We’ve all experienced the startling feeling of a car driving up alongside our vehicle that we had no idea was there. The places where those cars “hide” are known as blind spots, and they’re just that— areas we are either completely unaware of or we simply ignore. We all have these blind spots in our lives, too.
When blind spots are financial, they can work against us, unintentionally sabotaging our good efforts to make progress with our money. Proactively searching out the aspects of our financial lives that we’ve neglected can yield many rewards, financial and otherwise.
A few years ago, a mentor and dear friend of mine did just that. She worked with a career counselor to uncover her professional blind spots. During the process, she asked for my feedback, and sent me a packet with questions about my experiences working with her. In her introduction letter, she implored me to be “extremely honest.”
Upon reading those words, the hair stood up on the back of my neck. Requests to be brutally honest signal the danger of a possible relationship-ender. Since she was taking it so seriously, I did, too, and answered this question honestly for her: “What have you most wanted to tell me that I have least wanted to hear?” I shared with her some things about “asking versus telling” and listening more to gain full understanding. With a gulp in my throat and a shaky finger, I hit “send” on that email.
Fortunately, the friendship not only survived but became stronger. I respected her even more since she was brave enough to ask such a tough question and to be open to the response. My friend and I often seek each other out for honest opinions. In her case, once some light was shed on her blind spots, she found it very easy to make changes. Since then, in my work as a financial planner, I’ve been keenly aware of my clients’ possible blind spots in their attitudes about money.
Here are five common financial blind spots I’ve encountered recently:
Making a mountain out of a molehill (while ignoring the actual mountain).
One of my former clients was deeply in debt—including student loans, credit cards and an auto loan. Yet, in working on the budgeting area of his financial plan, he refused to stop using his credit cards for daily expenses. His reasoning? He didn’t want to pass up discounts on airfare and hotels from his rewards card.
Of course, I am all for discounts and travel points—but only when there is no cost to attain them. My client, however, was so focused on getting rewards points (a minor benefit) that he ignored the fact that he wasn’t tackling his credit card debt (a major financial hurdle). In order to get out of debt, he needed to take the first step and stop using his cards. When I dug deeper into his financial situation, it became apparent he couldn’t afford to take the trips he was saving the points for in the first place.
The simple solution: Call in an expert to look for any major areas of weakness in your financial and retirement planning. If you don’t have a financial planner, find one! Some resources are Let’s Make a Plan.org (where you can find a Certified Financial Planner™ professional) and NAPFA.org (for fee-only planners).
Assuming saving and investing will be easier in the future.
Many people get into an “I’ll save and invest more when …” mindset. Insert: I get a promotion, I find a new job, I finally get that raise, I get married, the kids are out of school, etc. The problem is that tomorrow usually comes with its own set of challenges, so it’s not magically easier in the future.
I recently heard an interesting take on “the future” by architect Paolo Soleri, in an interview shown at the Sundance Film Festival last month. He objected to the interviewer using the term “futuristic,” and went on to say, “We only have the present and this very moment. This moment is constantly moving into the past. This is what creates history.” His way of looking at time might sound esoteric, but it makes sense to embrace the concept in this context. If you can’t save or invest now, what makes you think you’ll be able to in the future?
The simple solution: Prioritize savings and investing today—right now, no matter the amount and no matter the circumstances. What matters most is working toward your goals today, and not assuming that it will somehow be easier in the future.
Not expecting the unexpected.
A common excuse I hear from clients as to why they don’t have an adequate emergency fund is that “something unexpected came up.” Many people don’t budget for irregular expenses that actually are expected, such as birthday and wedding presents, vacations and property taxes. These expenses don’t fit in the monthly budget, and therefore often get forgotten when allocating your cash for the month.
The simple solution: Budget for irregular expenses on a regular basis. Determine an estimated annual amount and set up an automatic monthly transfer to a separate savings account that you can tap into when the expenses hit. In addition, save regularly in your emergency fund for actual emergencies.
The need to do everything right—right now.
This might seem counterintuitive, because we want to do the right things. However, it’s not always possible to do them all at once. For example, I had a financial planning client who was committed to paying off her credit cards every month, but was always borrowing from her 401(k). When I took a look at her budget, I saw that she was doing all the right things … to an extreme. She ended up shooting herself in the foot financially. She had an automatic transfer from her paycheck to a savings account, and she saved the maximum in her 401(k) up to the company match. Since her company matched her Employee Stock Purchase Plan purchases, she contributed the max there, too. Because she was doing them all at once, she didn’t leave herself enough money to live on. As a result, she was frequently raiding her savings and borrowing from her 401(k).
The simple solution: Set up savings and investing amounts that stick. Then gradually increase them rather than attempting to get to the maximum immediately.
Throwing your hands up while continuing behaviors that don’t serve you.
One of my budgeting clients used to send me emails saying, “I know we shouldn’t have, but …” or “I just couldn’t help myself.” In his case, he was usually talking about overspending on entertainment or taking a vacation he couldn’t afford. But he isn’t alone—changing behavior isn’t easy.
The simple solution: Use one of the many budgeting software programs out there or something your bank provides, and track your spending. To make it easier to stay on budget in areas where you tend to overspend, transfer funds to a pre-paid debit card each month for discretionary spending like shopping, entertainment and vacations. If you don’t have the money accessible, you can’t spend it.
My blind spot-seeking friend is the only one I can recall ever asking me for this type of professional feedback. She is not only brave, but also very wise. Just remember: When you are trying to learn your blind spots, don’t shoot the messenger!
Source: Forbes Auto