Fear of Missing Out: How it Can Get You into Financial Trouble

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financial trouble

Have you heard of the phenomenon called the Fear of Missing Out or FOMO? It has been around for some time in the Internet and social media already, but we believe it still deserves merit of discussion, especially in the context of personal finance.

What is FOMO?

Let’s explain this using a sample scenario. You are a part of close group of peers who grew up together, worked a few blocks away from each other, and gather every weekend for some drinks and party. You closely associate with each other, and you have almost the same level of income and lifestyle.

Suddenly, you were re-assigned by your company to a different city so you had to stop hanging out with them. Without you, these closest peers of yours unexpectedly stumbled into a business opportunity that they can start right away. The business opportunity is a franchise of a small store that sells delicious hamburgers at a very affordable price. The total franchise fee is just a few thousand dollars, so they take on the opportunity and invited you to be one of their partners, but you could not make it because you are too busy with work in a far city. In a stroke of luck, the franchisor was able to expand the business and make the brand known to all of the U.S….and the rest of the world. The franchise was McDonald’s.

Aw, man. What would you feel if you were that guy who missed out on the next big thing? Stunned? Regret? Would you not beat yourself up for ignoring such massive upside of an opportunity?

That is exactly what some people want to avoid these days. Every now and then they get the urge to take a leap of faith into an opportunity, looking only at the positive side, without considering the financial costs that they can incur and if it will lead them into financial trouble. We’re not saying that we should totally avoid risky ventures. All we are saying is to avoid irrational decisions that are only born of the fear of missing out.

Stock traders and FOMO

Some stock traders buy and sell out of FOMO, even without carefully studying a stock. They hear a news, or overhear a gossip about a company merger, and they start pouring their savings on a company stock. Others would even take on a loan to join an investment! The others jump in as well without basis, only expectations that their asset will appreciate. When the market, however, realizes that a company is not that valuable after all, the stock begins to crash and people rush to sell, again out of FOMO — fear of missing out on selling at a decent price.

Home buyers and FOMO

The same is true when buying a house. As a home buyer, you look at the prime rates and realize that they are very low at the moment. You think that it’s not going to last long so you take on a huge loan to buy a house and lock in the prevailing interest rates. While this is a strategic and rational decision, some people rush into getting loans without even carefully weighing their overall financial situation. They only decided out of fear of missing out, and wind up giving their house back to the bank because they can no longer pay the mortgages.

Promo offers and FOMO

Have you ever noticed how you react when you see a promotional offer, such as a 70% sale, on a set of home appliances? You stop and consider it because you can rarely find such a sweet deal on something that you think you ought to have. The question, however, is do you really need it? Well, some people don’t really need it but buy it anyway out of fear of missing out. What if there will never be another sale again, right?

The fear of missing out is so powerful that it drives money in and out of markets, and they could even drive people into financial ruin if they let it control their decision. Don’t be one of them. Even if you see opportunity knocking on your door, you still need to be financially responsible and judge it based on facts and your own personal situation. After all, if opportunities don’t knock on your door, there is another option: build your own door. Make your own opportunity.

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