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Distorted Beliefs Can Negatively Influence Us


"Our core beliefs about ourselves and the world impact our mood, our behaviors, and our physiology."

-Mind Over Money, by Brad Klontz and Ted Klontz


Talking with a friend, he asks me what I do for a living. I tell him I work at the intersection of psychology and money, which kicked off a discussion about how the two are related. That leads to a conversation about apply mindfulness techniques to our finances and how it's beneficial to observe and feel our feelings without judgment, rather than try to push them away or ignore them.

Interested by that idea, he asks about our inner-critic. Specifically, he says he believes we all have an inner-critic that nags us to always do better. We have to embrace the critic, he believes. This is the critic that always tells him he's not good enough, he's not ready, things aren't going to work out, or he's not special - he just got lucky. He believes our goal in life should be to learn to dance with our inner critic.


I believe many of us feel this way, but I want to offer a different point of view. I do believe we all have an inner dialogue (well, not everyone). While it's true that our default setting is to partake in negative self-talk, with practice our inner-thinker doesn't have to be a critic.

Our Core Beliefs Matter

What and how we think matters. Our core beliefs impact our mood, our behaviors, and even our psychology. If we see the world in a negative way, we'll see things much differently than if we see the world in a positive way. These core beliefs act as the filter through which we see the world and how we see the world dictates how we react.

Distorted Beliefs

It would be one thing to simply say that our beliefs drive our behaviors and leave it at that. For most of us, some of our beliefs are distorted. Unfortunately, from our seat, we have no reason to think anything is wrong. When we carry around beliefs that are distorted, we can find ourselves under emotional distress and that stress is part of what leads to our problematic money behaviors.

It's important to note that this is not our fault and we don't do this intentionally. By showing examples below my hope is to bring awareness, not judgment.

Automatic Negative Thoughts

The belief that we have an inner-critic, or that our self-talk is usually negative, steps from something I've learned of as ANTS. ANTS stands for Automatic Negative Thoughts. That is, when something happens our first reaction is that something bad is happening. Often we can talk ourselves out of that after we think it through, but sometimes the negative thought is all we have. Negative thoughts feed the inner-critic and lead to negative beliefs. Negative beliefs lead to negative emotions and feelings like anger and fear. That, in turn, leads to survival mode; where we automatically engage in a fight, flight, or freeze response. Modern-day versions of this are criticism, eye-rolling, name-calling, pouting, leaving, ignoring, or changing the subject.

It's as though there are both positive and negative thoughts out there, but negative thoughts run a lot faster.

Once the negative thoughts get into our heads the door slams behind them. There is only enough room at one time for one type of thinking. Positive thoughts are left outside all alone - and we suffer because of it.

It's not just automatic negative thoughts that distort our view of the world. There is a concept called negative filtering, where our minds filter out all the negative aspects of what's happening in front of us. As a reminder, this is not something that we consciously do. When we look at a situation and only the negative enters our mind, we literally don't see any positive.

Harmful Exaggerations

In addition to negative thought filtering, there are other harmful exaggerations that keep us from seeing objectively and being better versions of ourselves. These include overgeneralizing, magnifying and minimizing importance, and labeling. If your beliefs are skewed by too many harmful exaggerations it can lead to doomsday thinking that the future will always be bad. It's like a permanent state of pessimism.

The first example is overgeneralization. This is when we do something that might be considered a mistake - even if it's just us who considers it a mistake. Instead of recognizing the mistake and learning from it, someone who overgeneralizes will automatically apply that failure to her or his ability. For example, if you accidentally miss a credit card payment, you might tell yourself that you are bad with money. That is an overgeneralization.

Another example that shares some similarities with what we've already talked about is maximizing and minimizing the importance of events. First, we encounter negative events all the time. Some are quite small, while others may seem to be large. In either case, maximizing the importance of a negative event is to assign a lot of importance to something that doesn't deserve a lot of importance. Often, this is stuff that is outside of our control and our heads go to doom and gloom. It's jumping to conclusions about how bad something is.

Sometimes panic is helpful, but the distinction here is that it's our default setting, is misleading us, and doesn't help us in the long run.

The opposite is minimizing the importance of positive events. This happens when something good happens to us, but because we have a negativity bias we downplay it. We might say it was simply lucky or fully believe that it's only temporary until the other shoe drops.

The last harmful exaggeration I want you to be aware of is harmful labeling. Assigning labels to ourselves is similar to overgeneralizing, but instead of overgeneralizing one mistake to our ability, we instead give ourselves a bad label. These labels can impact our self-esteem, optimism, energy levels, and outlook on the future, and life in general.

Harmful Personalization

Another form of harmful thinking involves personalizing a bad situation. This is when we blame ourselves for things that are outside of our control. There is a lot of hindsight involved. In the field of behavioral finance, this is called hindsight bias; the feeling that we knew it all along. It's only after the bad thing happens that we tell ourselves that we should have known.

Faulty Logic

One final way we can be misled into having distorted beliefs is with faulty logic. I know that sounds like a bad term, but just because we all can fall victim to faulty logic doesn't mean that we are bad thinkers. Remember, we are more prone to thinking like this during times of high stress, when we are emotionally flooded.

One mistake we often make is using all-or-nothing thinking. This sometimes called binary thinking, or thinking in black and white. Our minds are really good at thinking in either/or terms. The problem with thinking like this is that it leaves no room for common ground. When we think in black and white we forget the world exists as shades of gray.

Thinking you know how others think because of something they said or did is called mindreading. This is a trap that has jumped into the spotlight since social media became prominent. Mindreading is natural since we are social creatures and it's advantageous to know what someone else is thinking. The problem, of course, is that we don't know what other people are thinking. Mindreading can lead to misunderstandings or worse.

The last trap I want to share with you is called fortune-telling. Fortune-telling is when we believe we know that future, and we know the future is going to end up bad. This can be a form of catastrophic thinking, although it doesn't need to be monumental. Many small negative fortune-telling events can add up.

The truth is that the future is both unknown, and unknowable.

Fortune-telling helps us ease the fear of uncertainty by ignoring the fact that the future can't be known. It hurts us, though, because we apply our negativity filter and simply assume the future will be bad.

Increase Awareness

I've shared with you many of the ways our thinking can mislead us. What are we supposed to do about that? Unfortunately, there is no simple solution.

The good news is that we can all practice increasing our awareness. This could be as simple as being intentional about paying closer attention to the clues your body is giving you. Alternatively, mindfulness meditation can help you become more aware of your thoughts, feelings, and emotions. The idea is to notice what's going on in your body, without judgment, instead of trying to push bad feelings away.

You might be thinking it sounds uncomfortable to sit with negative feelings, and you would be right - at least at first. With practice, though, you'll be able to identify when you are feeling automatic negative thoughts and other unhelpful ways of thinking. Increasing your awareness will help you make better decisions in the future.

Change Your Inner Dialogue

By learning how to identify your problematic thoughts, you can interrupt negative thoughts and replace them with more beneficial thoughts. You can become aware of your beliefs, challenge your automatic thoughts, replace them with better ones, and live a more calm life.

You only have one life. Live intentionally.

organize your financial mess

Related Money Health Reading:


Scott Adams: Loserthink

Alpha of Listening: A.N.T.S

Sam Harris: Waking Up

Brad Klontz, Ted Klontz: Mind Over Money

George Nabeshima, Bradley Klontz: Cognitive-Behavioral Financial Therapy

Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.


If you like this post, consider joining the Money Health community. There is no spam, just an email every Thursday when new posts come out and every month with a recap.

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About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


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