I was thinking earlier this week about why sometimes people will find themselves in dire financial straights – situations where they can't seem to get out, even when they seem to have the resources or the smarts to be able to. After thinking about it, I realized that a lot of the problems we get ourselves into, and the reasons why we can't get out of them, are really just psychological battles. We allow ourselves to believe negative things about ourselves or our situations that keep us in trouble. We end up not having the discipline to get ourselves out.
We All Make Mistakes
We all make financial mistakes in our lives. Some of us make big ones. We do things like buying expensive homes that we can't afford because we've fallen in love with the house – and we imagine ourselves living there. Or we buy an expensive car because we can imagine ourselves living a glamorous lifestyle while driving that car. Others make small mistakes like forgetting to pay a bill, or spending too much while on vacation.
It's fine to make mistakes – we all do it. What sets the successful apart from those who can't seem to find their way out of debt is that they learn from their mistakes, and they move on.
Poor Decisions Can Lead To More Poor Decisions
Far too often I've seen friends who have made poor financial decisions take a mistake that they've made, and turn it into an even bigger mistake. Instead of admitting they've made a mistake, they double down and continue the poor decision making.
I remember one friend in college who made some poor spending decisions, and found that he was going to be short on his rent payment that month. If he had made a wise decision he probably could have admitted his mistake, and tried finding ways to make up his shortage. He could have sold some of his video games, or got a quickie part time job to help make up the difference.
Instead, he allowed it to get him down, and he decided instead to go on a week long spring break trip – all paid for on his credit card. Because he allowed his poor decision to get in his head and depress him, he tried to make himself feel better by spending even more money that he didn't have. In the end he was only able to get out of trouble by begging his parents for a loan – which I'm pretty sure he never paid back.
Learn From Your Mistakes
Instead of allowing your mistakes to get the best of you, and before the snowball gets rolling down that hill, nip it in the bud. Don't let your mistake get in the way of your future. Don't allow one mistake to beget another.
Instead, admit the gaffe, and do what you can to turn things around. Make a plan for change and think about ways you can ensure that the problems don't arise again. Forgive yourself and move on. Don't be destroyed by guilt, and don't allow your guilt to consume you to the degree that you give up.
If you bought a house you can't afford, cut your losses while you still can and sell the house. If you've bought a car that is out of your price range, return it or sell it! And if the mistake can't be remedied – at least don't compound it by making new mistakes!
Have you ever made a financial mistake, and then compounded the problem by allowing it to consume you – and pushing you to do something else stupid? What are you thoughts on how problems can snowball out of control?