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Don’t Let FOMO Drive Your Financial Decisions

Undoubtedly in your life you have experienced the sensation called FOMO… the fear of missing out (at least that’s what the kids call it these days).

Maybe it was in college when all your friends were meeting up for a fun night while you had to sit in the library to study for a test or write a long paper.

Perhaps you had it if you missed a family gathering because you don’t live near the rest of your family.

Or possibly even when all your internet friends are heading to FinCon for the week and you can’t make it to meet everyone (not speaking from experience or anything!)

Safe to say, at some point you’ve likely felt like you missed out on something fun.

Nobody wants to experience that. And usually it’s not an issue, maybe you just try to make the next event or see friends some other time.

The issue arises when you experience FOMO and go into debt over it.

A new study of a group of 1,045 Americans showed that nearly 40% went into debt just trying to keep up with their friends’ lifestyles.

This is a huge problem. Nobody should be going into debt to live a lifestyle they can’t afford.

FOMO In The Modern Age

Prior generations may scoff at this notion.

Why in the world would anybody, ever, go into debt just to keep up with their friends?

Well, news flash: trying to keep up with your friends is the modern equivalent of keeping up with the Joneses.

The Joneses are the neighbors and/or coworkers, people whom you see on a regular basis and live a lavish lifestyle full of status and material goods.

With the advent of the internet and social media, your friends and acquaintances have become the Joneses.

You can now, at any moment’s notice, open your phone and scroll through Facebook, Twitter or Instagram and see exactly what your friends are doing at any given time.

Of course, on social media people tend to show their best life, only the most fun things they have going on.

Maybe it’s an exotic vacation, or an expensive meal, or some event they attended. Whatever it is, you are constantly being bombarded with how great people’s lives look.

Perhaps their lives are that great, who knows, but often there are no details given as to how much all these amazing things cost or what their financial situation is.

That amazing looking vacation may have been funded via credit card, where the person does not have the mean to pay it off right away.

To everyone seeing this though, they don’t know those details, they just know the feeling of FOMO they have, and want to go do something fun themselves so they can share it with their friends. Even they can’t afford it.

It’s a never ending circle.

Financial FOMO

The FOMO does not necessarily just apply to your social life. These same traits can be seen in the investing world too.

How many times have you seen an article with people touting the next “hot stock” where you just have to get in on it now?

Or maybe it’s someone trying to convince you to invest in their business or product because “it’s the next best thing” or “a once in a lifetime opportunity”.

What these people are trying to do is activate that FOMO in you and get you to invest your money with or in them.

Nobody wants to miss out on a great opportunity or be the next Ronald Wayne (the guy who sold his 10% stake in Apple for $800 in 1976).

This same FOMO can be seen in Multi-Level Marketing (MLM) schemes. These tout you to “get in early” and convince others to get in so that you can make all your money back, and then some!

You hear a story of how someone made the big bucks doing this, and you think how that could be you too. It just about never works out that way.

I nearly got pulled into a MLM with some of my friends in college selling for a new energy company that supposedly slashed your utilities bill. Luckily I stayed on the sidelines while some of my other friends got in and never made back what they put into it.

Lastly, how could anyone forget the amount of FOMO displayed in the crypto craze at the end of last year and beginning of this year?

People heard about how you could make easy money buying crypto-currencies and were buying in masses without doing any research about the underlying value.

Again, even I was tempted to jump in last November when Bitcoin was on its meteoric rise. Luckily I stayed out at the time (as prices back then were much higher than they are now).

Who knows, crypto could make a comeback, but if I do ever invest in it, it won’t be because of FOMO.

How To Combat FOMO and Make Smart Financial Decisions

With all this FOMO going on, what can someone possibly do about it?

Firstly, recognize your FOMO for what it is.

Once you take this initial step, it can help you to avoid making an impulse decision and take a step back to think through the situation.

Is this something you really want? Or is it just something you would want right now because it looks cool, or because you think your friends would think you’re cool.

