How an Inaccurate View of Your Finances May Be Costing You Money

cofotoisme / Getty Images

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Money is something everyone wants to have, but few people want to talk about or even think about. When times are tight, it can preoccupy your thinking. When times are good, it’s easy to put money woes out of mind.

While the term “financial dysmorphia” has been flung around to mean many things, ranging from being overly insecure about your finances to having an overly optimistic view that isn’t grounded in reality, not viewing your finances accurately is likely to cost you money one way or the other.

Take a look at how to get grounded in reality when it comes to money so that you can be on solid financial footing.

Optimism at a Cost

Whitney Pintello, an artist in California, and her husband, Charlie, who works in manufacturing, are what she called “optimistic spenders.” They have tended to take risks and spend in ways that presume the future will always be as bright or lucrative as the present. 

Pintello’s income has been feast or famine, while Charlie’s is a stable salary. In the past, they’d always relied on his income to pay the bills and necessities and her less predictable income to pay for other expenses. That worked for a time, particularly in the past two years when, in addition to her husband’s solid salary, Pintello’s artistic income was at a high.

However, in the past year, her business income has “tanked,” she said, and suddenly all the things they were treating themselves to during the pandemic have caught up with them.

“We didn’t see this coming, and we ended up maxing out our credit cards. Now we’re putting ourselves on a much more rigid plan and a much more realistic plan,” she said.

Not Holding Each Other Accountable

One of their money issues, Pintello said, is a little unusual — they don’t fight about money. In fact, they do the opposite by encouraging each other to spend in the ways they want to, which she called “very codependent.” She said this stems from wanting to be reassuring to each other. 

“I think optimism or dysmorphia is at work. Neither one of us wants the other one to ever feel worried, threatened, unsafe. And I think part of that has led to an unrealistic look at what we can afford,” she said.

No Emergency Fund

They also found themselves in this tighter spot without an emergency fund, and now that the more generous income of the past few years has ebbed, they’re hitting a wall. Part of this is compounded by having an active group of friends who often want to do things together that cost money, such as dining out or vacationing. 

“So you put this dinner or this vacation on a credit card and it seems fine partly because you want to belong. But the difference is I’m probably sitting next to somebody who has a savings account and I don’t,” she explained.

She said it’s not that she wants to “keep up with the Joneses” so much as sometimes just wanting to live her life while she’s still young enough to enjoy it or travel with her young adult children. “However, I also don’t want a 25% credit card rate either. So there’s an in between and I haven’t always thought that through,” she admitted.

Changing Habits

Since they’ve hit these harder times, Pintello and her husband are changing their habits. They’ve stopped viewing their available credit as “a pile of money that’s available” to them, for one. They’ve also scaled back on their leisure spending, and they’re not fussy about cutting back. And, as recent empty nesters, meals have become simpler and cheaper, and there is plenty to do that doesn’t cost money.

They’ve also begun to work on saying “no” to each other about spending they are planning to take on.

Track Your Spending Proactively

One way to get around some common problems that come from not being realistic about your finances is to track your spending proactively, according to Elizabeth Pennington, CFP, senior associate with Fearless Finance.

Pennington sees people fall into overspending habits either through impulse shopping or by making multiple shopping trips. “Individually, each purchase feels like nothing, but they can add up to a significant portion of your monthly spending, sometimes to a dangerous extent,” she said. 

The No. 1 thing you can do to mitigate that is track your spending proactively. “Checking your card statement at the end of the month will just make you feel guilty — regret and shame aren’t all that helpful for changing behavior moving forward,” she said. “But if you give yourself a certain amount to spend on discretionary purchases monthly and you track that number in a forward-looking way, you can make decisions about what you can afford each month with confidence, before you’ve overspent.”

Adjust Your Attitude

Another cause of financial problems, Pennington said, is when people entangle the idea of wanting something with the idea of deserving something, which are not the same. 

“Working hard doesn’t mean you deserve an Instagram-worthy vacation if you can’t afford it. However, we all deserve basic financial security, in the form of saving for retirement, having an emergency fund and being free of consumer debt that can weigh down our lives. Reframing that mindset of what we deserve can go a long way to help adjust our internal views of our finances,” she said.

Get Educated

So many of the financial issues that Raman Singh, CFP at Singh Private Wealth Management, sees stem from having poor financial literacy or letting someone else dictate your financial choices.

He’s seen everything from someone who reinvested their 401(k) into penny stocks that tanked the value to a fraction of its original value to someone cashing out a retirement account to put it all into gold, only to pay nearly 50% in taxes and losing significant money. 

“People are either misled or don’t understand how the investing world works,” Singh said. “Go back to the basics of financial management. Invest in your financial education. If you don’t know about personal finances, go study this stuff so you can make better decisions.”

Don’t Look For Shortcuts

Another problem Singh sees is people looking for financial shortcuts. “We want things now, faster. We want to work 10 hours a week and make $500,000 per year. This is not realistic. If people stopped taking shortcuts, we could prevent this dysmorphia,” he said.

Better yet, don’t live your life as though financial issues won’t crop up. “Nothing bad is going to happen to us … until it does,” Singh said.

In other words, plan for emergencies and unexpected costs so that you’re prepared when they happen. Most importantly, take an honest look at your finances so you can work with what you actually have.

Share This Article: