Updated on 06.22.11

Fooling Yourself

Trent Hamm

One of the first big financial lessons I’ve learned is that you can’t trust your own sense of how good your financial shape is. Almost always, if you’re reflecting on your financial state without evidence, you think that you’re in better financial shape than you really are.

There are a lot of reasons for this. Optimism. A need to justify whatever spending move we’re about to make. A need to feel good about our current situation.

I find that the same thing occurs with every significant metric in your life.

People might recognize that they’re overweight, but they often don’t realize how overweight they are.

People might recognize that they’re out of shape, but they often don’t realize how out of shape they are.

People might recognize that they don’t understand a topic, but they often don’t realize how ignorant of a topic they are.

I’ve been guilty of all of these things at various points.

So? Over and over again, I’ve seen how overestimating your actual status can really damage your reputation, your future, and your life as a whole.

If I constantly overestimate my financial position, I’m going to dig myself even deeper into a financial hole and make it harder to save for a great future.

If I constantly overestimate the state of my health, I’m going to reduce my lifespan and my quality of life over the long haul.

If I constantly overestimate my knowledge of a certain area, I’m going to make some poor decisions of all kinds and I’ll also end up making very ignorant statements in conversation (reducing my reputation).

The solution for all of these problems (and many others) is to rely on the actual numbers to understand where you’re at.

If you’re looking at your financial position, calculate your total assets, your total debts, and your net worth frequently. The numbers don’t lie – if your net worth is dropping consistently, you need to re-evaluate your life.

If you’re looking at your health, use metrics like your speed in jogging a mile, the number of push-ups you can do, your BMI, and other information to get a good picture of your body’s state. Keep track of them over time and seek to at least keep them steady if not slowly lowering them.

If you’re looking at your knowledge, test yourself on that knowledge. Use sites like Wikipedia and see how much of an article you already know and can explain out loud before even reading the article. If you can’t articulate most of the basic information about a topic, you’re probably making mis-statements about that topic and likely have an incorrect opinion about that topic.

Trust the data, not the ideas you have in your own mind. Your mind has reasons to deceive you. Don’t let that happen.

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  1. Katie says:

    Conversely, I know a lot of people who are much more down on themselves than reality would indicate is reasonable. I guess the trick is knowing which group you tend to fall into.

  2. Alexis says:

    Your post makes me think of the quote, “the plural of anecdote is not data.”

    You’re right – measuring progress empirically is always more reliable than going by what you *think* or by what other people tell you.

  3. Vicky says:

    Oh Trent,

    You spoke to me directly today. I feel really sheepish lately, but have been realizing that my eating habits and money habits are exactly the same – I keep telling myself it’s ok, when it’s not.

  4. Hannah says:

    This is a departure from the classic ” you are your own worst critic” advice. I think it depends on the person. I know people on both ends of the spectrum, and I think the reminder to look at the hard data is good advice in either case.

  5. mary m says:

    Makes me think of the 4 stages of learning:
    Unconsciously incompetent – unawareness of lack of ability
    Consciously incompentent – awareness of lack of ability
    Consciously competent- awareness of developing skills
    Unconciously competent – unawareness of mastery, 2nd natured mastery

  6. I tend to fall in with the group that thinks there is always something I don’t know. Thankfully this leads me to a state of constant learning and striving. But I can certainly see a lot of people overestimate their current state of financial security and knowledge. Nice reminder to check in and get real with ourselves using real data and facts rather than the good guess-timate.

  7. kristine says:


    “Trust the data, not the ideas you have in your own mind.”

    Wickipedia is not data. It is not considered a valid source of information in any serious research venue, even in elementary school.

    “Welcome to Wikipedia, the free encyclopedia that anyone can edit. ….Wikipedia is a free encyclopedia, written collaboratively by the people who use it. …anyone can edit almost every page, and we are encouraged to be bold!…Wikipedia is allowed to be imperfect.” – from Wikipedia’s “about” page.

    “If I constantly overestimate my knowledge of a certain area, … I’ll also end up making very ignorant statements in conversation (reducing my reputation).”

