Mind Over Money

The more I dive into personal finances, the more I realize that it doesn’t have much to do with numbers, graphs, cash flow or even percentages. In fact, the more I study and read about it the more I’m learning that personal finances has more to do with the human psychological reaction to money than the numbers themselves. Everybody that can add and subtract will tell you that if you had $100, you should either spend $100 or less than that. If you are aiming to save for something, then spending less than $100 would be the solution. But despite the knowledge and understanding of mathematics, the majority of Americans today spend more than they earn and continue to do so at an alarming rate. Why? Rational thinking is somehow skewed when money is involved and we have extreme psychological reactions to the idea of money.

The most wildly prominent personal finance expert, Dave Ramsey is proof of that. I’ve been studying Dave Ramsey for the past year and by and large, I agree with much of what he has to say. Where I tend to disagree are his reasons behind saving money (building wealth) and I believe he over exaggerates his numbers (12% return on investment in the market every year is high by most standards). I have nothing against wealth, but Dave Ramsey pushes that you could be a multimillionaire by the time you retire – a bit too much for my tastes. But his biggest critics will overwhelmingly point out that the most successful technique that he teaches, the Debt Snowball, is not the best way to get out of debt. Their argument points to the fact that paying off your highest interest debt first will prove to the more financially prudent choice and save you the most money in the end whereas the Debt Snowball method pushes you to pay off your debts from smallest to biggest, regardless of your interest rate.

What’s funny about these “critics” is that hardly any of them have two best selling books, a national syndicated radio show or even somebody who knows their name. Even though the Debt Snowball will cost you some extra dollars to get out of debt, it has been proven time and time again that, in the end, people are out of debt period. The reason for its success lies in the fact that it plays on the human emotion. When you see that annoying little gas card paid off, something changes inside of you. Psychologically, you now believe you can get yourself over this mountain of debt and never return to it ever again because you got a small win on your side. It’s the same reason why coaches camp out on “small victories” or on any positives that they can. They understand that the psyche of the team will determine the success and failure for the season ahead. Humans, as shocking as it may seem, are not rational beings.

I got into credit card debt back in college because I was not rational. I spent some time today thinking through my behavior and emotions as I began charging everything to my Visa despite knowing full well that I had no way of paying for it when my bill came. Why did I spend so much? Because I felt powerful and successful being able to pull out a Platinum Card and buy anything my heart desired. (Who on earth gives a college student with no job a platinum card anyway?) As I think back, I now realize that I was put in a very difficult situation to begin with. First, I had very little financial literacy and knowledge. Second, I surrounded myself with fairly affluent buddies. Third, I watched a lot of TV. The third one is in the discussion because it acted as my outlet to the “world”. I was heavily exposed to advertising and to products that they spun from a “want” to a “need” which I could not resist.

For the longest time I didn’t think advertising worked on me, and that was as foolish as me saying that I can save myself from my sins (sans the blasphemy). Then, I thought back to the time when TJ and I were just newly married and had moved into our little apartment in Austin and I realized our year there was the time when I had the least desire for material possessions. We had no TV, so I wasn’t exposed to any advertising. Any TV I did watch, was at a buddy’s house on DVR, so we’d just skip through commercials. My web browser (Firefox) is set to where all ads are blocked. I haven’t seen an ad on the internet for so long that I forgot how annoying those pop up ads used to be. I’ve never even seen an ad on Facebook, ever. And everyone tells me they are everywhere!

You can argue that we had very little money at that time so we couldn’t spend anything; however, I had very little money when I was in college but I still spent anyway. Recently TJ has been into the couponing game. Every Sunday she picks up a copy of the paper and proceeds to search for the good coupons that we can use and discards the rest. I’ve been picking through the ads, seeing if there are any good deals on items that we could need. And guess what? My desire to purchase who knows what, increased! Now, I have my eye on netbooks, TVs and gadgets for the house. All of that is ridiculous seeing I have  perfectly good laptop, a good TV and I never really need gadgets anyway. I asked TJ tonight to make sure I stop looking through the paper ads again.

I got myself out of credit card debt not because I finally understood how the interest was killing me. I got out of there because I was tired of living with the shame and guilt of it. I got out of there because I had mentally decided that I was going to live a more simpler lifestyle and within my means. I got out of there because I was convicted of my wastefulness and my carelessness with Kingdom resources. All those reasons started first with God, then me making an emotional and mental decision to never go down that path again. Personal finance is not just understanding numbers and being good at math. In fact, it has more to do with the understanding of the human psyche than anything else.

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About Jason

Christian. Husband. Father. Avid soccer fan. Born to Chinese parents. Married to an American woman. Trying to navigate through how to raise a daughter to know her Asian culture and her American heritage too. View all posts by Jason

6 responses to “Mind Over Money

  • Patrick Rech

    Again a great posting Jason. I meant to tell you I read your blog often and get a lot from it! you are really eloquent.

    Warm regards to both of you guys!

  • sharon

    makes me think about when ricky and i were engaged and talking about finances. even though he had been unemployed for a year, he managed to save more on unemployment checks than i did with an engineer’s salary, simply because of this mindset difference. even though i was forever on the deal hunt, that meant i was also buying things i didn’t really need. he, though he would buy things at full price, only bought what he needed. i have learned so much from him about freedom from the grip of want.

  • BDO

    Great analysis on the motivation for more debt. It does come down to human psychology and the convincing messages marketing can display within one ad. It is tough to stay away from debt when we are glued to the TV, because for “some strange reason” when we get up from our TV we want to go to the mall.
    Like you, I hope Christians re-learn the message found in the Bible about finances and stay away from debt, live humbly, and give generously.
    Keep up the good work!

  • David Watson

    Wow. great message here. I’m over 87k in debt and trying to pay that down now without using any more cards. It’s been tough, but am getting there.

    • Jason

      David,
      That is a tough, tough place to be but I admire your persistence and perseverance to get out there! In the end, it’s going to be worth it. I’ve been debt free for just over 5 years now and I still feel the joy, relief and freedom to this day.

  • Surge Protectors :

    oh i wish to be debt free in the next few years and i wanna be a millionaire too ”

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