When the topic of personal finance comes up, most of the challenges that are initially seen are external ones. Debt is an external challenge. Investment decisions are an external challenge.
Yet, over and over agan, if we look a little deeper, we see that those external challenges tend to rely quite a lot on internal challenges.
The challenge of making the right decision in a given moment is an internal challenge.
The challenge of migrating from weaker behaviors to stronger ones is an internal challenge.
There are a lot of specific internal challenges that we have to overcome in order to even take a sensible crack at the external challenges in life. If you don’t have those internal challenges under control, you can’t even hope to succeed at the external ones because you’re starting off in a failing position when it comes to those challenges.
Over time, what I’ve found is that a lot of internal challenges come down to two key things: denial and delusion. They make up the core of many of the internal mistakes I make and that, from what I can tell, pretty much everyone else makes when it comes to managing their life successfully.
Denial is the choice to not see a problem when faced with evidence of that problem. You see a pile of bills in front of you, yet you deny that you’ve got a debt problem that needs fixing. You see that you’re behind the curve when it comes to retirement savings, yet you deny that you need to save for retirement.
Delusion is the creation of an “alternate path” that allows you to make poor choices. If you have a credit card that isn’t maxed out, delusion can lead you to the idea that you still have money to spend. If you can pay the rent before the eviction date, delusion can tell you that your housing situation is secure.
Denial and delusion often work hand in hand. If your spouse shows you that you’re hundreds of thousands of dollars in debt and it’s getting worse each month and your response is to start shouting about how everything’s fine (denial) and then point to how you are making more money than you were five years ago as proof that you can afford your lifestyle (delusion), you’re seeing them work hand in hand.
How do you get past the two man tandem of denial and delusion? It’s hard – trust me, it’s very hard – but here are some things that have helped me in this struggle.
First, trust cold, hard external facts, not internal beliefs and intuition. For a long time, I had an internal sense that everything was fine because we were able to pay the bills each month. Yet, when I finally looked at the external numbers – really looked at them – it was clear that our net worth was going down each and every month. My mind said things were fine, but the numbers revealed the truth – things were getting worse, month by month.
My suggestion is to make a net worth spreadsheet. List all of your assets and their current values, then list all of your debt and their values. Subtract the debts from the assets and you have your net worth. Then, next month, on the same day, repeat the calculation. Has your net worth gone up or down? If it’s gone down, then the cold hard facts are telling you that there’s a real financial problem at work, regardless of what your gut says.
Second, establish goals that you can measure externally. Don’t use goals that are measured by how you feel about things. Focus on goals with an external measurement, like net worth or your savings account balance. In a way, this is also about trusting external facts, but it’s also about identifying something positive to work towards.
What can you do here? Spend some time figuring out a very specific personal finance goal you want to work toward. Maybe it’s debt reduction. Maybe it’s a down payment. Whatever it is, set up a realistic timeline for getting there along with some milestones along the way. For example, if you’re saving for a down payment, you might give yourself four years to get there. That means you should be 1/8th of the way there after six months, so that should be your first milestone. Focus on that milestone and keep it front and center in your life.
Third, have someone you trust be your “coach.” That person should be able to feel free to call you out on your denials and delusions and mistakes without retribution. If that person is in fear of your retribution, they can’t actually help you very much. Thus, you need to constantly remember that this person is trying to help you, even when they’re saying things you don’t want to hear.
For me, my wife turned out to be the best “coach” of all. She provides constant healthy guidance toward my goals and she doesn’t hesitate to call me out on my mental mistakes. Yes, it’s frustrating, but it doesn’t take much for me to see that when she does this, she’s simply pointing me down the right path. I try to do the same for her. When I see her falling into denial or delusion, I call her on it. We do this to each other for even the small denials and delusions.
Without tools to work through our internal denials and delusions, we will never find success with the external elements of success because external success relies on internal success. If you’re not basing your personal finances on a set of sound internal decisions, how can you expect to achieve your dreams?