AN002: The 3 Biggest Money Lies We Tell Ourselves

Are you a co-conspirator in derailing your future?

Have you ever shaved 10 pounds off your driver’s license weight? You’re not alone! It’s the quintessential tiny lie that millions tell ourselves. So many do it, in fact, that some states have abandoned the statistic altogether.  

Other self-deceptions are more costly, however. If you find a disconnect between what you think is your financial picture and the reality, chances are you could be denying some cold hard truths. Wishful thinking, ignoring the impact of small purchases, and adopting a haphazard saving strategy can each have a negative impact on your future. 

Lie #1: Forgetting Uncle Sam takes a cut.

When you think about what you earn, the natural response is to consider your gross, or pre-tax, salary. It’s a number that’s stuck in your head. However, it’s your post-tax salary that arrives in your bank account and pays for the roof over your head. For example, an $80,000 salary quickly melts to about $62,000 after Federal taxes, Social Security, and Medicare. (Chop off even more dollars for state and local taxes.) If you’ve ever wondered why your dollars didn’t go as far, it could be that you were basing decisions on gross dollars instead of net. 

Lie #2: It’s only a latte.

Financial author David Bach popularized the term the “Latte Factor” to explain how small expenses can compound over time. “The true cost of the latte is not the actual price you paid -- it’s the cost of the forgone interest earnings compounded over the coming years,” says Beth Deyo and the team at Financial Mentor. For example, a $6 daily expense over 30 years would cost you $271,000 -- $65,000 for the purchases and $206,000 in lost interest earnings. Check out the online Latte Factor Calculator, where you can enter figures such as expense, time, and interest, and discover the full cost of those habitual purchases. Of course, this is not about latte-shaming -- it’s about making smart, intentional decisions. 

Lie #3: Saving what’s left over.

Do you find yourself looking at what remains after you’ve paid all your bills, and then consider savings? It’s like cooking a great meal, giving most of it away, and settling for the scraps. Wealthy individuals understand the value of putting savings on autopilot, by setting up contributions before those funds even hit your checking account. Even stashing $100/month can turn into $50,000 over 25 years. Plus, it’s better to make the decision once and have it become automatic than to reconsider every time you get a paycheck. Ditch the scraps mentality. Planning for your future is too important to be left to the remnants at the end of the month.

The Best Time to Start?

The Chinese proverb states: “The best time to plant a tree was 20 years ago. The second best time is now.” It’s never too late to take a fresh look at your financial picture. Start now and build for the coming years. If you save more aggressively, you can make up for some lost time.

Remember, money strategies are never black-and-white, all-or-nothing. And no one is ever perfect when it comes to financial discipline. It’s not easy. You need to build something specific to you, and it will take time to change habits. Create a solid foundation for your financial future by spending based on post-tax dollars, being smart about incidental purchases, and putting away savings right up front. Isn’t it a good day to plant a financial tree?