What is Financial Denial, Really?

financial denial

Do you ever wonder why your bank account has less money in it than you wish it had? Do you ever question why you can’t afford certain things? Do you read personal finance blogs, magazines, and books to find ways to spend less money? If so, and if you’re still broke, there’s a chance you’re in financial denial.

“…people between 18 and 29 years old — the youngest group in the survey — were the most likely to save relatively little: 37 percent said they save 5 percent or less. Another 18 percent said they save nothing at all.” –Bankrate.com

It’s no wonder our society is in the financial position that it is today. We’re surrounded by constant social pressures to live beyond our means. We have credit cards and loans thrown in our face every day. We can get access to money by simply filling out some information on an application. This makes it easier for us to get things now. Things we may not need, or even want.

It’s putting us in a worse financial position than we’re already in. It’s creating a culture of people who are in financial denial. In this post I am going to explore some concepts to help you decide if you’re in financial denial. If you are, let’s talk about some ways to start getting yourself out of that mindset. Because guess what? It’s crippling you.

Not in financial denial? This might be your opportunity to learn something and help someone who is.

What is financial denial?

In short, financial denial is living beyond your means. It’s living in a way that your finances can’t sustain. Most of us don’t even realize it’s happening, either. One of the biggest contributors to financial denial is the concept of keeping up with the Joneses. Or as I like to call it, keeping up with the Wantlings.

We see other people of similar social status to us living in giant homes and driving brand new cars. Yet they can’t possibly make any more than we do. These people are what I call ‘fake rich’. They’re in financial denial. Yet for some reason we mimic their lifestyles.

In doing this, you may be able to stay afloat for now. Hell, you may even be able to stay afloat for a long time. But eventually your whole financial world is going to come crumbling down. You may also be working for a long time to compensate for that lifestyle. Early retirement isn’t even a thought.

Factors contributing to financial denial

These subliminal, societal pressures have created new societal norms. Or what we think should be norms. This means, for example, that paying a monthly fee to own the latest iPhone and have 10 gigs of data to go with it is normal. It means leasing a brand new car every 2-3 years is normal. It means making your first home a new-build in a brand new development normal.

Does that seem normal to you?

It’s not. It shouldn’t be, at least. One of the biggest factors contributing to financial denial is the concept of monthly payments. If you can afford the monthly payment, you must be able to afford that item, right? Wrong. When I bought my car last year, the sales rep kept pitching the “monthly payment” to me. It was his main selling point.

I don’t give a shit what the monthly payment is. Tell me what the total cost is! When I told him this (I did it in a nicer way) he looked at me as if I had three heads. This is just an example of how consumer buying habits have shifted. We don’t care what price we’re paying for the car, the house, or the phone anymore. We just care about the monthly payment.

Same goes for debt. Many of us don’t seem to look at the big picture of our debt. Meaning, how much we owe in total. So your total mortgage balance might be $250,000, but your payment is only $900. Do we even stop to think that we have $250,000 in debt?

This applies to any kind of debt. Student loans, car loans, credit card debt, etc. Are you looking at the overall balances and really thinking about the debt you have? Or are you just focusing on affording the monthly payments?

And what about the iPhone? Apple charges about $34 per month to “own” the latest iPhone. You can “upgrade” to the newest one each year if:

  • you’ve paid half the phone off, and
  • you continue to pay the monthly fee

This is a goldmine for Apple, and a terrible deal for you as the consumer. It’s putting you in financial denial. The cost of a new iPhone now is $750. That’s right, $750. What if Apple said “nope, sorry, no monthly payments this time. You have to pay for the iPhone in cash.”

Would you still spend that kind of money on a phone? I know I wouldn’t.

Then there’s car leasing. This is the biggest sucker for people in financial denial. You get a new car every year for just a couple hundred bucks a month. I’ll tell you what – if it sounds too good to be true, it is. And leasing is too good to be true. Not only is the effective interest rate insanely high, but when you turn the car in, you may get hit with more fees and you’ll likely continue your lease payments by leasing yet another new car.

How to shake the financial denial

If you’ve made it this far you’re still with me and something may have clicked. Here are some ways you can start to shake that financial denial now:

1. Stop using credit

Seriously, get rid of your credit cards and stop using them. Even if you’re paying them off in full. If you’re in financial denial, you have no business using credit cards. Instead, use cash and your debit card. Only buy what you have money for. Give yourself a weekly cash allowance for guilt-free spending ($10-20 is a good place to start) and go from there.

