Moolala : Why Smart People Do Dumb Things with Their Money (And What You Can Do about It)

Have you ever noticed that smart, capable people sometimes do dumb things when it comes to their money?

Smart people can file their own taxes, brew their own beer, teach high school, write a marketing plan, fix the blinking clock on the DVD player, navigate the Métro in Paris, and even raise teenagers. And yet, these smart, capable people often do dumb things when it comes to their money.

I like to think I'm pretty smart. Not Mensa smart. But surely smart enough to have avoided the Nortel Networks debacle.

What was I smoking?

The telecom industry was in disarray, and Nortel had laid off tens of thousands of employees. Regulators were pressing charges against the company's CEO for accounting irregularities, but I thought the stock was a good buy. I really thought that Nortel would be able to weather the storm, beat the odds, and rise again. At the time it seemed to me that buying shares in Nortel was almost a patriotic act, the modern-day equivalent of buying a war bond. I could actually play a part in the company's resurgence by investing in its stock while it was trading for less than the price of a loaf of bread.

Ha. We all know how that turned out. Nortel went bankrupt, and whatever parts of the business that were still left were carved up and served to hungry buyers from around the world, leaving virtually nothing for shareholders.

Shareholders like me.

Like millions of other smart, capable people, I have bought shares in companies that imploded spectacularly. I have faithfully held on to mutual funds that underperformed year after year after year, never stopping to compare their performance with those of other funds. I once bought a "tax shelter" that lost half its value in the time it took for me to walk from my financial adviser's office back to my car. I spent years in a warm, comfortable daze, blindly putting money away into my investment account but absolving myself of any personal accountability for how my investments performed once the money got there. And perhaps most damaging of all, I failed to make the connection between getting a handle on my money and achieving my goals in life.

Perhaps you know someone like me. A friend, a family member, a colleague, a spouse? Or perhaps that someone is you. If so, you're in good company. There are lots of people like you and me who have an education, a stable job, and reasonably good spending habits, but who are not doing all they could be doing with their money.

As smart and capable as you are, you've probably done a few dumb things with money in your time. Trust me, you're not alone.

Here are a few examples from the Moolala Community:

Have you ever noticed that smart, capable people sometimes do dumb things when it comes to their money?

"I spent over $4,000 clearing away one year's worth of unpaid parking tickets."
—Todd, 39, MBA grad and mid-level executive. Married, with one child.

"I procrastinated on finishing the renovations to my basement suite and getting it rented. The delay cost me $10,000 in lost income from the year it was vacant."
—Misty, 29, realtor. In a relationship.

"When my mom died I received $30,000 from her insurance company. I paid off some debt, gave to a few charities, and then lived off the money for a year. But I really should have had a plan for the money, investing some of it or using it for a down payment on a house, because now I have nothing to show for it."
—Skye, 33, entrepreneur. Single.

"I have spent ten years with a company that has a matching program for RRSP contributions. I didn't enrol in the program until recently so I missed out on having the company match contributions worth 5% of my salary each year. That works out to about $3,000 a year or $30,000 over the last ten years, not including the increase in the value of the investments themselves. I missed out on a huge amount of money simply because I didn't fill out the @#$#@%^* form."
—Naheed, 42, project manager. Married, with two children.

"I was crazy stressed about my credit card debt, but then I saw a huge sale on hot tubs. I had never really dreamed about owning a hot tub, but I bought it anyway because it was just too good a deal to pass up."
—Colleen, 32, stay-at-home mom. Married, with three children.

"Back in university they were giving credit cards away like Hallowe'en candy. That was great... until the bills arrived. I now live under this cloud of debt, just as I'm trying to get established in my career."
—Derek, 24, engineer. Single.

"During university I got involved in multi-level marketing, and started selling home water-filtration systems. I 'invested' $750 to get my entry-level kit, which was huge money for me at the time. I went to the meetings, tortured my family and friends by making them sit through my demos, and had three of the stupid things in storage for YEARS until I finally threw them out to exorcise the demons."
—Lilly, 41, consultant. Cohabiting with her boyfriend.

"We have a great house and a cute little cottage but very little else in terms of retirement savings. We'd like to retire in the next fifteen years, but we really don't have a plan and fear that the only way to afford it will be to sell our homes."
—Jacques, 48, IT professional. Married.

"I haven't contributed to my RRSP in years. I just didn't see the point and spent my money on other things."
—Markus, 43, pilot. Single, with two children.

"A friend at work told me about this junior oil and gas stock that was about to skyrocket. I put in $7,000 when it was trading at $1 a share. It is now worth a dime."
—Adam, 49, consultant. Single.

Why do these things happen? Why does almost everyone I talk to nod their head in agreement when I observe that "smart, capable people are doing dumb things with their money"?
THE C FACTORS
There are people who have gotten a handle on their money and people who haven't. In my experience, the difference between them boils down to four key factors that I call the "C Factors."

1) Context: Smart people do dumb things with their money because they haven't created their own context for money. Instead, they have the context they inherited from their family and/or the one pushed onto them by the society in which they live. Neither of these options help smart people do smart things. When you create a context for money that is relevant and empowering to you, doing smart things with your money becomes a heck of a lot easier.

2) Consequences: Smart people sometimes live in denial about the consequences of their behaviour around money. You might intentionally avoid looking at the impact of the choices you make (or don't make), or simply remain pleasantly oblivious to it all. Addressing the consequences of the behaviours that are not working for you allows you to look at your situation more objectively. Once you do that, you can adjust your behaviour to help you get what you really want in life.

3) Complexity: Smart people often mismanage the level of complexity they need to have with their money. You might have too much complexity (buying the "hot stock" on a tip), or you might have too little (not understanding how your company's RRSP matching program works). Finding the right level of complexity for your circumstances and interests can go a long way towards lowering your stress and increasing your results.

4) Community: And finally, smart people do dumb things with their money because they don't engage the community of people around them. You turn to your friends and family for support in many areas of your life - like raising kids, advancing your career, and having a rich social life. Engaging those same people to help you in getting a handle on your money will increase the probability of you having the life you want.

In Step 1 of the Moolala Method, we will lay the foundation by tackling each of the C Factors one by one. We will look at the challenges they present, and then I'll show you some simple strategies that you can use to make the C Factors work for you. You'll learn how to create your own context for money, how to address the consequences of your behaviours around money that are not working for you, how to find and manage the level of financial complexity that's right for your situation, and how to engage your community to help bring what you want to fruition. These strategies are the foundation you need to get a handle on your money so you can live the life you want.