4 Ways Pessimism Can Actually Improve Your Finances


While I've never had bluebirds help me clean my house or anything, I tend to be a pretty optimistic person. I have faith that people are mostly kind, the world tends to be a good place, and life in general will get better.

The one major exception to my optimism is my attitude toward finances. I always plan for the worst when it comes to money, and I proudly embrace my paranoia.

As it turns out, my doom-and-gloom view of money is probably responsible for some of my healthiest financial choices. That's because optimism and positive thinking can lead you astray when it comes to your financial goals.

Why Optimism Can Backfire

According to a study by Heather Barry Kappes and Gabriele Oettingen, imagining a desired future actually makes you less likely to achieve it. That's because your fantasy future wherein you have built up a multimillion-dollar empire is missing the obstacles, frustrations, setbacks, and effort that are necessary to make it happen in the real world. So you are more likely to give up upon reaching any of those obstacles.

In addition, telling people about your major financial goals can also backfire. According to career coach Shana Montesol Johnson, "when we tell someone that we are going to do something big … the praise and positive reaction we get from our audience gives us a part of the experience of having already accomplished these things … And so we are less motivated to actually work toward these goals."

So quit it with the positive thinking about your money. Embrace your pessimism, since it can help your finances in many ways.

1. Financial Pessimism Prompts You to Save Money

When you live with the viewpoint that there is nothing but blue skies ahead, then it won't occur to you to save up for a rainy day. A pessimistic outlook about the likelihood that you may lose your job (or that your car may need an expensive repair, or that you may get sick) spurs you to save money so you can be prepared for such contingencies. Optimists are often caught flat-footed in those situations because they had been so focused on the pie in the sky.

Thinking through the worst that could happen on your current path might seem like a good way to discourage yourself from taking that path. But taking the time to really think through what could happen if X, Y, or Z in your plan goes wrong gives you the necessary framework to deal with such problems. You'll have already put in the thinking time to come up with a solution when the problem crops up, so you'll be in a better position to fix it.

2. Financial Pessimists Recognize Their Own Money Weaknesses

A financial optimist isn't just optimistic about the lack of coming emergencies — they are also optimistic about their ability to handle a problem. This is a symptom of the cognitive bias known as the restraint bias. (A cognitive bias is an error in logical thinking that is very difficult for people to recognize in themselves.)

With the restraint bias, people tend to seriously overestimate their own impulse control. We all tend to believe that we will be able to show more restraint in the face of temptation than is realistic. The restraint bias is a hallmark of financial optimism. Such an optimist might think "I'll spend less this month and bank the savings at the end of the month."

But it's likely that the optimist will be paying for things with sofa-cushion change at the end of the month. The pessimist, on the other hand, set his savings aside at the beginning of the month, since he knows he is not to be trusted with money in his checking account.

3. Debt Relies on Optimism

Whenever you take on debt, there is a risk that you may not be able to pay it back. But feeling optimistic about your finances, your job, your health, and your family makes you less likely to recognize such a risk. Positive thinking about how well your life is going may put you in danger of over-relying on debt.

Barbara Ehrenheich, author of Bright-Sided: How Positive Thinking Is Undermining America, suggests that the Great Recession of 2008 may have some of its roots in positive thinking. In an interview with The Telegraph, she states, "Many, many people got way over their heads in debt — ordinary people. And in what frame of mind do you assume large amounts of debt? Well, a positive frame of mind. You think that you're not going to get sick, your car's not going to break down, you're not going to lose your job and you're going to be able to pay it off."

Pessimistic people are more likely to avoid debt because of the possible things that could go wrong — and that means they are less likely to get into financial trouble or waste money on interest.

4. Pessimists Are Less Likely to Fall for Scams

My first thought, whenever I hear someone offer me a solution to any kind of financial problem, is to wonder "What's in it for them?" Though I believe in the goodness of people, I am incredibly paranoid about sales pitches, "free" lunches, door-to-door solicitors, insurance agents, salespeople, Nigerian princes, or anyone else who wants me to take advantage of a "once-in-a-lifetime" offer. I don't trust anyone's motives when it comes to money.

Scams tend to rely on people's greed, fear, and discomfort. Pessimists are no less likely than optimists to feel greedy, fearful, or uncomfortable, but their overriding distrust of people's motives tends to be stronger than any of the emotions scam artists play on.

Distrusting people when it comes to money is generally not a bad thing. It forces you to do your own homework and become your own financial advocate, which is what everyone needs to do. Because even if you do have a trustworthy financial adviser/broker/bookie/insurance agent/Nigerian prince, it is ultimately your responsibility to understand what is happening with your money.

Embrace the Darkness

Instead of thinking and talking positively about your financial future, take a page from a pessimist's book and imagine some worst-case financial scenarios. You'll find that seeing the glass as half-empty (at least sometimes) will help ensure your financial future spilleth over.

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