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What are areas where people THINK they’re making money, but actually don’t?

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I love discovering delusions about the psychology of money, so here’s a question for you:

What are areas where people THINK they’re making a lot of money, but actually don’t?


  • Buying a house (people hate hearing this)
  • Day trading and picking individual stocks (see chapter 6 of my personal finance book for an entire expose on how fancy fund managers fail to beat the market…and how you will fail at picking stocks, too)
  • Investing in hedge funds (most fail to beat the market)
  • Venture capital (only top-tier funds beat the market; the rest underperform it…but everyone thinks they’re top-tier)

What else? Where do people think they’re making a lot of money, but they actually don’t?

Add a comment below and let’s watch the delusions roll in.

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  1. Purchases rationalized as “investments” like jewelry, but have no plans to actually sell at a later time

    • You actually don’t make money on ‘jewelry’ per se, no matter how long you keep it, no matter when you sell it. Precious metals, maybe. But the only watches that may appreciate in value are Rolexes. You don’t make money on diamonds (they’re not a fungible good) and most jewelers will tell you that a diamond ring loses 50% of its value once the customer walks out the door with it. You don’t make money on pearls, either. Buy jewelry because you love it and it makes you happy to wear it or to give it to someone.

    • Ugh, totally agree. I’ve seen everything from expensive perfume to limited-edition DVDs (that they already have) to ancient PS1 games. Insanity.

  2. – Credit card points programs where you get 1 point for every $1 you spent, and then have to convert those points to merchant cards usually worth 1% of the points. So you’d have to spend $10,000 on your card to get a $100 off coupon for a store. Not realistic for most people and encourages over-spending.

  3. Anything “for the tax deduction”

    Mortgage interest is the most common one…most people would be better off saving up a down payment (or buying a house with cash…even if it takes years to gain the cash!)

    Saying you’re doing something for the tax deduction is exactly like saying “I just spent a dollar to save 25 cents!”

    Another one is being loyal to a store with higher prices because you get cash back or perks from buying there. I wrote about that in “How Loyalty Card Schemes Suck You In and Rip You Off”:


    • These are AWESOME.

      From my Twitter feed

      “The poker table, no seriously. They only ever pay attention to their big wins but never keep track of when they lose.”

      “costco/samsclub, buying in bulk can be more expen$ive. tax-writeoffs, it’s ~16-33% discount, but you have to spend $ to get it.”

    • Agree 100% re: tax deductions, mortgage interest and the idea of the house as the investment.

      What’s funny about buying/owning a house (in my opinion/experience) is that even if you could get someone else to pay 100%+ of the P&I for you (as I do), it’s not really a lucrative venture — and I say this without having incurred any major house-related expenses yet.

    • The purchase of my home wasn’t because of the tax deduction. I bought it because I saved enough and it made more sense to buy and have a $670 mortgage for 1000 sq ft than to rent 600 sq ft for $900. Granted I know I have taxes and insurance and repairs, but my utilities are far lower than any apartment I’ve ever lived in my yard is desert landscaping (rock).

      If I’m lucky I’ll break even when if and when I decide to sell.

  4. Earning that 3% cost of living raise by working overtime when in the given career field can easily garner at least a 10% raise by landing a job at another company.

  5. Buying Gold- a product that rarely beats inflation

    Credit card rewards/cash back. “I made $600 this year”. But don’t mention that they spent $20,000 on purchases to get the $600.

    • I bought (physical) gold and am getting ready to sell it. Since I’ve bought it, the price has gone up ~30%. It will probably go up even more, but I think at some point it will plunge. I’m still waiting for the TIME cover or the “taxi driver story” that will let me know it’s topped out.

      Gold is, right now, what real estate was 5 years ago…the only question is, how long will the bubble last and how far up will it go?


    • Without investing, I’ve seen the price of gold skyrocket and plummet repeatedly. I’m 25. I’ve given up arguing with people about the realities of “investing” in gold. Or unbuilt property. Or penny stocks.

      Combining gold buying with Forex-trading is especially dangerous and you can get burned on the “gold” more easily than in your home country.

    • You’re not really making money with cash back reward cards. You’re saving money. It’s a built-in discount. They’re not bad, really, so long as you don’t look at them as an incentive to spend more.

    • It’s very apparent that most people, like yourself, have no clue as to what the mechanics of gold are.

      You do not invest in gold for profit, you invest in it for wealth preservation during times of high volatility.

      Gold has throughout history been ridiculously stable in it’s real value, even if demand goes up or down, the value of it as a precious metal rarely changes that much. Gold mostly fluctuates in nominal value because of currency inflation and deflation.

      For example, let’s say the US dollar goes 2% down in value, and the Euro stays at 0% inflation, then the price of gold in terms of dollars goes up, but stays the same in Euros. When you see gold go up and down like a rollercoaster, it’s because of high volatility in currency values, not the metal itself.

      Right now gold is a good investment for wealth preservation because there’s a race to the bottom going on. As sovereign debt problems mount, nations around the world have to devalue their currencies for two reasons, making debt interest payments denominated in their currency cheaper and make their exports more competitive, the other option would be to default on their debts, which essentially has the same inflationary effect.

      I don’t see this stopping anytime soon because the sovereign debt problems are so astronomically humongous that it boggles the mind.

  6. Equating “50% off” to “I saved 50% because I would have bought it anyway”

    (sometimes leading to “I was good, so now I can buy something else”)

  7. Regarding people saying “they made $600 last year” with credit card cash back. I agree with them as long as they didn’t buy stuff they wouldn’t have just to earn more cash back.

  8. Coupons. Their point is to incentivize you to buy things you wouldn’t normally buy.

  9. Plus one for gold, which should be stressed given the up-tick in marketing hype its gotten lately.

  10. Gotta be Costco. Yes, you pay less per item by buying in bulk, but in the present, you’re spending large amounts of cash (or racking up credit card bills.) You only realize that gain months later by not purchasing something.