This Make No Sense, But It Does Make Cents.
At the heart of our financial issues are the numbers. Whether it’s investing or savings or retirement accounts, there are usually mathematical formulas that we should understand. I consider myself a logical person, and many of these principles come natural to me. However, I’m finally starting to see the psychological benefits of going against logic.
It might make sense to borrow as much money as possible on your mortgage and invest in long term appreciating assets, but it’s not for me. It may make sense at some level, but I bet I will keep more of my money by not following this advice, and I know I will be happier in the process too.
Here are a few more examples:
- Pay the Smallest Debt First – Many people ask me about this one, and it’s clear to me that most people should pay the smallest debt first instead of the one with the highest interest rate. If you are in this camp, you should consolidate your debt into several low interest options, but once you are done, the psychological benefit of eliminating bills will motivate you to get rid of them much faster than any difference in interests you are paying.
- Pay Off Your Mortgage Early – We touched on this one, but let me add to what I said. No one became poor by having no debt period.
- Cut Up Your Credit Cards – I still have my credit card, but there are instances where I bought something because I just could. Everyone should get at least 1% back from their credit card purchases, but is it worth it? Decide based on how discipline you are, no matter what the numbers tell you.
- Invest in Index Funds – Unlike most index fund evangelist who cites that most people can’t beat the index, I firmly believe that you can do better if you know what you are doing and have the time to figure it out because I have. Yet, I’m moving my money into index funds. Why? Because stock picking is a job, and it requires dedicated time and comes with stress. My time is much better spent on trying to grow my business, and it’s more profitable too.
- 30 Day Rule – I am growing to love this rule, because all you need to do is wait 30 days to buy anything you all of a sudden really want. 99% of the time, the desire fades away and saves me tons of money.
- The More You Buy, The More You Need – Logic tells me to satisfy my needs whenever they arise, but our mind doesn’t seem to work that way. The more frequently I’m buying, the more I want to shop. The more money I allocate to a hobby, the more I think about it and the more I want to buy something related to it.
- The More You Give, The Happier You Are – Selfless people always give, but it’s the selfish people that should actually think about giving more. Many people can tell you that giving always bring a smile on your face. And even if you don’t want to do it for others, you should still try because of what it does for you.
All of the above work because it takes discipline out of the equation. Delaying your mortgage may make sense, but do you have the discipline to stay the course in your long term investments? Credit cards give you a discount on everything you buy, but is it really the same as needing to go to the bank every time you want to make a purchase?
Going against the math may never make sense. But for many of us, it will make cents.
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