Need Financial Help? Consult Your Psychologist
Recently at work, I had a conversation with an upset customer concerning the changes made to his credit card account. Currently, the customer’s card is separated two accounts, one that charges a 21% interest rate and another that is interest free as long as he makes his monthly $40 payment. What the customer wanted to do was completely pay off his non-interest bearing account.
Normally, this would not have been a problem, and the customer’s request would have been easily fulfilled. However, thanks to the 2009 Credit Act that went into effect on February 22nd, it is now illegal for my company to allow him to do so. This act is designed to protect consumers from unsavory credit card company policies that would apply payments to the accounts with the lowest interest, resulting in more profit for them and more financing charges for the consumer.
Getting back to my story, you may be wondering why someone would want to pay off the account that charged no interest first. In this particular case, the customer explained that he just wanted to have one account, wanted a “de-cluttered and less confusing statement”, and just wanted to be rid off the extra account. Although I tried to explain the new law and why he would be better off applying the extra payment to his account that was enduring 21% interest, he left frustrated and unhappy.
Now, I do not think that this customer was just crazy or naive of financial matters. In fact, he is actually a successful account executive for a Fortune 500 company. Instead, I think he was just making his decision based on a idea stuck in his head rather than a financial reason. This situation made me wonder if I make some of my own financial decisions the same way. Unfortunately for me, after doing some analysis I found that I am guilty of doing the exact same thing. The following are some the the things that I do with my money that really make no financial sense.
1. Insisting on keeping a set amount in my checking account at all times. I am not sure how I came up with this arbitrary amount other than it is a nice round number. This amount covers my monthly expenses about 5 times over. There is absolutely no logical reason why I never let my balance fall below this amount. If I were thinking with my financial side of my brain, I would cut the amount in half and put the rest in my ING account and earn some extra interest. Even though I know this is the right thing to do, I can’t seem to overcome my mental block.
2. Overpaying my taxes all year so that I get a nice refund. Surely, this is a very common practice. Millions of Americans use this method because they think they would just spend the extra money in each paycheck and use the tax refund for a major purchase or vacation. But of course, this makes no financial sense. Basically you are allowing the government to make interest on your money all year just because you don’t think you have the discipline to save it yourself.
3. Ignoring my long term debt. I do this with my student loan. I could easily pay it off completely, but just do not want to see the money leave my checking account (see #1). So instead, I incur the 3% interest rate and waste $350 a year on interest. There is a part of the brain that just keeps on telling me that this type of long term debt does not count and that I should just continue making my payments and settle it in 16 years. Many people do this with their mortgage. Paying extra on your mortgage can help pay it off years in advance. Still, this usually proves to be much easier said than done.
4. Taking part in the Sunshine Club. What is the Sunshine Club you ask? The Sunshine Club is my work place’s weekly lottery program. Each member puts in $5 a week and we take turns buying the tickets, dreaming of winning millions. Even though it is fun thinking that we have a chance to win and quit our jobs, the odds are unbelievably against us winning the jackpot. Still, we throw away over $250 a year in pursuit of this improbable dream.
Although I do consider myself to be knowledgeable about personal finance (after all I occasionally even write about it), it is alarming that I still do the above things that are not financially logical. I guess to seek some professional help.
So move over Dave Ramsey and Suzie Orman, I will be turning to Dr. Phil from now on for all my financial advice 
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Filed under: Personal Finance
I think there should be exceptions to this card act rule, like if the customer genuinely wants to pay and stuff. This was made to be convenient to the customers and favorable to them so it does not make sense.
I see a new business opportunity–financial counseling! We can practice on ourselves first..and then open the business..and quit our day jobs
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I think there should be exceptions to this card act rule, like if the customer genuinely wants to pay and stuff .
Hi it is nice reading your article. Financial counseling is a new business opportunity. Financial counseling can help lot of financial problems of individual and even state. Its good that you think of such a unique business, do post more on this.
Makes sense. You definitely need to get yourself to spend money more wisely.
It looks as though we will be seeing some of the first serious credit card reform since…well, ever.
[...] Red Stapler Chronicles' realization that when it comes to our money, most of us need psychological as well as mathematical [...]
oh my gosh I do the exact same things. I too have that mental block about having so much in my checking account at all times. I freak out if it gets below that number. I just did my taxes and called my husband to claim more exemptions because after 10 years of big refunds what the heck are we doing?
Thanks for sharing, looks like I need to consult a financial psychologist immediately. But I must admit, those help can really assist you with your financial obligations and problems especially those who have very hectic schedule.
[...] Need Financial Help? Consult A Psychologist by Red Stapler Chronicles. Indeed, personal finance isn’t all about the numbers. It’s about finding a balance between getting the best results for the effort you’re willing to put forth. Yeah, I could end up $531.12 richer by refinancing my mortgage right now. But is it worth the effort? Not even close. I value my time far more than that. [...]
I do the same think with my checking account. I guess it stems from the fear that I’ll get slapped with a huge overdraft fee because I accidentally wrote a huge check from the wrong account or something along those lines.
I only pay cash and never use credit but I guess i’m a saver and not a spender…
#2 is something that many people don’t realize. Most people think it’s a great thing to get a huge tax return. But like you said, it’s actually very bad. Owing the government money at tax time means you’ve had control over THEIR money rather than the other way around.
Of all of these, #3 sticks out more than the rest. The government is collecting interest on your money and what they do with your money, Just spend it on failing programs and claim that we are in a deficit. It’s time to change the system around and change that rule.
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I think that keeping 5x of your monthly expenses in your checking account is a hedge for any untoward happenings, like losing your job and all that. At least you’d have 5 months as a buffer and your lifestyle wouldn’t change. It’s also a realistic time frame for you to find a job in that situation. For most “experts” it should cover at least 6 months.
As for the other, you’re right. You must be crazy.
I think truly examining yourself is a great way out of debt. Quite often, spending money and mounting up debt is very much to do with mental well being, in many cases.
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