Good-bad, wrong-right, smart-dumb, and black-white are all far too common mental models in society. For personal finance, this type of thinking can lead you into making poor decisions. You might often hear:

  • You should buy a house because you’re throwing money away renting.
  • You shouldn’t buy your daily coffee because it compounds into a lot of money over the year.
  • You should get an additional or graduate degree because a bachelor’s degree is like a diploma these days.
  • You should hire a financial adviser because their returns are better than what you could get.
  • Travel young because once you have kids all of your fun stops.

There’s no shortage of opinions for what you should do with your money. But conventional wisdom can be harmful if taken at face value rather than tweaking it to your own situation. If you are learning how to be smarter with your money and are being intentional with your choices, only you get to determine what is the smart choice in your specific situation.

But be careful, sometimes we let our egos get in the way of smart financial decisions. Like justifying your fancy leased car when we have bigger bills, bigger goals, and people to look after. Instead of accepting things at face value, stick with the basics and block out the rest until you learn the full argument.

Let Go of the black-and-white mindset

Our physiological environment should partially determine the personal finance choices we make. Take credit cards for example. If you’re spending way more than you make, then a credit card is probably a bad idea for you. However, if you use a credit card responsibly to rack up points and while paying it off at the end of each month, you’re probably getting great value from the card.

Likewise, if you’re racking up student loan debt to get a graduate degree that you passively hope will lead you to your dream job rather than putting in the work, being more strategic with networking or gaining more relevant experience, then more schooling might not be the best starting point. However, if you have clarity around what you want to do and it requires an advanced degree, then getting a graduate degree is a no brainer. Responsibly of course.

there are still bad choices

Make no mistake, some choices provide little to no value. And PLEASE start treating your debt like more of the emergency it is. Like paying the minimum credit card payment with high interest. Or spending more than you make on impractical possessions. If you’ve never taken time to learn the consequences or risks behind these mental models, then you’re more likely to run into trouble.

For some people, they believe they have their debt situation under control and are OK with carrying debt. It might make sense to make the minimum payment on a car loan if you got a 0% interest rate. But often when you learn more about the details of some financial situations, you see the flaws in logic. Humans have a great ability to find reasoning to justify even poor decisions, just like we want to justify the things we want to be true.

Even with great decisions, there’s such a thing as overdoing it. Like the person who stresses over every single little purchase, trying to beat the stock market by picking stocks, or buying luxuries they can afford all while never asking what it is that is truly making them happy. (Hint: It’s often not material possessions.)

It can get complicated

Carrying debt may be causing a lot of harm for folks who might have:

  • Money anxiety
  • Childhood trauma around money
  • Scarcity mindset
  • Addictive personalities
  • A hard time with moderation

Even the Dave Ramsey mindset of eliminating debt at all costs can cause immense stress. This gazelle intensity can also cause you to fixate on what you don’t have or how much money you owe or don’t have throughout your day making you feel shameful about every purchase.

The Takeaway

We live in a grey world so let’s stop feeding people black and white solutions without knowing someone’s financial situation or psychological tendencies. Rather than accepting that all debt is bad or another out-of-the-box suggestion that may have worked for another person, it’s more helpful to think about basics that lead to financial freedom, such as:

  • Avoiding debt and high-interest rates over time
  • Saving 5% of your income
  • Investing 10-15% of your gross income in low-cost mutual funds
  • Not spending more than you earn
  • Freedom for guilt-free purchases

Looking at debt or money in a good vs. bad way is overly simplistic and will lead you to poor decision making and feeling confused around finances. Instead, personal finance should be made simple if you want a rich life. Stick to the basics and learn the complete picture of a financial decision before blindly following a black and white suggestion and trying to hack your way to riches.