Two technology workers both 28 years old, an income of $130,000, $51,000 in student debt, $18,000 in auto loans, $50,000 in credit card debt and a mortgage around $270,000. This was the situation of a brave couple which were featured in an article published by the Wall Street Journal last year on consumer debt. The couple realized that with a new daughter, they were in over their head when it came to their expenses, so they did something drastic which many people may have done: they tried to give up their credit cards. The article describes the unique solution to this problem that Mr. Guzman, the father of the duo, came up with:

Ear­lier this year, Mr. Guz­man put his credit cards in a Zi­ploc bag with wa­ter and placed it in the freezer. In May, how­ever, they went to two wed­dings, and needed a card to cover the cost of a gift and a rental car.

Mr. Guz­man re­moved one of the credit cards from the freezer. “A lot of things came at once,” he said. Since then, he’s taken the rest of them out, too.

I understand why people have student loans. I understand why people have auto loans and I understand if you want to own a home and have a mortgage. Where I tend to differ with many other people apparently, is when you are struggling to pay all these things and then decide to attend two weddings you can’t afford.

My criticism is not specifically aimed at Mr. Guzmán or his partner. For many years I have been obsessed with the rationale and the psychology behind why people like me make good financial decisions and many others, in fact I would say the overwhelming majority of people in America, make bad ones.

The Gurus

I want to depart the situation of Mr. Guzmán and his family for a moment and discuss the so called finance “gurus” who try to turn things around for people. Many people in desperate situations turn to these money experts in the hopes that they can help them get out of the hole they dug themselves into. Many, many “gurus” have attempted to offer their personal finance advice over the years and some have become very wealthy themselves telling ordinary people how to improve their situation and get their life on track. Much of the time though, their advice hinges on gimmicky things like the “can you afford it?” test of Suze Orman. Or they try to re-hash old advice via the “this is what the rich really do” examples, such as with “rich dad” Robert Kiyosaki. Some even start to delve into the psychology that is often behind a thought process that keeps people struggling with the “take control of your life first” argument,

All these are nice and none of it is bad advice per se, but as I became closer to people who were bad with money or struggling with their finances, I found that many of the problems at the very root of their financial issues had little to do with money and a lot to do with how they viewed themselves and how they wanted society to view them.

Humans are social animals, so it’s natural to want to be accepted by your tribe in some way. Unfortunately, these values can collide when it comes to making the best financial decisions we can make for ourselves. Many people, whether consciously or subconsciously, have been making financial decisions based off of seeking acceptance or what others around them do for much of their lives. This leads to a string of bad decisions which eventually leads them to sleepless nights of wondering how they are going to pay for all the expenses and debts they have accumulated over the years. A high income just increases the size of those debts or may delay the day of reckoning but if the bad decisions continue, that day will eventually come.

Much of the guru advice focuses on the “in the moment decisions.” For example, if you can forgo one ice cream today to have 2 ice creams a few weeks from now, maybe you would take this deal, trading immediate satisfaction in for future satisfaction. This is a very narrow example that’s easier for psychologists and financial advisors to grapple with. It just involves the good or service which would be consumed and the now vs later thought process in the mind of the consumer. Much of our financial advice has simply just extrapolated from this: save some money now so that you can have more later.

It isn’t always this straightforward though. Many of us have values and standards that conflict with the now vs later simplistic rationale. Much of this is rooted in the way we were raised, our definition of what success looks like and maybe our need to fit into the crowd and feel accepted as part of a community. There could be many reasons that people spend money to feel these things and each of them are usually rooted in our own personal circumstances, usually what we experienced as children and young adults.

For example, even if you haven’t paid off all your college or consumer debt yet, if you have the money, you may buy a home. You may do this for a number of reasons you justify to yourself: it’s what successful people do, or it will prove I’ve made it or I want to start a family and need the space. If you delve deeper and ask people why they really want a home though, beneath all the surface excuses, it usually becomes one of the reasons I talked about above. In other words, an ideal of what success looks like, or an expectation that they deserve what society deems valuable based on their hard work, or because they want to keep up with others who they perceive as successful.

The reality is that none of these are a good reason to buy a house, a car, or anything for that matter. The real scourges of a lot of our bad spending habits are really just personal vanity projects emanating from our desires to be accepted, our fear of being rejected by others or our sense of entitlement for our hard work. Hard work is good, but it doesn’t entitle you to everything you want in life.

This is why I say one of the most dangerous phrases you can say for your finances is “everyone else is doing it” or “what will people think if…?” or the general “it’s a sad life to not have X.”

Back to the Family

Which brings me back to Mr. Guzmán and his family. Even if I were in their position, (and don’t let my current good fortune fool you, when running a business I owed many investors money so understand the stress of debt), there is a point where I would have drawn the line and those weddings were an example of this.

If I were in a difficult financial position, there is no way I would have spent money I didn’t have to attend a wedding, even for a close family member. Maybe the only situation I could see myself spending the money is the life or death situation of someone close to me. For extended family and friends my response to a wedding invitation would have been short and simple: sorry but we can’t afford it right now.

I can almost guarantee that if you were to ask Mr. Guzmán and his partner why they ended up attending those weddings and spending the extra money, you would get a response similar to the ones I described above. They would likely be rooted in either the “what would people think of us if we said we could afford it” (fear of social rejection or ridicule) or “we deserve this because we’ve worked hard for this life” (entitlement).

I have to admit, I was even a little envious when I saw the nice looking place this couple had in West Hartford Connecticut, I don’t have a place that nice, I thought. But this kabuki show is just a ruse. Behind those nice homes and cars, many people are struggling to make ends meet. I choose to have a financial buffer and a safety net and live a more humble life.

It means I have to give up on keeping up with others or any feelings of entitlement and I can tell you from personal experience: this is a liberating feeling. It doesn’t make me any better or worse than Mr. Guzmán and his family either, it’s a personal choice. But if you asked me which path for most people would lead to a more sustainable contentment, I would undoubtedly say that my path is the one I would recommend.

Things, services or conveniences don’t determine our happiness. Should you choose to be, you can be just as happy in your mother’s basement for a year as you are in a home that you own but can’t afford. The choice of how you react to your circumstances is yours. If a family like Mr. Guzman’s were to seek my advice it would be very simple: keep working hard and trying to move up at your respective jobs but you will now need to live like students for a few years: move in with family, rent out your house, make all your meals, no vacations weddings or other expenses. Take on extra work online or driving Uber and aggressively pay down your credit card debt and then your student loans as fast as possible. Will people judge you? Maybe. Will some people look down on you? Also, maybe. They may even lose friends or have people stop speaking to them, but were those people really around for you if that happens?

Progress lies in that discomfort zone, even for people like me. I have been there, I have been concerned of my title, car and what people think of me. If you want to start changing your life, be honest with yourself and if you are saying the most dangerous phrase for your finances, ask yourself the real uncomfortable reasons as to why you are saying this, I promise you on the other side of that discomfort is great progress.

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