How FOMO Can Destroy Your Finances (and How to Overcome It)

The Vantage
Jun 11, 2017 · 5 min read
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The fear of missing out (FOMO) is a powerful force — it always was and always will be. Humans are social creatures, evolved to seek comfort in numbers and avoid isolation like the plague. Fashion. Word choice. Social media. Career paths. Even hipsters belong to ingroups. Unless you’re wired differently, FOMO is inescapable.

Honestly, that’s mostly OK. FOMO is just extra dangerous in one particular realm: money. Throw normal behavior out the window. The devil exists two main forms:

Keep Up With the Joneses

Take a look at this graph of credit card debt:

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Credit card debt is one of the most crippling financial forces out there, and it only improves when the most damage is done. It’s like jumping in quicksand; climbing out is far harder than sinking in. But why is credit card debt so high? There are many answers (ignorance, lack of discipline, falling on tough times), but chief among them is the fundamental need to belong. As one popular quote quips, “We buy things we don’t need with money we don’t have to impress people we don’t like.”

FOMO can devastate a person’s finances if self-control is a problem. It’s OK to not buy a new car… or those new shoes… or visit that hot, new restaurant… or live in an expensive neighborhood because that’s where all the “cool people” are. If you feel any of this, that’s your FOMO speaking.

To be clear, although it’s obviously better to be content with what you already have, it’s OK to want things you don’t. That’s human. The issue is when you follow the urges you can’t afford. Financial numbers don’t bend because you want them to; your behavior must bend instead.

The Easy Money

Some people have an entirely different problem. They may live below their means exceptionally well, but FOMO strikes when it comes to making more money. I see it in the investing world all the time, and examples of financial FOMO are riddled across history.

Maybe you feel it. Sometimes I do. Are you hearing rumors about how people are making “easy” money? Do you want to jump in, too? Maybe it’s a stock, a physical good, or a side hustle that’s luring you in. After all, who doesn’t want to make easy money?

Unfortunately, finances live by the rules of economics, most notably supply and demand. Generally, what goes up a lot can’t stay up forever. Usually the underlying fundamentals don’t justify such a spike, and the easy money is being made thanks to psychological mob madness.

Want examples? History often rhymes…

In 17th century Holland, tulip bulb prices skyrocketed, encouraging more people to buy in and bid prices up further. Eventually the whole endeavor just couldn’t be sustained anymore. Hence the Tulip Mania:

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Even genius, Sir Isaac Newton, fell victim to financial FOMO. Nearly a century after the Tulip Mania, the British South Sea Company became all the rage. For a while, investors could do no wrong… until, well, everything went wrong.

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You can look at more recent history to spot examples, too. Young internet stocks were insanely popular in the early 2000s, driving the NASDAQ up to extreme heights before crashing back down. Similar ups and downs occurred with gold, too:

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This is why when I hear that 43% of active Robinhood account holders bought Snap shares at the IPO I get skeptical. Or when Bitcoin surpasses Justin Bieber in search that I start scratching my head and do more research (yes, this is real).

Don’t get me wrong! For each bubble narrative, real long-term winners emerge and prove the doubters exponentially wrong. And it happens across many realms including equities, real estate, and even collectibles. Just please never forget that ignoring the lessons of history can lead to devastating losses when it comes to modern day FOMO.

How to Conquer FOMO

We all have FOMO, but how can we best manage it? It depends on what type of FOMO you face.

If you face spending FOMO:

  • Set strict budgets. This is likely the best thing you can do.
  • Surround yourself with people who won’t compel you to buy more to fit in. Peer pressure is powerful.
  • If you want to buy something, delay the purchase. Odds are decent that when you revisit it in a few days, the desire won’t be the same.

If you face investing / money-making FOMO:

  • Think twice before jumping in. Make sure you understand the fundamentals about why something could be worth so much before pouring in your hard-earned money.
  • Understand that you won’t capture every winning opportunity and that that’s OK. You don’t need to win at everything to win overall.
  • Expand your time horizon. Decide if what you’re looking to buy is actually something you want to hold for the next several years. If not, consider taking a pass.

FOMO helps us fit in socially and culturally, but those same instincts can backfire with money. Take a moment to think about where your FOMO lies. What’s your achilles heel? Next think about how to hold yourself accountable. Hopefully the lessons above help at least a little.

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