This post originally appeared onThe Simple Dollar.
Its a very joyful picture for me, but theres one big problem with it.
That daydream completely glosses over what I had to do to get there.
It overlooks the many, many years of work and savings that it would take to achieve that goal.
Without atonof hard work, that wonderful vision is not a realistic outcome.
So what exactly is magical thinking?
One great example of magical thinking when it comes to money is in the realm of lottery tickets.
Even stranger,40% of people who have saved nothing for retirementbelieve they have adequate retirement savings already in place.
Why not travel now if that magical future self will foot the bill?
In other words, godliness causes material prosperity.
The problem with faith as a transaction-based system is that it really doesnt work that way.
That person claimed to document every possible slight and negative event in the workplace.
(Needless to say, I did my absolute best to avoid workplace interactions with that person.)
There are very, very few life-changing lottery winners.
There are very, very few real-world examples of massive unexpected inheritances.
These things just dont happen very often at all.
They believe their ship will come in.
How can you avoid magical thinking in your life?
Here are five strategies that really help.
Treat the chances of that event happening aszero, even if the odds are better than zero.
Money is not going to fall out of the sky and land on your lap.
Dont behave as though such a thing is going to happen.
Instead, you should be assuming the oppositeyoull be makinglessin the future.
Why on earth would you do that?
Youre not going to buy a car with huge payments.
Youre not going to saddle yourself with a giant house payment.
Youre going to avoid credit card debt.
Lets say, then, that you do happen to earn more in the future.
Now you could actuallyaffordthat nicer stuff without digging a giant hole for yourself!
If your income drops due to a job loss or something like that?
Its going to be very, very bad.
Now, what happens if you lose your job and have to take one that pays 25% less.
What does your life look like under those scenarios with that big debt weighing you down?
Instead, fire off the other way.
Rewards arent just handed out for free.
The truth is that if you want that promotion, you gotta work for it.
If you want a successful small business, you oughta work for it.
If you want a raise, you should probably work for it.
You think youre in line for a raise at work.
Is this something that is true consistently, day in and day out?
You think youre in line for a promotion.
Are you doing that consistently?
You think youre ready to get a better job.
Does your resume actually include all of the skills that employers are looking for in your position?
Do you have solid references?
Do you have current skills and some evidence of those skills?
Are yousellingthose things to potential employers?
You think youre ready to start a business.
What does your business plan look like?
What evidence do you have that your business will click in the community its serving?
Can you or will you put in the work needed to make this business a success?
Whats the common theme here?Hard work.Whenever you want to move up in life, it takes work.
If you want something, you have to work for it.
It will never, ever be handed to you.
Strategy #4 Save for Retirement.
If Youre Already Saving, Save More
You canneverbe saving enough for retirement.
you’re able to never put enough into your Roth IRA.
you’re able to never put enough into your 401(k).
If you ever believe that youll have plenty for retirement, the truth is that you do not.
Many people resist this for two reasons.
One is pure magical thinkingtheir ship will come in before retirement so they wont have to worry about it.
Thats not going to happen.
Thats not going to happen, either.
Its the stupidest, most forgettable elements of your spending.
Its the item from the convenience store that you drink and forget about.
Its the album you bought from the iTunes store and listened to once and forgot about.
Its not the things that really matter.
Both elements are myths.
you gotta be saving as much as you realistically can.
Unless their car is rattling a lot, they dont think about their car breaking down.
They dont think about losing their job (unless paranoia is rampant at work).
They dont think about a child being sick and the cost of emergency child care.
They dont think about losing their wallet or having their credit card number stolen.
The truth is that those things happen.
The best solution for these situations is to have cash in hand in case something goes wrong.
Cash solves problems that credit cards cannot.
You want cash for the widest breadth of emergencies life can throw at you.
How do you ensure you always have some cash for emergencies?
An emergency fund is the answer, of course.
Never, ever turn off the automatic transfer unless a change in income absolutely forces you to do so.
Even if theres plenty in your emergency fund, ignore it.
Wait until an emergency hits.
You will beso gladyou have that money.
Final Thoughts
Magical thinking is a huge financial trap.
It causes you to ignore risks going forward.
It causes you to avoid taking necessary financial steps to protect your future.
Do all you’re able to to drop the magical thinking and stick to reality.
Your actual, real life will be far better off.
Personal Finance and Magical Thinking| The Simple Dollar
Trent Hamm is a personal finance writer atTheSimpleDollar.com.
Photo byErsu(Flickr).
