Have you ever looked at your decisions in the past and wondered, “What was I thinking?” It’s very easy to beat yourself up for being stupid. But we all learn from our mistakes. Nobody gets to where they are without ever committing a mistake. If someone claims they did, it’s just too good to be true!
“Life can only be understood backwards; but it must be lived forwards.”
– Søren Kierkegaard
Ever since I began looking into personal finance in 2018 I have begun to see my everyday decisions in a new light. It can be a simple online purchase on Amazon or planning a vacation, I view those decisions differently than before. In the past, I have looked at people who drove a BMW or a Mercedes and thought “Wow, they must be making bank!” But in light of the new information I have, I go beyond the looks and try to analyze deeper. I wonder what their monthly payments on that car loan might be. Did they pay cash for it? What if they had invested the same money in the stock market and left it alone till they retired. How much would that have compounded over time? My views on money has changed significantly since 2018, hence the new way of looking at everyday purchases.
Recently a friend of mine bought his first home and he borrowed money against his 401K to pay for the downpayment. Every time I remember this, I feel really bad for my friend. But he has his reasons for doing so. When I look at his decision from a financial standpoint, it’s a very bad idea. If you still have your reservations, read this article – How My 401k Loan Cost Me $1 Million Dollars. It’s a bad idea guys don’t do it.
If not for my efforts to educate myself on personal finance my decisions wouldn’t have been any better. I know this for a fact since all of the basic ideas of personal finances – why debt is dumb, why borrowing against a 401K is bad, why you need an emergency fund, etc were simply unknown to me. In fact, I didn’t know about any of this stuff and have happily coasted 31 years of my life before I learned about any of this stuff. It’s that common!
Judgment comes from experience, and experience comes from bad judgment. ~ Simon Bolivar
I Wish I Knew Then What I Know Now
When I first read this article ‘I’m Scared’: TSA Families Fear Falling Behind On Bills, Losing Their Homes, published on NPR, my first reaction was, “That’s why you need to have an emergency fund!”. How can these people not know about it? Are they so dumb that they can’t even anticipate a situation like the loss of a paycheck? When I heard a few podcasts in the personal finance space echo the same sentiments, I happily nodded along and agreed with their assessment of the situation.
But this weekend I came across a tweet from a fellow PF blogger @cheapbohemian, which made me think about my original reaction to the article. Here’s a snapshot of the conversation we had on twitter.
Her tweet got me thinking. Why did I jump to the most obvious conclusion? Why did I assume that these people somehow planned to be in a situation like this? Here I was, judging people for their money habits and blaming them for their stupidity and under-preparedness while claiming a moral high ground for myself. Something didn’t seem right.
Why Do We Really Judge Others?
Judging others isn’t always be a bad thing. In fact, nature has given us the ability to judge a lot of things around us and not just people. For example, your ability to judge how hard to apply the brakes, in order to avoid bumping into the car in front of you is a life-saving skill. But obviously, we are not talking about that kind of judgment here. So let’s look at some of the reasons why we judge other people.
1. We want to claim the moral high ground
It allows us to feel good about ourselves. Judging others gives us an opportunity to claim the moral high ground. We can look more virtuous and smart than the other party. We use it as a tool to validate our own actions and criticize others for the lack of it.
E.g. If you are someone who values family time, you may look at another person who spends a lot of time at work and judge him for not prioritizing their family. We might even label that person as ‘workaholic’. What we might not be aware of is the fact that he might be working multiple jobs to make some extra money in order to pay off all debt and is forced to spend more time at work. The person might be working extra hard so that he gets the privilege to
2. We believe our criticism of others can change them
One of the best counterproductive ways to influence change is through criticism. In his famous book How To Win Friends and Influence People, Dale Carnegie talks about this. He writes, “Don’t criticize, condemn or complain.” Whenever we see someone act in a certain way we don’t approve of, we quickly judge them. We criticize them for acting differently. We might even consider their behavior as straight up stupid. By doing all of this, we expect people to change. We expect that listening to our judgemental commentary is going to magically transform them and they will ‘mend’ their ways. Don’ do it. It will build resentment.
E.g. If you are fitness freak and love to exercise regularly, you might look at someone who is overweight and judge them. You might assume they are lazy and the reason for their overweight is lack of exercise. The truth could be far from it and that person might be experiencing a medical condition. Shaming people for being overweight doesn’t inspire them to lose weight.
3. Lack of empathy
One of the worst things you can do when someone is going through a bad time is to suggest to them how stupid they are to be there in the first place. If they knew any better or had the necessary information to make a more informed decision, they probably would have done it. Instead of empathizing with them, we judge them. Judging people for their money habits when they are in the middle of a crisis is doing exactly the same.
E.g. Imagine your friend is deep in debt and you wish to help him out. Instead of educating him about the ways he can work on his personal finances and helping him out, you judge him for his poor financial decisions and call him stupid. Your friend doesn’t need your criticism, what he needs is your empathy.
4. Not everyone is on the same page as you
One of my pet peeves about the whole FIRE movement is that it seems to be projected as the ultimate panacea for all of your life’s problems. A lot of people in the FIRE community look “regular 9-5 jobs” or “retire at 65” crowd as “Less Ambitious”. They somehow feel it’s less sexy to follow that path in life and that FIRE movement is the best thing known to mankind after curly fries. None of this is true! If you don’t believe this, I can assure you that there are literally milions of people out there for whom FIRE is something that burns and not something you pursue!
The vast majority of people who are completely oblivious to the FIRE movement have no interest whatsoever to pursue FIRE. In fact, they are so busy with whatever their life’s calling is, retirement is not even on their radar. They simply don’t want to retire at all. Does that make them FIRE-less?
For the life of mine, I can’t poke a hole in their plan yet so I don’t know why it’s wrong. While I agree that personal finance has a lot of nuance to it than just FIRE or some other random acronym, I would like to remind everyone that not everyone in this world is on the same page with regards to personal finances.
E.g. Imagine you have a passion for selling stuff online and have been researching about it for a long time now. It could be anything like how to make money selling items on eBay or Etsy with records margins. Then you meet your friends over for dinner and you share your splendid plan. You share with great enthusiasm, how they too could end up with millions of dollars if they followed your plan. There is a slight problem though, your friends aren’t interested in your plan. You go back home wondering how can someone not appreciate the awesomeness of my plan? Why can’t they see how this is going to make them a ton of money and they can quit their day jobs and do whatever they want to.
In all of the above scenarios, we assume our actions are perfectly justified. What we don’t realize is that we are operating with a subconscious bias. We are assuming that these people are stupid with their money and there is one way to cure their money habits, to follow your plan. So you tend to criticize them and judge them. I am sorry to break this news to you, but you might be wrong!
If we intend to bring in a positive change, we must stop criticizing others and stereotyping their so-called ‘poor’ money habits. We need to begin understanding why they there in the first place. Only then do we stand a chance to bring about any real change. Otherwise influencing others to build better money habits will remain a pipe dream!