You know about the old quote by Henry Ford:
“Whether you think you can or whether you think you can’t, you‘re right.” ?
The essence of this is that our own attitude and perception of our capabilities plays a vital role in our odds of succeeding in anything. And I think it’s true.
Recently I have noticed many examples of people doubting their own capabilities/behavior in relation to their personal finances. They think they are irrational by nature and can’t be trusted with their own money.
Here are 3 examples of this:
- In Denmark, we have a mandatory vacation fund, where employers are forced to take out a small portion of all employees paychecks, and pay it into this fund, so that employees can apply to have this money refunded to them, next time they can prove that they are going on vacation. Our government is basically saying: “you people aren’t responsible enough to be trusted with the long-term administration of your own money”. So they have decided to take them from us, however temporarily, pays us no interest in the meantime, and the worst part is that people are HAPPY about this arrangement. Even happy about the fact, that this isn’t a voluntary concept because they would not trust themselves to sign up for it, because they think of themselves as being economically irrational, and it is better to let Bigbrother handle their vacation money.
- I was recently discussing the general concept of insurance with an otherwise really smart friend of mine. He told me how happy he had been about paying for the premium package with his insurance company because his policy had been triggered years earlier, which had meant a nice payday for him back then. After some quick calculations, though, we figured out that he had paid much more to his insurance company over the years, compared to the premium they had paid him on that particular day. He then said: “I know that I could have just saved all the money that I spent on insurance over the years, and been better off in the grand scheme of things, but nobody is able to act like that, so I am still happy with my decision”. (For the record, I am not against all insurance – topic for another day).
- I also know a lot of people who feels like buying a home is more economically rational than renting because their housing loan serves as a mandatory savings account. I see how this can work, but buying a house in itself is not by default an effective way of saving up a lot of money – watch this video, to learn how renting can be just as smart IF you can manage to save and behave rationally!
I know that we are only humans, even myself :). And I don’t think that anyone has the capabilities to behave perfectly rational in all aspects of life.
However, I am a firm believer, that most people can behave mostly rational by cultivating the right automatic habits over time.
This is the type of journey I have been on for the past 2 years, ever since I dedicated myself to paying back those student loans, things have been going well, whereas I didn’t used to save anything for the future when I was younger.
The point is that we can all strive to become more rational and be smarter with our attitudes towards money. But it all has to begin with a belief in our own ability to become exactly that, and that we can make anything happen if we just change one small thing at a time – without forcing it or overloading ourselves with commitments. It has to come slowly.