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There's an effective strategy called the snowball strategy. You pay off your smallest debts first, disregarding interest rates. This works because it takes adva
by Taek 10y ago
There's an effective strategy called the snowball strategy. You pay off your smallest debts first, disregarding interest rates. This works because it takes advantage of psychology - you make progress by eliminating debt items faster.
It is not the strategy with the optimal use of money, but if you feel defeated because you seem to be making no progress then you are less likely to have the motivation to live frugally, and thus actually do worse overall.
It can be more important to encourage yourself than to actually optimize your cash depending on your personality and situation.
- WalterBright 10y agoSuch would be a notable example of cognitive bias interfering with rational fiscal decision making. I mentioned earlier about such biases resulting in poor investment results. I recommend again "Thinking Fast and Slow"'s section on how cognitive biases interfere with sound money management. Being aware of them can be very helpful in countering one's own unhelpful tendencies. Interestingly, the book details how professional money managers fall victim to them, even when they are made aware of such biases. This is one aspect where computer algorithmic investing can do better. One can dispassionately program out such biases.