Emotional Financing

by Dual Income No Kids on September 30, 2006 · 0 comments

I’d like to address one of those annoying realities of dealing with personal finance. That is, we are far too often driven by our emotions when makes decisions that impact our bottom line.
I’ve been reminded of this recently due to several issues that we’ve been faced with:

1) Fixing my wedding ring. We bought a beautiful 1940s diamond and platinum ring for our wedding back in June. When we found it, everything lined up. It was beautiful, within our budget, fit like a glove, and that was that. Lately one of the side baguette diamonds fell out and it came to our attention that the whole mounting is pretty shoddy condition. Had we not been so emotionally wrapped up in the joys of buying a wedding ring, we might have been able to look at this more objectively.

2) Buying a home. When we started the process of shopping for our current place, we did the right thing and created a budget of what our maximum monthly housing expenses. Anyone who knows the DC market, wouldn’t be surprised to hear that many of the places that fit what we wanted were not within our range. We stretched it a bit and were willing to take the bite out of our budgets. At the time we didn’t consider two factors that have since impacted or finances. First, that the adjustable ARM has killed us with the constant increasing payments. Second, at that point we could have predicted that with both of us expecting to go back to school, our income would be impacted by this. Alas, we went ahead and bought our fabulous place. If one was making those choices with less emotional attachment, we might have opted to wait and save more to afford more, or some other rational choice.

3) Investment Properties. I’ll try to tread lightly on this one, as James is emotionally tied to our current investment property. At the same time, given that there is little to no profitability on a month to month basis, it might be better to sell and have that money work for us in other ways.

While it feels unbecoming to point out our shortfall in financial decision making, I hope that readers find this to be a refreshing reminder that no matter how central financing is in you life, there is still a threat that emotions can run the show. These tend to be examples of high price financial choices, but this also extends to daily choices. People can far too often convince themselves of the need for this or that, without looking at it from an objective perspective.

We wish our readers luck in reigning in the emotional side of spending, and hope to keep this lesson in mind.



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