The Power of Realistic Expectations for Wealth & Well-being

A famous American author may or may not have characterized his fellow countrymen as "temporarily embarrassed millionaires," but whoever coined the phrase certainly knew a thing or two about our national character. In the United States, we tend to believe that anyone can hit it big — and our chance is sure to come eventually, with hard work and luck. That may be true in certain instances, but there are more reliable ways to stay happy, financially or otherwise.

Economists at the U.K.'s University of Bath have just published a study on the power of positive thinking — or rather, on how optimism can affect our long-term prospects. The very short version of their findings is that realism (rather than pessimism) is actually the best way to organize your finances and your plans for them. "Plans based on inaccurate beliefs make for poor decisions and are bound to deliver worse outcomes than would rational, realistic beliefs, leading to lower well-being for both optimists and pessimists," said study author Chris Dawson. "Particularly prone to this are decisions on employment, savings and any choice involving risk and uncertainty."

We already know that too must optimism can actually sink entrepreneurs, and that the famous Dunning-Krueger effect can give us way more confidence than we've earned. Furthermore, investing in your own financial literacy is a small step that pays big dividends over the years. Check in with yourself and assess where you and your money stand. It's never too late to start learning more about what you don't know — and where you can take yourself.