A tip I’ve seen is to write what you want down and revisit it a week or a month later. If you still want it then, perhaps you can make a plan to make it happen. Often times though, you’ll find you actually don’t really want whatever it is.

When thinking through the situation, always keep in mind the fundamentals of personal finance.

Are you living within your means? If you have a budget, will this fit in there? Can you save in other areas to make up for the cost of whatever it is you see?

It’s imperative that you do not live beyond your means and fund your lifestyle with a credit card you cannot pay of monthly.

If there is a “hot stock” or some other investment you hear about, be sure that you are not investing simply “because everyone else is doing it”.

Make sure you fully understand what you are investing it and are comfortable with the risks. Could you withstand a 25% or 50% drop should it prove to be a bust?

The underlying root cause of FOMO is a feeling; an emotionFEAR.

It’s notoriously tough to control, but if you can stay disciplined, you’ll find that you will be in a much better financial situation than your friends and peers.

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What situations or things give you FOMO? How do you deal with it? Have you ever experienced FOMO in your financial life?

11 thoughts to “Don’t Let FOMO Drive Your Financial Decisions”

  1. This is a good post that should help some people stay grounded and rational in decision making. I’m lucky I have never really experienced this sensation in my life for anything significant. I’m more of an easy going, go with the flow type of guy so I don’t really get caught up in the latest trends and such.

    In fact, I actually wish I had more FOMO to drive my decision making. Not really, haha, but at least in this once instance: For years (up until 2014/2015) I had a decent stash of cash sitting in a savings account at the bank (similar to how you started this journey from what I’ve read). I opened my Roth IRA around this time and a trusted person said to me, “why do you have all this cash sitting in the bank literally earning just pennies? Why aren’t you investing it?” Truthfully, I was overly cautious and scared of the stock market at the time. Probably because 2008 was still fresh in my mind, even though I wasn’t in the market back then. Did I really want to risk it? At least that was the (silly) thought process back then.

    So looking back on this, I wish I did have some FOMO on investing. 🙂 I had none, it was the opposite fear (of losing significant money).

    1. Wow we really have had similar journeys then! That’s too funny, why oh why did we not invest sooner!? That’s good you don’t really get FOMO from the bad things though, I’m sure that’s helped out your financial situation immensely!

  2. My bad 5 years of spending and not saving were definitely this situation. I was just out of the military and living in NYC. I was spending way too much on way too money on way too many drinks. For 2 years of that, I was running UP my credit card debt. I got a new job, and I stopped the bleeding, but it took a few years for me to get the game under control. All told it was a lost 10 years for me with regards to investing.

    The first 4.5 were my military service where I earned on average about $17,000. In that I still had to pay rent, food, uniforms, civilian clothes, and pay my school loans. The military covered my tuition only. During those years, my friends were living it up in NYC, and I wanted to experience some of that. When I got out, I kind of exploded. I found a job that paid me about 2.5 times my military salary, and I lived it up. I was living about $5,000 a year beyond my means for the first 2 years, and then I was living at my means, no savings, for the next 3 years. I had a lot of fun, but as I look back, I wish I drank and spent less, and saved a little more. Drinks in NYC are not cheap!

    That explosion was all about me missing out on what others were doing, and I always had to do more. I had to go to the hot cool place, and do the thing. I developed a taste for scotch and congac, and the good stuff. Buying that in bars is really, really dumb; $25 to $50 a shot. At least I drank a lot less of that than the beer.

    Now saying all of this, I have to wonder again. I have become quite frugal, and it really was only a bad 10 years. I rarely drink now. I rarely spend on things I don’t need. I actually think about how much I will really need X, and how much value it will give me over investing and the X + Y dollars it will be in the future; the Buffet thought process. I got to it later than I wish, but I guess that was my path; that’s how I came to the realization you are talking about.

    1. Wow that’s an awesome turnaround! I love you way you think about purchases now in terms of the value it brings you, that’s been my thought process more too. I hear you on the bar spending.. that’s easily been my biggest entertainment expense since college, though recently I’ve been minimizing that as I have interests in other areas.

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