Stop Thinking Like a Dog, It’s Killing Your Future!

When I sat on the management committee of our surgery center, I was wondering why owners didn’t bring all their cases to the facility. They would clearly benefit financially if they increased their case load. So why didn’t they? I realized, it was because we all think like dogs.

Dogs will do tricks if you give them a treat immediately after their successful performance. Dogs will not do tricks if you promise to give them four treats next month. Dogs don’t think long term, they think only about the present.

So if surgeons are thinking like a dog, then we need to incentivize them like a dog. We can’t promise they will get a bigger profit share check at the end of the year, we have to give them something this month. Profits need to be paid immediately if we want it to be a good incentive.

I also realized, this applies to the rest of our lives as well. Here are two tests to see if you are thinking like a dog: Do you have a car payment? Do you have a 30 year mortgage? If the answer is yes to either question, then you are thinking like a dog and it is costing you a fortune.

So exactly what is the problem? Dogs only see the present, not the future. Financially that means we only look at the monthly payment and not the total cost. Or we are more concerned with our monthly income than our total wealth. If we want to get ahead financially, we need to be looking at the long term outcome of our decisions.

When we shop for a new car, do we shop with the amount of monthly payment in mind or are we thinking about the total cost of the car in determining what we can afford? There is a big difference. Just because we can afford the monthly payment, doesn’t mean we can afford to buy the car. I like to remind people that the car we can afford, is the car we can write a check for. We cannot afford something if we have to borrow the money to get it.

If one goes shopping for a new Tesla and there is not $80,000 in their checking account, then a lower priced car should be sought. Never go shopping with a maximum monthly payment in mind. That’s how a dog would shop for a car. A financially responsible adult would go into the dealership with cash and spend the least amount of money that will get the job done to their satisfaction.

For some people, their satisfaction will be met with a Tesla. That is fine, as long as it is done with cash. We all have different tastes.

Here is the problem; if we cannot afford the $80,000 for the new car and we borrow the money to purchase it, how will we be able to afford the $92,000 we will have to pay for that same car using credit? How can we justify paying an extra $12,000 for something we couldn’t afford in the first place? Since we have a choice, why would anyone choose to pay $92,000 for something they could get for $80,000? The answer is because we are thinking like a dog. The monthly payment is more important to us than the total cost.

The same holds true for a house payment. The most expensive way to buy a house is with a 30 year mortgage that keeps getting refinanced every few years for another 30 years. This is done because we are looking not at the total cost of the house, but at the monthly payment. The present overrides the future.

A $500,000 mortgage at 5% interest for 30 years will cost $966,278 and even more if it keeps getting refinanced. That same mortgage will only cost $711,714 with a 15 year loan. That is a savings of $254,564.

What could you do with an extra quarter million dollars? That could buy a nice second home in a snowbird state. It could provide an extra $10,000 a year in retirement for the rest of your life if you follow the 4% rule. It could buy a new Tesla for each of your three kids. It could give you a lot of Mondays off.

So why don’t we save all that money? Because we think like a dog. The monthy payment for the 15 year mortgage is greater than the monthly payment for the 30 year mortgage. We want more money to spend right now, not later. Just like the dog, we want our treat now, or we won’t do the trick. That thinking is costing us a fortune.

I see this type of thinking all over the place. What’s in it for me now? There are several articles popping up about people being disappointed about receiving a lower tax refund than they expected. They think the amount of their tax refund is a reflection of how much tax they paid. I don’t understand this, as it is a reflection on how much tax they (over) paid. They think if taxes are cut then their refund will be more than last year. Trump put out a tax reform that was to cut most people’s taxes. So somehow that has translated into “I will get a bigger tax refund.”

Not everyone got a tax break though. My taxes were expected to increase under the new tax plan as I showed in my article Calculating the New Tax Plan Results.

Whether taxes are increased or cut have nothing to do with the amount of your refund. The tax refund only relects how much you overpaid your taxes during the year. Getting a big tax refund does not mean you paid less taxes, it means you made a mistake. It means you mistakenly gave too much money to the government in the form of an interest free loan.

If I asked you “Would you like to give the government an interest free loan this year?” What would you say? Almost everyone I know would say “No way.” But if you got a tax refund, you gave the government an interest free loan.

I read today about a woman who was upset that her tax refund was lower this year than last year. What upset her was that she uses her refund to pay her property taxes each year and the refund wasn’t enough to cover the taxes. She thought the tax reform would give her a bigger tax refund. She did note that she got a bigger check every month since the new tax reform took effect. But she didn’t put any of that money away to cover her property tax bill. She spent it each month as fast as she got it. She was thinking like a dog.

It’s time for us to start thinking in terms of the long term implications of our financial decisions and stop thinking like dogs. The effect today is not nearly as important as the effect over all. Stop doing things that will maximumzie interest payments. Stop making decisions that are all about the monthly effect and look at the long term effect. Stop thinking we are rich because we have a big pay check, instead look at our net worth to determine if we are indeed rich. A big paycheck and a negative net worth is not the picture of a wealthy person.

How about you? What areas of your life have you been thinking like a dog? Is it time to change? If debt has been a factor, consider getting a copy of The Doctors Guide to Eliminating Debt and start thinking long term.

The next time they bring the dessert tray after dinner, I think I will look at my waist line to make the decision and not make the decision based on what is on the dessert tray. I have to stop thinking like a dog.

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6 thoughts on “Stop Thinking Like a Dog, It’s Killing Your Future!”

  1. Oh boy, your dog analogy might be a little rough for some people.
    (Funny thing just happened. I tried typing “tough” but “rough” came up instead. The phone is punnier than I am….)

    Agree that incentives matter. They are incredible motivators of both good and bad behavior and outcomes.

    We are about to take the plunge into home ownership and are going for a 30yr mortgage. The numbers you posted are sobering about the money spent between a 15 and 30 yr mortgage. But we are voluntarily and with eyes wide open, dogging this one.

    We can “afford” the mortgage we will get and still do other financial goals like a 35%+ savings rate and my wife working part time.

    We could obviously save more or pay own loans faster if we took a different housing option. But this is what we want to do and ultimately I think it will be the right decision for us.

    P.s. if I’m going to be a dog about this then I’d like to be a Cavalier King Charles Spaniel!

  2. I too view tax refunds as a negative thing. You paid too much into the system and only got the capital you put in with no interest (and if it was the other way around and you didn’t pay them for a year there would be penalties and back interest etc).

    Conversely if you owe money you can view it as an interest free loan from the government the prior year.

  3. Hey Cory,
    You raise a lot of great topics here including the benefits of delayed gratification, the miracle of compounding, the role of incentives in work behavior, and the deception of the IRS.

    That last one is the one I’m hearing now and will continue through April. The IRS was genius to take the tax out of each paycheck rather than at the end of the year. Not only is it actually received (if people waited a year they wouldn’t be able to pay due to spending). But it is painless. So painless in fact that people forget they have even paid. They think they pay taxes in April, not understanding that is only a reconciliation adjustment.

    We all act like a dog at times. This is a good reminder to heighten our awareness.

    • Dr fawcett,

      A great piece on illustrating our recency and near term biases. We are clearly hard-wired to think short term, everyone is subject to this.

      By setting up systems that force long term planning such as automating savings, debt snowballs/avalanches and the like, we can gear ourselves to embrace the future.


      Psy-FI MD


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