Why do smart people sometimes do stupid things with money?
I’ve seen really smart people make strange financial decisions.
- Bought a brand new car and financed 106% of it (sales tax and all!)
- Go to college and finance it 100% with student loans while obtaining a degree comparable to a degree in basket weaving
- Go on a very expensive vacation to Hawaii and put 100% on their credit card and have no money to immediately pay it off
- Withdraw all the equity out of their home to start an unproven new business
These types of decisions are made every day by very smart people! Perhaps even YOU have made one or more decisions like this. You may have to only look into the mirror to see someone who has done one or more of these financially horrendous items. I know that is as far as I have to look!!!
Back to my question. Why do smart people sometimes do stupid things with money?
- No plan. They wanted to spend the money on the item, but they did not plan for the expense. Consequently, they only money available when the purchase was made was very expensive debt.
- No self-control. They wanted it! They wanted it now! They did not want to wait. No! Must have item … Must have item now … Will be emotionally scarred for life if item is not obtained now …
- Hope I can pay for this. Not willing to face up to the fact that they can’t have an item now, but they buy it anyway hoping that “the money will come from somewhere.” The reality is that “hope is not a strategy” and this usually leads to tremendous financial penalties.
- Talked into it. See #1, #2, and #3. You’ve seen it happen. The friends start talking about it. The friends are going on the vacation. The friends have the new car. Your friends are going to college and are not having to work while there. Justification is found through others’ circumstances.
If I were to attempt to sum the reasons that smart people sometimes do stupid things with money, I would say it is because they were ignorant of the REAL and LONG-TERM COST of those major financial decisions. If they truly knew the COST of those decisions, many tears of sorrow and regret and many money fights with their spouse could be avoided.