New Year’s Resolutions are about positive thinking — forgetting what’s behind and looking forward to a clean slate and the potential for achieving goals. While we do need to believe in our ability to make good choices, change habits, and plug away at our goals until we reach them, too much of a positive attitude may lead to disappointment when things don’t go as planned (often due to circumstances beyond our control). Even the superstar of optimism needs a little pessimism in their attitude to prepare for the reality of life. Consider the following reasons why having a pessimistic attitude toward your finances can keep you safe from money troubles and prepared no matter what life throws at you.
Having a pessimistic attitude means steady but sometimes slow debt repayment.
The central focus of many financial New Year’s resolutions is getting out of debt. Those determined to become free no matter how much debt they have, and regardless of their monthly income, may tend to sacrifice security for the sake of achieving their goal. Obviously, getting out of debt is an excellent goal, and it’s not always unrealistic to do it in just 12 months. But sometimes it is. Just as it takes time (often years) to get into serious debt, it can also take time to get out of it. If you’re really serious about getting out of debt, you might take on an extra job, cut the fat from your budget, sell some stuff, and throw every extra penny you have toward paying it off. There’s nothing wrong with any of this, unless it’s compromising your financial security by putting you in a precarious position. If you don’t have sufficient savings, allocating too much of your income toward debt repayment may land you in even worse debt. With no cash to fall back on, you’ll have to use your credit card to deal with emergencies. The key to avoiding this danger is to determine what you can modestly afford to put toward your debt every month without compromising emergency funds or other designated savings.
Having a pessimistic attitude toward your finances means building an emergency fund and expecting things to break.
Contrary to some people’s thinking, a ‘rainy day’ doesn’t refer to being cooped up, bored, and having nothing better to do than spend money. Saving for ‘rainy days’ of misfortune, illness, job loss, or other financially detrimental circumstances is as simple and practical as building an emergency fund. A commonly recommended emergency fund consists of 3-6 months of expenses which you only touch in case of a real emergency; poor planning shouldn’t constitute an emergency. Whenever you dip into your emergency fund, you should replenish it as soon as possible — a greater priority than extra payments toward your debt.
A financial pessimist also strongly believes in the law of entropy. Everything is lapsing into a state of greater disorder and disrepair, and practically, this means your material possessions. Regular maintenance and replacement of your more expensive belongings is important to factor into your budget, not your emergency fund. Setting aside $20 a month is much more feasible than trying to scrape together several hundred dollars for new equipment when it breaks.
Being a financial pessimist means hoping for the best but planning for the worst in both yourself and others.
I personally like to believe the best of other people and of myself, but I often end up disappointed in both. This doesn’t mean you can’t trust people or believe good will ultimately prevail. Avoiding the dangers of lending to family, declining to co-sign for a loan, and protecting yourself from the temptation of your old spending habits are just a few ways to keep your finances unharmed when you’re let down. After all, we’re only human.
Being financially pessimistic can save you from vulnerability, debt traps, bankruptcy, the failures of others, and ultimately your own shortcomings. Building an emergency fund, paying off debt cautiously, and planning for the worst case scenario will help you get further ahead faster in your personal finances.
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