Home > Personal Finance > 5 Ways You’re in Denial About Your Money

Comments 0 Comments

Are you in denial?

So much in our lives is connected to money. If we choose to ignore it or downplay its importance to our wellbeing, we might soon discover devastating consequences down the road.

If you have a financial problem, the best thing you can do is confront it as soon as possible. Granted, that’s not always easy – especially if you’re a generally optimistic person.

You need to be real with yourself. In what areas of your life are you in denial? Here are some common denials that can utterly ruin you financially.

1. “I Need to Buy a Brand-New Car”

Uh, no. You don’t need to buy a brand new car.

You might say, “Well, I need reliable transportation!” Listen, reliable transportation does not equal a brand-new car. Let me let you in on a little secret: there are plenty of reliable used cars for sale.

I once had a client call me telling me he needed to cash out his IRA to buy a brand new truck. I wasn’t enthusiastic, to say the least. He then said he could gamble at a casino, win the money back, and put that back into his IRA.

The likelihood of this actually working? Close to zero.

We all know how brand-new cars lose such a huge chunk of their value once their new owners drive them off the lot. So why not buy a used car, even if it’s just a little used, and save a whole lot of money?

I actually bought a 2007 Tahoe in 2008 that was previously owned by the dealer. It had 12,000 miles on it and I saved $14,000 off the sticker price just because it was used for a little bit. And guess what? Even though it’s used it’s still a reliable car!

The last thing you want is an expensive car payment because you decided to buy new instead of used. That car payment will eat away at your ability to save and invest that money – and you can imagine how much money you could have made investing it instead of spending it.

Don’t be in denial. You really shouldn’t buy that brand new car.

2. “I Have Enough for Retirement”

Retirement is expensive. I mean, very expensive. And the scary part is, it may be difficult to determine exactly how much you’ll need during retirement.

There are many factors that go into determining how much you’ll need to invest to have a comfortable retirement:

  • Assumed future rate of return
  • Assumed future tax rates
  • Assumed future inflation rates
  • Assumed future cost of living

The list actually goes on and on. And notice, many of the factors are assumed because they are factors that may change over time.

With that being said, financial advisers such as myself can use some good rules of thumb to help you determine how much you’ll need to save for retirement from now until you retire. But remember, there are a lot of assumptions here, and a good financial adviser will tell you that.

Now that you’ve heard the disclaimer, how do you know if you’re in denial when it comes to saving for retirement? If you’re starting to feel like you’re in denial, you probably are. Most of my clients should be investing on a regular basis what they’re able. More is usually better.

I’m not telling you to abandon other important financial goals like paying off debt and giving. But I am asking you to be realistic about future unknowns and to prepare – it’s hard to over-prepare for retirement.

Don’t be in denial about the cost of retirement. It’s huge!

3. “My Employer’s Life Insurance Is Enough”

If you’re telling yourself that you probably have enough life insurance through your job, think again.

I had a friend once tell me that he had $10,000 of life insurance through his work, and he reasoned that it would be enough to bury him should he pass away. That’s probably true, but I couldn’t help but think of other expenses life insurance could help his family with should he leave the planet.

His mortgage: How would his wife pay for that once his income was gone?

The kids’ college education: Would they be able to afford school with the increasing cost of tuition?

The cost of just raising kids: Clothes, food, soccer games, braces . . . it all adds up.

With each child my wife and I had, we started realizing the importance of life insurance. That’s why I have a very sizable life insurance policy on myself.

Don’t be in denial about life insurance. Your family will hopefully never have to depend on it, but if they do, they’ll be glad you had plenty. While a sizable life insurance policy may seem financially out of reach, get a set of term life insurance quotes and you will probably find them surprisingly affordable. A 40-year-old man in good health can get $500,000 of life insurance for less than $50 a month. Since there are expenses that either spouse will incur if the other were to pass away, make sure your spouse gets plenty, too!

4. “I’m Sure My Credit Score Is Fine”

When was the last time you checked your credit score? Never? You might want to check.

Your credit score can affect a variety of factors in your financial life — including your ability to get a mortgage, a loan, lower rates on car insurance, and even a contract on a cellphone.

I remember one of my interns whose parents taught him to never get a credit card out of fear that he would run up debt. Unfortunately, it was bad advice. When I convinced him to check his credit score, it wasn’t what he wanted – but thankfully he was able to raise his credit score 110 points in five months.

If you haven’t checked your credit score lately, I encourage you to take a look and start taking some steps to raise it if it’s low — like my intern did. Sometimes, loans are necessary and having a good credit score is a great way to get them. You can start off by getting two of your credit scores for free on Credit.com.

5. “I Don’t Need an Emergency Fund”

If you’re living paycheck to paycheck, by definition you cannot pay for emergencies. Now, you can certainly borrow for emergencies – but that’s a situation you want to avoid if at all possible.

Don’t be in denial. If you don’t have an emergency fund (most financial advisers recommend three to eight months of expenses), you need to start building one up as soon as possible.

How do you build up cash when you’re living paycheck to paycheck? Slowly, over time.

You do that by starting a budget and sticking to it. Pay attention to where you’re spending your money and cut back recurring expenses like cable television and expensive smartphone bills. Do what you can to save money and throw it into your emergency fund.

Remember, the first step to avoiding financial ruin is to admit you have a problem. Once you do that, you can start opening your mind to some steps to change your situation for the better. Do it! Many people have before you, will you join them?

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team