Money dangers we know -- but ignore

By MP Dunleavey

Are we a race of Homer Simpsons? Sometimes, when you look at the buildup of "D'oh!" moments, particularly around money, you want to say yes.

I still remember the last time I succumbed to my own stupidity.

This was a couple of years ago, when my husband and I were going on a vacation, which we had planned pay for with money we "knew" was on the way from some upcoming freelance projects.

What's the saying -- man plans, God laughs? Days before we were supposed to fly off, my biggest contract was canceled. Farewell, paycheck. Hello, giant Visa bill.

How could I, knowing all that I do about personal finance, violate the divine laws of money, the first commandment being Thou Shalt Not Spend Until the Check Hits the Bank, Dum-dum?

• Play the video to the right for more advice from MP Dunleavey.

I knew that. You knew that. So why do we continually backslide into these money blunders, tossing reason aside like a pair of old socks? And what can be done to restore sanity and self-control?

Not exactly rational

First, some background.

Classical economics built mounds of theories on the principle that Man was a rational creature who could be counted upon to make financial decisions to his own benefit.

Ha.

They should have interviewed Woman. We would have explained that this idea was wrongo-bongo and that most people ricochet between being pretty sane and grounded about money, and flying off into la-la land and racking up thousands of dollars in credit card debt.

In any case, economists finally noticed that neither Man nor Woman was behaving according to this rational model. Since then, researchers have spent the past couple of decades documenting just how perverse and self-sabotaging people's financial behavior can be.

Money blunders are my contribution to the field of new irrational economics.

These bungles aren't bad habits, such as shopping on QVC. They're more like a sudden and inexplicable collapse of financial sense that can wreak havoc with your bottom line. Take note of these classic patterns:

Putting your financial trust in others

A big source of money blunders is often a colossal blind spot you may not even be aware of until it trips you up.

A few years ago, Kay B., a property manager who lives in Twin Falls, Idaho, agreed to sign over her stocks to her husband of 20 years. "He said that they would be easier to manage if all our money was in the same brokerage," she says.

Kay had an uneasy feeling at the time but squelched it. "I thought, well, I'm going to be married forever -- who cares who has control over the money?"

• Talk back: What were your worst money blunders?

Alas, because of the type of agreement Kay signed, her husband didn't need her signature to make changes to the account. So when he sold all of her assets, she didn't know about it -- until he had left her for another woman.

"We were in divorce proceedings when I realized that those accounts didn't even exist anymore," she says.

It was a brutal lesson, but Kay says she will never again assume that anyone has her best interests at heart. "And I would urge anyone else who is going to share their assets to make sure they retain control."

'But I deserve it!'

Another money blunder comes from an unfounded sense of entitlement. When "I deserve it!" stampedes over "But can we afford it?" financial woes inevitably follow.

"My husband and I owned a 2005 Ford F-250 diesel, with all the bells and whistles, when something in the truck broke," says Rebecca Myers, an aerospace engineer in Merritt Island, Fla., who is also a member of the Women in Red Racers.

Myers and her husband were only a year and a half away from paying off the truck, she says, "but my husband convinced me that fixing it would be more expensive than getting another truck."

Myers knew it was a blunder from the start and argued with her husband, but he was adamant. "He needs a big truck for his job, and he always likes to get a new car," she says. "He works really, really hard, and he feels like he deserves it."

They bought another big diesel guzzler, also fully loaded, "and our payment went up from $500 a month to $735 a month," Myers says. "Now he's already ruined the front bumper, and we still have four years left to pay it off. Sometimes I just want to hit my head against a wall. Why, why, why did I do that?"

Myers says they've both learned a lesson. "My husband has buyer's remorse now. He should have listened to his better instincts, but it's hard to break that habit, when you think you deserve something."

Continued: Blind optimism

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