How Reliving Past Money Mistakes Hurts Your Financial Future

By Emily Guy Birken on 31 August 2017 0 comments

Past money mistakes are a little like zombies: Just when you think you've finally destroyed them, they rise again.

It's time for you let those old mistakes go. Not only does focusing on your past money mistakes make you feel bad without actually improving the situation, but spending time thinking about your past misjudgements makes you more likely to repeat them.

Here's how focusing on past money mistakes keeps you shambling from one bad financial decision to the next, and how you can avoid that fate.

Shame can be a downward spiral

In many cases, when you are focused on a money mistake you made in the past, you are using the word "should" to describe what happened. For instance, you might be thinking something like:

  • I shouldn't have co-signed a loan with my shiftless brother-in-law.

  • I should have started saving for retirement much earlier.

  • I shouldn't have used student loans to go on spring break.

These "should" statements aren't necessarily wrong — they're just useless. You are probably correct that you should have acted differently in the past, but since it's impossible to go back in time, all you are doing is making yourself feel bad for something you can't change.

This thought process can cause further financial damage, too. For instance, if you feel like you should have started saving for retirement earlier, that fact is only going to make you feel terrible about not having done so. From there, it's an easy jump to think that there is no point in starting now since you are already so far behind. (See also: 7 Retirement Planning Steps Late Starters Must Make)

Ask yourself "Now what?"

Feeling ashamed of the things you've done in the past is a form of sunk cost fallacy. Sunk costs are the time, money, or resources that have already been spent and can't be recouped. The sunk cost fallacy is when we value sunk costs over future choices.

When you're feeling ashamed of a past decision, you're overvaluing that past decision and allowing it to affect your current emotional state and decisions. Instead of simply thinking "I shouldn't have co-signed that loan," it makes more sense to complete the thought. "I shouldn't have done it, but I did — so now what?"

Instead of getting caught in your shaming thought process, asking yourself "Now what?" allows you to start making decisions based on what the situation actually is.

Trying to learn from mistakes can backfire

What if you are focusing on your past mistakes in an attempt to learn from them? You understand that you can't change the past, but you can certainly learn from it, right?

Well, not necessarily, according to a 2016 New York University study. When you focus on trying to figure out why you made a mistake in the past while trying to make a similar decision in the present, you don't have as much mental bandwidth to devote to the decision at hand. Thinking about your past mistake "triggers a cascade of computations" which distract from the decision at hand, Roozbeh Kiani, assistant professor at New York University's Center for Neural Science, told The Atlantic in 2016.

Let your brain reset

The best way to keep yourself from being distracted by your past mistakes when making a similar decision in the present is to take a little time away from the problem. In Kiani's study, participants didn't get overwhelmed by negative feedback after a mistake if they took a break before trying the task again.

So, think about something else for a while and come back to your financial issue after you've let your brain reset. That will help you make a more rational decision.

You can fall for feel-good mistakes again

Another major problem with letting ourselves focus on past mistakes is that our brains are wired to repeat actions that were rewarding once, even if they are no longer rewarding — anyone who has tried to kick a sugar, cigarette, or debt habit can attest to that. (See also: It's Never Too Late to Fix These 5 Money Mistakes From Your Past)

According to Susan Courtney, a cognitive neuroscientist at Johns Hopkins University and a co-author of a 2016 study into this phenomenon, this can be a hard thing to overcome. "When my gaze drifts toward the doughnuts in the mailroom," she told The Atlantic, "that triggers a thought process of what it would be like to taste that doughnut. That makes it harder to resist."

If you are regretting past mistakes that felt great at the time, focusing on those past mistakes will do nothing but further entrench your interest in them and awareness of them. The more you think about how much you regret buying all of those shoes (which you enjoyed at the time), the more likely it is that your attention will be caught by shoe sales in the future — making it that much harder to change your spending habits.

Focus on the future

Rather than thinking about these felt-good-at-the-time mistakes, it makes more sense to think through what you want your future to look like. That kind of thought process will not only distract you from the enticing potential mistakes that surround you, it can potentially also start charting a different neural wiring that will reward you for intelligent financial behavior.

Letting go of your mistakes

Past financial mistakes don't need to keep coming back to haunt you. Let go of your shame, take a break from thinking about your finances, and don't assume that obsessing over old mistakes will help you learn from them. Instead, focus on your future and let your past stay in the past. (See also: 20 Money Mistakes Everyone Makes But No One Talks About)

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