term quality buy, but the fact remains that when I bought it, I couldn’t afford it. And I bought it because I saw a friend with a similar bag.
Did I mention I had obsessed about owning the bag for months, almost a year, by following the company’s Instagram page? I’d check it almost on a daily. Signaling goods!
People who live far below their means enjoy a freedom that people busy upgrading their lifestyles cannot fathom. — Naval
Another dumb money move
In my previous job, I was in charge of the petty cash. One time I was sure that my boss gave me $100. I remember that it was a Friday. I needed to buy office supplies that would cost $20.
On Monday when I arrived at work, she asked me for $100 to fuel the company car. I was stunned. I told her I only had $80 left.
‘But I gave you $200 on Friday…’
I was sure she was hallucinating.
I was confident that she had given me $100, but she’d actually given me $200.
Imagine the panic I experienced when she said she clearly remembers that it was $200.
Luckily, it was end month. I used my salary to cover the $100 that I couldn’t account for.
I had not stolen the petty cash, but I had spent that money, and I couldn’t remember how.
This is the danger of not being in control of your money. The danger of living a budget-free life.
I often think about these two scenarios and wonder ‘what the fuck was wrong with me?’ Especially because it took me 6 months to repay my friend’s loan. She’s a patient friend, who didn’t know about my financial woes.
The beautiful thing about this life, it that it often gives us second chances. And numerous learning opportunities.
This week, I learned something new. It’s one of those things that I always knew existed, and have experienced through my two stories above, but didn’t know that it has a name.
Lifestyle hyperinflation. As Ben Le Fort from Making of a Millionaire describes it, lifestyle hyperinflation is the process of increasing your standard of living without increasing your income.
This is different from lifestyle inflation which most of us are familiar with. Lifestyle inflation is when your cost of living increases as your income increases. You know, the way people move to a bigger apartment, buy a bigger car, upgrade their furniture and electronics as soon as they receive a raise or the end year bonus.
I was familiar with lifestyle inflation, which I’m very cautious about, but learning about lifestyle hyperinflation hit differently. As I read Ben’s article, which is a highly recommended read, I couldn’t help but think ‘that used to be me!’ He was literally talking about my dumb money moves.
He goes ahead to point out that the root cause of both lifestyle inflation and lifestyle hyperinflation is the tendency to compare ourselves to other people. As I mentioned in my first dumb money move story, I bought the backpack because I had seen a friend of mine with a similar one. This is also the point where I tell you that he makes waaaaaay more money than I did. And I still went ahead and blindly put myself in more debt as I tried to keep up with him.
The sad reality is that we all have a natural tendency to compare ourselves to other people. A paper written by Ada Ferrer-i-Carbonellin published in the Journal of Public Economics found that people’s happiness and sense of self-worth are equally impacted by two factors.
How much money they make.
How much money the people around them make. — Ben Le Fort
How do you prevent yourself from getting trapped by lifestyle hyperinflation?
1. You need to have a strong ‘why.’
Ben writes that the best way to win this war is getting a psychological solution because it’s a psychological problem. Constantly feeling like you need to own the next shiny thing is an inescapable trap.
Why is having healthy financial habits important to you? Why do you want to get wealthy?
I have 2:
- I have been poor before. I do not want to taste poverty 2.0
- I want to always be 100% financially responsible for myself.
If you have a strong enough why, and you constantly remind yourself why it matters, it’ll be harder to get trapped. It’s even more powerful when you write it down in your journal.
You can use your why as the label for your budget spreadsheet.
A lot of times, we are angry at other people for not doing what we should have done for ourselves. — responsibility
-The sun and her flowers, Rupi Kaur
2. Learn to postpone gratification.
One of the dangers of lifestyle hyperinflation is that it leads to debt. You have to borrow (cc me with my bag!) to keep up. And the worst part about debt? It begets more debt.
Learn to postpone gratification by knowing the bigger picture of your life. This is a common characteristic among successful people.
Another way is being contented with what you have at the moment as you work hard towards achieving your dreams. It’s hard to manipulate a contented person, which makes it hard to get trapped.
You either suffer the pain of discipline or the pain of regret. Pick a side. — Jim Rohn
3. Educate yourself ruthlessly
We were deliberately not taught money management skills in school. An most of us didn’t learn the skills at home either which is the root cause of your financial struggles.
The only solution is for you to educate yourself so that you can do better for yourself and your lineage.
Here is a list of my best personal finance books.
4. Audit your finances regularly
I shared a guide on how to do this on a monthly basis here.
5. Automate your savings
My current read, Nudge by Richard H. Thaler & Cass R. Sunstein has given me an even deeper understanding of why automating savings is important. Here’s an excerpt from the book;
“One of the causes of status quo bias is a lack of attention. Many people adopt what we call ‘yeah, whatever’ heuristic. A good illustration is the carryover effect in television viewing. Networks executives spend a lot of time working on scheduling because they know that a viewer who starts the evening on NBC tends to stay there. Since remote controls have been pervasive in this country for decades, the actual ‘switching’ costs in this context are literally one thumb press. But when one show ends and the next comes on, a surprisingly high number of viewers (implicitly) say, ‘yeah, whatever’ and keep watching. This also happens in automatic magazine subscriptions.
Those who are in charge of circulation know that when renewal is automatic, and when people have to make a call to cancel, the likelihood of renewal is much higher than it is when people have to indicate that they actually want to continue to receive the magazine.
The combination of loss aversion with mindless choosing implies that if an option is designated as ‘default,’ it will attract a larger market share. Default options thus act as powerful nudges.”
Think of how cluttered your email is with ads from different companies that are trying to sell stuff to you. How long have you been postponing unsubscribing?
Set saving as a default action. As soon as you get paid.
With time, I have forgiven myself for most of my dumb money moves. You should too. Aspire to do better and be better. Adopt a growth mindset. As Maya Angelou said, ‘do the best you can until you know better. When you know better, do better.’
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