To me, creating a budget and thinking of the future are second nature. I know there are a lot of people out there that don’t think this way but when you take them as a whole, the numbers are both shocking and scary.

A Gallup poll conducted in 2013 found that 2/3’s of Americans do not even bother to budget. This was across the political spectrum, men, women, highly educated and those with a high school degree.

Even the figures of the college grads are woeful, the fact that only about 40% of them have a budget, should be embarrassing. This is because they took the time to educate themselves at the highest level and maybe even borrowed for that education, and then made no subsequent plan post college, despite their likely higher earnings, to apply the basics of budgeting even though they should have known better.

Budget as Diet

The best analogy I found for why people don’t budget is because budgets are like diets: they deny you something you enjoy so after a while, you just cave and just end up spending on what you want anyway.

This helped me to understand other people that seemed to be on board with a budget when I initially help them, and then fall off the rails a few months later and end up buying a bunch of unnecessary things or spending money on things they couldn’t afford.

Seeing this cycle made me realize that I had been trained from a very young age an important skill: delayed gratification. The idea that there was something even better down the road if I denied myself the simple pleasure now, which in and of itself was not terribly difficult to turn down in the moment, to realize something better in the future.

This is the thought process of many diligent savers but it has a very distinct view of the future: that it can be better. But what about those that are in an environment where people don’t think the future will be better or they think it will be worse? Then the opposite will likely be true for them. Things won’t get better, so you might as well enjoy yourself as much as you can now.

The Lost Decade

The most extreme example of this is to listen to stories of those that have experienced hyper-inflation. We are extremely lucky here in the US to never have really experienced this phenomenon in our collective memory but it is such a traumatic and scarring money experience it can manifest itself through generations.

I have a few friends from Brazil and to hear stories of the behaviors they had to adopt during hyper-inflation were almost surreal.

When hyper inflation happens, prices change so quickly, that the day you are paid, your earnings of the last two weeks or a month could be reduced to almost nothing in a matter of a few days, or even 1 day. Therefore the incentive becomes to spend it as quickly as you can to get as much as you can up front.

When hyper-inflation in the 80’s in Brazil was changing prices by the minute, I recall hearing stories of people getting into fist fights over their place in line because of it meant they had to wait. Their buying power would be reduced while the person in front of them had their items scanned and they couldn’t let that happen.

Source: sjsu.edu

In this case, government policies that produced hyper-inflation produced behaviors that valued the present many times more than the future. This produced a dramatic psychological effect on society and everyday people as a whole that you can read about here.

Hyper-inflation destroys savings and fixed pensions so usually it is savers and the elderly who suffer the most in these cases. It also causes the problem of increased inequality because the rich usually have the financial sophistication to either transfer their wealth to stable assets or even profit from the inflation by borrowing in the inflated currency and buying real assets.

The fact is, we really haven’t experienced this to a severe degree in the US because the Federal Reserve, however you feel about it, has been a responsible steward of stable inflation and general well being for the US and world economy for about the past 50 years.

Other Cases

It doesn’t have to be hyper-inflation. What if you are part of an oppressed minority that is constantly being robbed of any significant assets you acquire or wealth you manage to accumulate? If this happens enough, it can have the same damaging effects psychologically on a saving mentality.

Think of oppressed people like African or Native Americans in the US that were constantly denied shelter in many parts of cities or states through redlining policies, denied loans, denied jobs and harassed with extreme violence and even death. Considering the many cases of when minority communities started to acquire some wealth and it was either taken from them through coercion by means of the government, or random violence like that of the 1921 Tulsa massacre, otherwise known as the burning of Black Wall Street. Do you blame many in these communities for developing a nihilistic mentality and spending any gains they get immediately rather than saving it for an uncertain future?

Greenwood, Tulsa Oklahoma after a white mob destroyed what was then known as Black Wall St. Source: theringer.com

We All Are Guilty

So if the collective psychological conscience of certain populations is geared towards enjoying the here and now at the expense of the future, we can be a little more empathetic and forgiving in terms of the historical legacy of why this is. The only problem is that the statistics I mentioned previously are not limited just to minority groups in the US, they are true for all people across the board.

Somewhere deep down in many of us the urge to spend is not just about a lack of discipline, it’s about a lack of self worth: trying to keep up with your friend or your neighbor because you feel like they are doing a little better than you. Or spending to fill a void in your own contentment or self esteem by the temporary satisfaction that new things bring you. Or the temporary high of perceived elevated social status you may feel by buying the most expensive bottle at the bar or having the nicest car.

At the end of the day, none of these things bring us lasting long term contentment. The last few posts I have written have talked about the 1% in terms of wealth and how almost anyone can become a millionaire by diligent saving and investing. What I didn’t mention in those posts is that many of the people who actually become rich, find contentment in something other then money, which allows them to deny the short term satisfaction that money can bring them again and again on a consistent basis.

Being Rich Requires Courage

This mode of thought that gives you the discipline to consistently deny yourself little luxuries takes something most people don’t think about when budgeting. I’m not a religious person, but to quote Bishop TD Jakes: it takes courage. It takes courage to tell your friends you aren’t going out because you don’t have the money. It takes courage to have people call you cheap and not feel socially ostracized for it. It takes courage to go against the grain and be different from everyone else, to have them even look down on you because they may perceive you as less well off as them because you don’t wear your wealth for everyone to see. All these things take courage and a strong conviction that your life will be better in the future by saving.

I was one of the lucky few who was taught to have this courage from a young age, but it doesn’t mean that it can’t be acquired by anyone else. In fact it was easier for me because I had the right environment that encouraged me. If you want to break the psychology of being broke it will likely take more courage than I, or many other people had to have. It may take denying your family or friends money, it may take those closest to you not speaking to you.

When I realized some people were surrounded by environments like this, that’s what made me realize that saving, investing and being rich takes a lot of boldness, self assured ness and conviction, before you even have the education on how to budget. All of us have the ability to do this no matter who you are or where you are from. They call it the yo-yo diet when you lose weight and gain it back, the key to not being a yo-yo budgeter is to first find that fire and that confidence within yourself to be unique, to be different and to start setting the path towards your dreams. Be bold, be unique, leave the psychology of being broke behind and embrace the psychology of being rich by first believing in yourself.

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