    This goes not only for conversations, but posts as well.

    Instead of Wikipedia, find a legitimate source via your public library website.

  8. Steven says:

    I’ve found Wikipedia to be gaining in credibility over the years, though still not considered a reliable source by most academic standards. As a “jumping off point” it’s okay, but I wouldn’t consider it gospel.

  9. lurker carl says:

    Kristine, you took the words right out of my mouth.

  10. valleycat1 says:

    I had completely skimmed over Trent’s Wikipedia reference. I’m beginning to get scared at how many people believe everything they read there.

  11. Wren says:

    Since most people don’t necessarily have to worry about their information coming from an academically reliable source when they’re conversing, Wikipedia is a good place for basic info on many subjects. And with the references included in a large number of the articles, if people want to go to the source, they easily can.

    If someone doesn’t think the information on wikipedia is legitimate enough, then, as noted by others, they can edit it into legitimacy. Of course, they might be overestimating their knowledge in a certain area…

  12. Pamela says:

    I’m totally the opposite – I always assume that we’re in much worse shape than we actually are. We have a very decent emergency fund, some investments, retirement savings, etc – and yet, I’ve found myself in a thrift store almost crying over a decision to buy two $2 shirts that I needed, loved and could easily afford. I actually had a talk with a therapist about this because no matter how much money we have, I always worry that it won’t be “enough.” I don’t really have a solution to the problem yet, other than to try to calm my anxiety with deep breathing or something. Not a fun place to be.

  13. krantcents says:

    Determining your net worth is a little like taking your temperature! Either you are healthy or not. Once you have your net worth, you can measure your progress from that point.

  14. Dan W. says:

    “Trust the data, not the ideas you have in your own mind.”

    Good advice, Trent. It’s hard to be objective and impartial when we ourselves are the subject. Tracking my spending, for instance, helps me assess how I manage my budget. So, yes, data is indispensable though I don’t think it all ends up with gathering/collecting data. Applying the data, that’s more tough.

  15. kristine says:


    What makes yo think that anyone here who does not find wikipedia a credible source is putting themselves forth as an expert on anything? I see no indication of such at all- it was a bit of a flail.

    The idea that those overestimating their expertise might edit entries as a put-down is logically perverse and ironic, as you are restating the point of those comments with which you take issue.

    What I see is a resistance to lowering our standard of authenticity to “by popular opinion”. I object specifically to using Wikipedia as a source in the context of in a post stressing the importance of getting accurate facts.

    If you want to click on the resources- why even bother to use Wiki as a middleman? It is better just to work on ones’ boolean search savvy.

    I can’t remember the entry, but Stephen Colbert had exploited the weakness of wiki when an experiment in mass acquiesence/approval resulted in an entirely fictitious “encyclopedia” entry.

    Wikipedia is as authentic as an encyclopedia as Olive Garden is “authentic” Italian cuisine. A lot of people like Olive Garden, and there is nothing wrong with that at all, but you are kidding yourself if you think it is authentic.

  16. kristine says:

    PS- avoid letting your kids get into the habit of using Wikipedia as a go-to for everything. It will be a real handicap in school, and it is far better they learn how to do a proper search before habitually using short-cuts. My husband is history proff, and some kids have no idea how to find a primary or credible source, in college. Those kids really struggle backtracking to learn how, on top of learning analytical course material.

  17. Review says:

    I like how you used this with losing weight. I’m going to do a little study of my own and see how out of shape I really am. I’ve been trying to figure out how much exercise I should be doing each day, and this should really help. Thank you

  18. I got your message, Trent. Thanks.

  19. SwingCheese says:

    Kristine (13): I agree!! I had students who would simply cut and paste information from wikipedia, then act surprised when they received a big fat 0 for the assignment! It seemed that I always had to teach research skills when I assigned a research paper. However, while I wouldn’t allow them to use wikipedia as a source, I did suggest to them that it was a good place to start. Wikipedia always lists it’s sources at the bottom of the page, and there were frequently active links to primary source documents that my students could then use. (Now, this worked for my particular course – but I don’t think it would for all of them.)