2. Pay yourself first

Most people in financial denial have little to no savings. You’ve got to start putting some money away now. Set up an auto-transfer from your bank or an auto-deduction from your paycheck to go into some type of savings account. Putting money into a 401(k) is a great idea, but only if you have some type of cash reserve on hand. If you have no cash savings, I’d build that up to at least 3-6 months worth of expenses before investing in a 401(k).

3. Track what you’re spending and budget like crazy

I am a huge advocate for not budgeting, but for someone in financial denial I strongly urge against that. If you can’t manage your money, you have no business going on a no-budget budget. Track your purchases using Mint or Personal Capital. This will give you a handle on where your money is actually going and where you can make cut-backs.

Next, use a budgeting tool like You Need A Budget. Mint and Personal Capital have budgeting pieces to it, but I’ve found that YNAB is more involved. It makes you import all your transactions, which puts you more in touch with your money and where it’s going.

4. Pay off your debt

Once you’ve built a cushion of cash savings, start allocating some of that money to debt. I’m all about balance, so you might try the 50/50 method I’ve recommended before. Basically, take the extra money you have and split it 50/50 between debt and savings. If you are a little further behind on credit card debt and need some extra help, look into credit counseling.

5. Declutter and downsize

Getting rid of stuff you don’t need is a great idea, especially if you can sell it and put that money toward savings or debt. You’ll also want to consider downsizing things like your car and your home. A car is easier to do this with. If you own your car and the monthly payment is high, sell it and get a smaller, more economical car. If you’ve paid your car off, this doesn’t excuse you. If you have a gas-guzzler, it’s time to sell that pig and downsize.

With a home, it’s not as easy to downsize, but you can do it. Even if your home isn’t worth as much as you’d expect, you have to consider the amount of money you’re sinking into it. Things like utilities, your mortgage payment, taxes, and repairs are all bigger when you have a bigger home. Maybe renting is better for you now.


The first step is conquering financial denial is realizing you’re in financial denial. And admitting it to yourself. It’s not easy. Believe me, I’ve been there. When I was in my early 20s, I reached a point where I saw the amount of stuff I owned and my credit card debt increasing. My bank account and happiness were decreasing.

A friend helped me realize credit counseling was the best thing for me, so I did it and paid off my debt. Since then I’ve changed my entire perspective on money, debt, and financial denial. And you can too.

Are you willing to admit if you’re in financial denial? If so, I’d love to hear your story, and I’d love to help by offering some advice. If you know someone in financial denial, what types of things will you do to help them? Please share your thoughts below!


16 thoughts on “What is Financial Denial, Really?”

  1. Social media has only exacerbated the problem as people get inundated with the highlights of everyone around them. Everyone must be doing so well — I need to keep up.

    It always seems like someone when someone does fall into this quicksand of a trap, there’s always a wakeup call of some kind. Some event that short circuits the existing thinking — did that happen to you?

    1. I do agree that social media has furthered the problem. Honestly I don’t know that there was a single wake up call for me, but just seeing what my parents went through (you can read my post on them going through bankruptcy) completely changed my perspective on money (and life). Thanks for reading Jim!

  2. Financial denial is big business in the United States – in fact, in many “industrialized” countries around the world (read: first world nations). Marketers cleverly design ads that hit us where we are most vulnerable – our sensibilities. Like you said, most of us want to feel like we are “in the norm” and a part of something, and have the same things that our friends have, regardless of what they cost.

    Most of us don’t stop to think about the prices of the products and services that we buy. And the scary truth is the prices that we pay for products have nothing to do with how much those things take to MAKE or produce – or, for that matter, what they are truly worth. Prices are designed around what *consumers are willing to pay*. That Apple iPhone SHOULD only cost $50 – maybe $100 – but Apple charges upwards of $600 not because $600 is what the phone is “worth”.

    They charge $600 because that is what Americans are willing to pay.

    This fascinating phenomenon continues to slowly but surely elevate prices for MOST of the items that we buy with each passing year because we, as Americans, have accepted their costs as “normal”. If we want to be included with the “cool kids”, we need that $600 phone, or that $150 pair of sneaks, or $80 pair of designer jeans, or whatever…we are willing to pay the price so we feel like we’re a part of the crowd and fit in.

    It is interesting how closely linked financial DENIAL and financial ACCEPTANCE are. They sound like opposites, but they both play into the scenario that you’re describing. We are in denial about how much we can truly afford, but also accept the fact that “it’s just the way it is” and continue our spendthrift ways in this wonderful first world country of ours.

