FAQ #10. What is single most important obstacle to successful financial life planning?

If you’re good at geography, then this map below may help you to find out my answer; treat it as a hint:

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If you still don’t know, please scroll down.

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The river on the map is the Nile, and the biggest obstacle is also …

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DENIAL.

Whether you find the pun funny or not (sorry for the few extra seconds of getting here if you don’t), I do mean it seriously that I see denial as THE main obstacle. Our inability or unwillingness to face reality prevents us from doing the most and best we could to improve our lives. It’s not easy to acknowledge our limitations (in preparedness, relationships, organization, perseverance, discipline, etc.) and potential misfortune (ill health, accidents, poor investment returns, etc.), but it’s not even simply the denial of various negative things only that I’m talking about. Often people do not dare to look at potential good or excellent outcomes either. The consequences of denial of great dreams is not as shocking perhaps than the more typical denial of the negatives, but I think it’s still sad if someone doesn’t take the best use of their good fortune. I think we can all cite examples for that, and the well established finding that people’s general level of happiness rather soon returns to their former level after a lottery win, e.g., can be seen as evidence for this inability as well.

Being not in denial means to me that one is curious, creative, responsible, and courageous, … lives life fully. With many things that are important for life planning or investing I like to emphasize that they shouldn’t be taken to the extremes, or unbalanced by other factors. Think long term, but don’t forget the short term either; take risks, but do not take too much risks; mind taxes but don’t let the tax-tail wag the financial dog; diversify but do not over diversify; focus on costs, but don’t spare the costs of vital factors; use experts but don’t trust them blindly; etc. With denial, it’s different: the less of it is the better. Facing reality means the acknowledgement of the valid co-existence of many contradictory viewpoints, and therefore the need to explore and dig deeper into them, so that we can get beyond the level of general ‘common sense’ admonitions of rather limited usefuleness.