  20. Exactly right: numbers don’t lie. For your current situation try this formula:

    cash (on hand, in checking and savings accounts)
    + money to be received during the rest of the month
    – credit card balances
    – money to be spent during the rest of the month
    – money you’re putting away for future expenses (auto insurance)

    The result is your current liquidity; how solvent you are. If this number is positive, it is your emergency fund. If it is not, you need to cut out spending and make it positive. Any excess over your emergency fund can be invested for retirement.

    It’s worked for me for over 30 years and I’ve never paid a dime in credit card interest.


    Good article.

    In the health metric, a little more clarity is needed.
    -Time to jog a mile and BMI would be metrics which should decrease.
    -The number of pushups you can complete would be a metric to increase.

  22. KSK says:

    Trent,this is a great post. It really hit home for me today.

  23. TheBudgeteer says:

    This is a good example of why budgeting is so important. A budget is really just an easy way develop a clear picture how things are going financially. It’s a wonder that more people don’t do it.
    Everyone SAYS they keep a budget but really

  24. TheBudgeteer says:

    This is a good example of why budgeting is so important. A budget is really just an easy way develop a clear picture how things are going financially. It’s a wonder that more people don’t do it.
    Everyone SAYS they keep a budget but really

  25. TheBudgeteer says:

    This is a good example of why budgeting is so important. A budget is really just an easy way develop a clear picture how things are going financially. It’s a wonder that more people don’t do it.
    Everyone SAYS they keep a budget but the reality is most people try and keep track of the numbers in their head and then wonder why they can’t seem to save money. Unless your budget is IN WRITING… you don’t have a budget. What you have is a belief or a feeling about how things are which may be dangerously wrong.

  26. Johanna says:

    For basic information about well-established subjects, wikipedia is usually fine. For more obscure or controversial topics, relying on wikipedia would be a mistake, but so would relying on any other single source.

    No, wikipedia is not an appropriate source to cite in a college-level (or high-school-level) research paper, but neither is a paper encyclopedia.

    And cutting and pasting text from wikipedia will (or at least should) get you a big fat 0, but so will cutting and pasting from any other source.

    In short, most of the hand-wringing that people are doing over wikipedia is over matters that really are not unique to wikipedia.

  27. David says:

    >I can’t remember the entry, but Stephen Colbert had exploited the weakness of wiki when an experiment in mass acquiesence/approval resulted in an entirely fictitious “encyclopedia” entry.

    Some time in 2006, Stephen Colbert (for reasons best known to himself) created or edited or caused to be created or edited articles in Wikipedia purporting to show that:

    He had “always held the opinion” that “Oregon is Idaho’s Portugal” (whatever that may have meant).

    George Washington did not own slaves.

    The worldwide population of elephants had tripled in the last six months.

    Whether or not the first of these assertions was true I cannot say; the second and third were false (and Colbert knew it).

    Wikipedia reacted swiftly; it prevented a user named Stephencolbert from updating anything at all, and it took steps to ensure that its entries on George Washington and elephants ceased to contain the falsehoods that Colbert and the watchers of his show had put there. (That is not the full story: the Wikipedia block log for early August 2006 contains eight entries in rapid succession, four of which blocked Stephencolbert and four of which unblocked him again; but this is by the by.)

    Now, I don’t know what something purporting to be an “encylopedia” has to do to be considered “authentic”. But for my money, the Colbert episode demonstrated not a weakness in Wikipedia but a strength – it was able to react in real time to the apparent publication in its name of untruths, and (by all accounts) Jimmy Wales treated the whole thing with exactly the right degree of proportion as far as being able to take a joke was concerned.

    For the curious (or the true pedants), the very word “encylopedia” is a mistake – it would never have occurred at all had not some nitwits in the Dark Ages misread the Greek for “encyclical learning” as a single word. In some sense, therefore, all encyclopedias are bound to be wrong. But Wikipedia is right about most things, which is as much as we can hope for in these interesting times.

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