    Another well-written article, my friend. Thanks for putting this together.

    Have a wonderful holiday!

    1. You’re right – most of us really don’t even look at prices. It’s just something we have to have and as long as we can afford a monthly payment, we’re good. It’s sickening, and it’s no wonder why so few people have any savings. I love your point about denial vs. acceptance, too. Great call out. Thanks for reading Steve, and you have a happy holiday as well!

  3. When I graduated college I had a little bit of this. I would think “yeah I’m making 50k a year now, but in 10 years that’ll most likely be above $150k a year… so I’ll save some now, but I don’t have to be too serious about it.” I’m glad I figured out that wasn’t how I should think when I discovered FI over a year ago. With regards to others, if they ask for my opinion/help I’m more than happy to share my time and knowledge, but otherwise I let them live in denial world 🙂

    1. Hey FF – thanks for sharing that. I think it happens to most new grads getting their first job. They’re getting paychecks like they’ve never seen before. Couple that with possible immaturity, and you have a recipe for disaster. I think a lot of it falls on others trying to share their knowledge – parents, friends, etc. So I’d challenge you to share your views on FI more often than just when people ask. Your blog is a great way to do that, but I’d suggest taking any and every opportunity to inject your opinion on the matter (respectfully of course!). Thanks for reading the post and have a great Thanksgiving 🙂

  4. Chris, have you ever done a financial intervention for someone in denial? We have cousins who earn app. $250K a year and they’re broke. Every time they almost get out of debt, they buy more crap — rental properties, new cars, vacations, time-shares, Iphones. I believe they think they’re too special to follow convention and that they deserve the biggest and the best. We’ve tried talking sense into them, but they know everything and don’t want to hear it.

    Have a terrific Thanksgiving!

    1. Not a financial intervention, but I’ve definitely spoken my mind. My parents are probably the biggest example. Here’s the thing – I’ve found that people are going to do what they want, you can’t force them to change. They have to WANT to change. But that shouldn’t stop any of us from trying. Happy Thanksgiving to you as well!

  5. I don’t think I’ve ever been in financial denial, but when we bought our house, I should have thought, “You know, we really can’t afford this. Sure we can pay for the monthly payment, but now we are going to be X amount in debt!” I am certain that if we hadn’t bought our house, we would be in a much better financial situation right now. Being house poor sucks big time!

    1. Yeah being house poor is a major problem in today’s culture. Part of it is that banks don’t necessarily think about frugal living. They look at your income and if you can afford it, they’ll give you a loan. I appreciate you giving your perspective and sharing your experience!

  6. How I wish I would have learned all of this when I was younger. I probably spent more than 20 years in denial. The idea that just because I could afford the payment meant that I would afford the item…that line of thinking just led to financial hardship. And it takes a long time to recover from that.

    Super useful information Chris. Enjoyed the post!

    1. Thanks Laura Beth! And guess what – hindsight is always 20/20. We can look back at all the money mistakes we’ve made and feel bad about them OR we can learn from them, which it sounds like you have. Too many people dwell on the past and give up after they’ve made money mistakes, thinking that there will be no time to recover. It doesn’t matter if you’ve been in denial for 1 year or 50 years, starting to change your mindset now is better than never!

  7. Great write up but I would not recommend people forgoing 401ks for such a long stretch. If people have inflated spending budgets it could literally take years to get to a 3 month savings let alone 6 months.

    I think this decision needs to be very carefully weighted specially if there is an employer match.

    Of course if someone can cut spending drastically or only account for mandatory bills the 3-6 month might be reached very quickly.

    1. Hey Roamer! I can definitely see your perspective, but I’ll have to still respectfully disagree. People who are truly in financial denial have no business putting money in a 401(k), in my opinion. If they’re bogged down by tons of debt, suffocating themselves in new purchases, and still don’t have a mindset for saving, they have much bigger issues than socking away some money in a retirement account. I suggest those folks get some help to change their mindset, save up an emergency savings, then start bolstering the retirement account. One of the primary drivers of my opinion is seeing it first hand. My dad tapped nearly his entire retirement account for some pretty ridiculous shit when I was younger. Now I know that’s not the case with everyone, but I do believe that folks in this position need to shift their mind, get help, and build some cash savings. What do you think? Also thanks for taking the time to read and comment, you really sparked some thought in me.

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