Fooling Yourself

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.