Thinking like a pessimist can lead to healthier financial choices

Article content

Q: My partner and I are planning to move in together to save on rent, but we have very different ideas about how to manage money. He saves and plans for the worst, and then has trouble spending what he saves when things go well. I on the other hand tend to view life a bit more favourably, that things will turn out just fine as they always do. I keep my line of credit as close to paid off as I can, so that I can use it if I have an emergency. Right now I’m still working on paying off what I spent at the start of the pandemic. But this makes me think I should manage my money a bit more like he does. Is one approach better than the other? ~Suzanne

Article content

TO: Everyone enters a relationship with their own way of managing money. We tend to develop our habits early in life and they become more entrenched the older we get. While there is no one right way to manage money, there are easier and harder ways to get by.

When you combine your finances with someone special, take what works the best for each of you to create your joint system. To do this successfully you need to commit to keeping an open mind and ongoing communication with your partner. Trial and error will help you refine what works best for you.

Ironically, being somewhat pessimistic can lead to a lot of healthy financial choices. According to our recent report, 28 per cent of Canadians surveyed feel pessimistic about their personal finances heading into this year. While it might be easy to come up with a list of reasons why that might be, here’s how to take advantage of those pessimistic feelings as you look toward your future.

Article content

Your perspective can impact how you use credit

Optimists and pessimists often have very different attitudes toward the use of credit. Credit, by definition, is buying something now with a promise to pay for it in the future. If you feel optimistic about your finances and overall situation, you might not give paying for future obligations a second thought. Optimists are less likely to assess their future risks objectively (eg job loss, family separation, health scare) and believe that with life going well, debt won’t become a problem.

Conversely, those with a more pessimistic outlook prefer to avoid debt. They will choose a low-interest credit card with few other benefits over one with an annual fee, loyalty points, and higher interest rate. Pessimists expect future challenges and do their best to plan for them. By incurring less debt and more favorable terms and conditions for repayment, they protect themselves from the fallout of life’s inevitable bumps and bruises.

Article content

Regardless of your perspective, adopt an attitude toward credit use that blends the best of both extremes. Keep in mind that life will throw you a curveball eventually. Avoid getting in over your head with debt so that you don’t end up in an unmanageable struggle to deal with it should your circumstances change. However, only expecting positive outcomes isn’t realistic either. That type of optimism is like gambling, only the next play is never guaranteed to be a jackpot. Instead, establish a realistic budget for your household and score your own big win with a solid plan to achieve your goals.

4 Ways to Tell If Reward Credit Cards Are Worth It for You

A pessimistic outlook can lead to increased financial knowledge

Those who are somewhat pessimistic are often more cautious with the decisions they make, and their outlook can impact virtually every aspect of their finances from spending to saving, investing, and borrowing. It often means that they don’t accept the advice or information they’re given at face value, and question people’s motives. Pessimists are less likely than optimists to fall for offers that sound too good to be true, salespeople who make once in a lifetime propositions, or deals that come with a free gift.

Article content

Not readily trusting what you hear or read and doing your own fact-checking is important when it comes to your money. Increasing your level of financial literacy helps you gain valuable skills and confidence so that you know what to watch for and which questions to ask as you make financial decisions for the wellbeing of yourself and your family.

How to Use a Credit Card and Not End Up In Debt

An optimist may defer saving and losing valuable time

The further off a goal, the harder it is to motivate yourself to work on it. Think about a goal of saving for retirement. A young person starting their first job might not worry about saving for retirement because the goal is a distant dream for them. However, someone closer to the end of their career might be extremely motivated to top up their retirement savings account.

Article content

While motivation plays a role in achieving our goals, so does our level of optimism or pessimism. Those who are more optimistic fall into the trap of delaying how much they save. They believe that they can save money later when their income is higher, when family obligations are less, or once they’ve paid off their debt. They may even overestimate how much they can realistically save in any given period of time.

Do You Think of Savings as An Important Expense?

A pessimistic outlook can counteract the tendency to delay meaningful action on long-term goals. When it comes to saving, it’s easier to contribute small amounts regularly over a longer period of time than it is to suddenly save large sums of money. While many with a pessimistic outlook don’t hold much hope that they can change the outcome of a situation, by taking steps to do what is within their control they are able to focus on the present and regain a sense of optimism.

Article content

Don’t let positive thinking get in the way of achieving financial goals

Armed with optimism it’s easy to visualize the future we want. It might even play in our minds as the highlights reel of our favorite social media influencer. Whether it’s a large home, lavish lifestyle, humble abode off the grid, or life on two continents, along with our dreams, we don’t normally imagine the effort it takes to transform them into reality or ways to overcome the challenges that we’ I’ll face along the way.

However, life’s road is filled with bumps, bruises, and even potholes. We’re more likely to give up on our dreams if we don’t incorporate overcoming the bumps and bruises into our plan. Those with a somewhat pessimistic view tend to plan for life’s detours. They are prepared for the worst, which could help them manage their finances more successfully than someone with an entirely optimistic outlook.

Article content

4 Common Financial Goals and How to Make Them SMART

The bottom line on feeling pessimistic about your money situation

Regaining your financial stability after the pandemic — coupled with the ever-increasing cost of living — has caused many Canadians to take a pessimistic view about their finances for the year ahead. While that might lead to a more balanced approach to managing your money in the long run, it can contribute to ongoing uncertainty about your financial well-being in the meantime. Take steps to control what you can and seek help from an accredited, non-profit credit counseling organization in your area if you need it. A credit counselor can help you create a realistic plan to regain control of your finances and look forward to a stable financial future.

Related reading:

Is the Rising Cost of Living Stressing You Out? Tips and Solutions

12 Ways to Save Big on Groceries

Tips to Manage Your Money Better

Scott Hannah is president of the Credit Counseling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by e-mailcheck nomoredebts.org or call 1-888-527-8999.