5 Common Financial Brain Farts

The world seems to be spinning at such a rapid pace that the many basics of money are neglected. It is these small lapses of financial common sense that foster a trend of bad habits.

Take out the numbers and look at the fundamentals. With a hint of logical reasoning, our personal finance management skills would become that much more powerful.

1. Buying stock is buying part of a business.

The mentality of investing in the stock market has drifted to a point where people are buying stocks and praying for the share price to go up.

Too often is there a voice saying that stocks are a way to make money while the fact is that it is actually a purchase of part ownership in a company or business. Sure, the desired result for everyone is a profitable return but stocks aren’t lottery tickets. In the end, the business has to do well for the investor to do well.

So, stop asking what is a good stock. Instead, start asking what is a good business that you don’t mind owning. Personal finance experts have recently been trying to drive this point home because many rookie investors omit this reasoning in their investment decisions.

2. Credit card purchases are loans.

We are oblivious to the fact that every time we swipe our credit cards, we are actually borrowing money with the agreement to repay the amount, plus interest. If someone is unable to pay the balance in full, the purchases are bound to cost more than the prices that appear on the receipts.

Credit cards are designed so that we can escape that reality. The form of seemingly simple plastic cards that, when swiped, allows us to buy things we cannot afford reminds me of the granted wishes with the rub of a genie lamp. Unfortunately, a credit card is the magical lamp containing the devil disguised as a genie.

The convenience and accessibility of credit cards exist to keep us spending without this fact ever crossing our minds. If we had to sign a bunch of forms for every time we made a credit card purchase, we’d all be much more reluctant to incur more credit card debt.

3. Banks are out to make money.

Banks are financial institutions that operate for a profit. For them to profit, there has to be a way for them to take money from their customers.

I find it funny for a bank to claim that they have your financial goals in mind. Make a late credit card payment or overdraw your account and see how much they care about helping you reach your goals. When you stop to think about it, the bank’s ultimate goal to draw a profit conflicts with the customers’ ultimate goal of saving money.

4. Founders of get-rich-quick programs aren’t rich, yet.

If you’ve ever been home on a Saturday afternoon, you’ve probably seen one of these paid advertisements on TV touting an ambiguous program on making thousands of dollars with little to no effort in a matter of weeks.

You’d expect the people, who teach you to get rich quick, to be rich as well. Right?

Now ask yourself: “why would someone, who knew the secret to achieve instant wealthy, contemplate sharing this knowledge with someone else?” Would you share these secrets if you were in this position? I sure wouldn’t. And, if I genuinely wanted to share the wealth, I wouldn’t charge you for it.

5. Spending isn’t saving.

An avid shopper may tell you that a sale is a once-in-a-lifetime event that mustn’t be missed. If such an awesome deal was never presented to us, would we have spent the money to buy something at a discount? If we didn’t have a super savings coupon, would we have even walked into the store?

Now, if we hadn’t bought anything, what wasn’t spent was saved. But, if we bought something and spent money, did we really save anything despite getting a discounted price?

We didn’t save – we just spent less, which is technically still considered spending.

I know I missed many other obvious financial concepts that must’ve influenced the way you handle money. Share the logical reasoning behind them so that other readers can benefit from the cold, hard truth!

(Photo credit: banjo d)

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