4 ms·

> > it's okay to make financial decisions that don't make any sense on paper if they work for you I consider that to be (mostly) pernicious nonsense, like ‘it’

> > it's okay to make financial decisions that don't make any sense on paper if they work for you I consider that to be (mostly) pernicious nonsense, like ‘it’s okay to walk off of a cliff, if that works for you.’ To a very great degree, finances are a mathematical/legal reality: the path of wisdom is to adjust one’s emotions to that reality rather than to imagine that reality matches one’s emotions. There is some degree of truth to it, of course: at the end of the day, life is not about maximising one’s finances, and one’s emotions definitely have a role to play in one’s happiness. But the sooner one learns to defer immediate gratification, save for the future and build up a nest egg, the happier one is likely to be.

DiggyJohnson 2y ago
Walking off a cliff doesn't work for anyone, that's why you're missing the point. The "some" degree of truth to it is the entire point. Nobody is suggesting to "do whatever feels right or good when it comes to financial decisions."
jonfw 2y ago
I know someone who recently retired, sold his expensive home, and bought a new home in a cheaper area outright with cash. He had a fixed income that would easily cover his living expenses. He had an investment portfolio that he is planning to pass on to his family. By investing his cash and getting a mortgage on his home- he certainly would have made enough money to cover his mortgage on interest. But, he'd be at risk of going cash flow negative, and having to liquidate some of his investments to cover his mortgage + lifestyle. He knew that having to liquidate investments would bother him- it'd be a lot harder to justify that vacation if he'd have to sell some stocks. Those stocks are for his family in his mind. By buying that home outright, he now knows that he's going to be cash flow positive for as long as he's alive. He'll never have to dip into his stocks. And he'll never have to stretch a dollar. It's not a strategy that you'd come up with on a spreadsheet, but he's one of the happiest guys I know
ZephyrBlu 2y ago
A financial strategy is worthless if you don't follow it. If the most optimal strategy isn't going to work for your situation for one reason or another, there is no point in trying to force it. Picking a sub-optimal approach that is sustainable makes more sense.
al_borland 2y ago
The math equations play out differently based on the physiology. When I got my home I went crazy trying to pay it off as fast as possible. I did it in 30 months and it was the best feeling in the world. I deferred my immediate happiness on many things for almost 3 years to hit that goal and it was euphoric. Since doing that, I’ve been able to increase my savings rate dramatically. I save much more now than I would be saving if I still had a mortgage and made minimum payments. My net worth jumped up considerably during that period, since I had a clearly defined goal just around the corner it was easy to give up more for it. Now it’s easy to give more to investments because I don’t really want for anything and my expenses are low. When nothing is competing for your dollars it is easy to start stacking them up. I was also maxing out my 401k while paying off the home, so it’s not like I wasn’t investing or completely out of the market. Most people paying the minimum on their “good debt” aren’t aggressively investing what they otherwise would have applied. They’re spending the money and have nothing to show for it at the end of the day. The potential investment is the justification to not pay the debt, but it’s not the reality of what they’re doing. I find a lot of peace knowing that if something happens to my job, I can probably get a job just about anywhere and still make ends meet. My emergency fund also went from 6 months of expenses to 12 months without adding another dime, but by eliminating my biggest expense. Another thing I thought about a lot was the 2008 crash. If I were to not pay down my house, and invest instead, I could still end up in a situation where I lost my job and with the markets down, couldn’t afford to stay in or get out of my house if needed. Paying it off eliminates that risk. Property taxes for the whole year are about equal to 2 months of rent in most places around me. I love businesses that are 100s of years old. They may not be the biggest, but they don’t need to be huge to weather the storms of life, they just need deep roots. That’s what I want for my life. Stability. Investments can buy some flexibility when times are good, but a paid off home will give me a place to rest easy when times are bad.

DiggyJohnson 2y ago

Walking off a cliff doesn't work for anyone, that's why you're missing the point. The "some" degree of truth to it is the entire point. Nobody is suggesting to "do whatever feels right or good when it comes to financial decisions."

jonfw 2y ago

I know someone who recently retired, sold his expensive home, and bought a new home in a cheaper area outright with cash. He had a fixed income that would easily cover his living expenses. He had an investment portfolio that he is planning to pass on to his family. By investing his cash and getting a mortgage on his home- he certainly would have made enough money to cover his mortgage on interest. But, he'd be at risk of going cash flow negative, and having to liquidate some of his investments to cover his mortgage + lifestyle. He knew that having to liquidate investments would bother him- it'd be a lot harder to justify that vacation if he'd have to sell some stocks. Those stocks are for his family in his mind. By buying that home outright, he now knows that he's going to be cash flow positive for as long as he's alive. He'll never have to dip into his stocks. And he'll never have to stretch a dollar. It's not a strategy that you'd come up with on a spreadsheet, but he's one of the happiest guys I know

ZephyrBlu 2y ago

A financial strategy is worthless if you don't follow it. If the most optimal strategy isn't going to work for your situation for one reason or another, there is no point in trying to force it. Picking a sub-optimal approach that is sustainable makes more sense.

al_borland 2y ago

The math equations play out differently based on the physiology. When I got my home I went crazy trying to pay it off as fast as possible. I did it in 30 months and it was the best feeling in the world. I deferred my immediate happiness on many things for almost 3 years to hit that goal and it was euphoric. Since doing that, I’ve been able to increase my savings rate dramatically. I save much more now than I would be saving if I still had a mortgage and made minimum payments. My net worth jumped up considerably during that period, since I had a clearly defined goal just around the corner it was easy to give up more for it. Now it’s easy to give more to investments because I don’t really want for anything and my expenses are low. When nothing is competing for your dollars it is easy to start stacking them up. I was also maxing out my 401k while paying off the home, so it’s not like I wasn’t investing or completely out of the market. Most people paying the minimum on their “good debt” aren’t aggressively investing what they otherwise would have applied. They’re spending the money and have nothing to show for it at the end of the day. The potential investment is the justification to not pay the debt, but it’s not the reality of what they’re doing. I find a lot of peace knowing that if something happens to my job, I can probably get a job just about anywhere and still make ends meet. My emergency fund also went from 6 months of expenses to 12 months without adding another dime, but by eliminating my biggest expense. Another thing I thought about a lot was the 2008 crash. If I were to not pay down my house, and invest instead, I could still end up in a situation where I lost my job and with the markets down, couldn’t afford to stay in or get out of my house if needed. Paying it off eliminates that risk. Property taxes for the whole year are about equal to 2 months of rent in most places around me. I love businesses that are 100s of years old. They may not be the biggest, but they don’t need to be huge to weather the storms of life, they just need deep roots. That’s what I want for my life. Stability. Investments can buy some flexibility when times are good, but a paid off home will give me a place to rest easy when times are bad.