Morgan Housel’s Psychology of Money has taught me a lot about the crazy financial decisions people make based solely on emotion. Housel says,
“Few people make financial decisions purely with a spreadsheet. They make them at the dinner table, or in a company meeting. Places where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together into a narrative that works for you.”
This explains why sometimes you can’t understand why someone would spend their money the way they choose to. Every single person is telling themselves a story about what they’re doing and why they’re doing it, and that story makes sense to them.
The boyfriend who buys the ring for his girlfriend he can’t afford, the college graduate who leases a car at an insanely high price, or the parent buying gifts for their child, even though they can’t pay the bills. All those decisions are based on emotion, wanting to impress someone, wanting to look succesful, or wanting to make someone else happy.
Okay, enough looking outward. What are you using to make financial decisions? Data? Or emotions? A spreadsheet, or feelings? (I use YNAB. It’s an incredible budgetting software.)