When Feelings of Comfort Trump Spreadsheet Math

“Carl,” my friend told me, in a heated moment of financial debate, “You need a new truck like you need a bullet in the head.”

I fired something back about how off base she was, how it would be a sound purchase, and who was she to say anyway?

We went back and forth. It was very unproductive, and we let our tempers get the better of us before we finally walked away to cool off.

With the benefit of some time and space, however, we figured out that it wasn’t so much that she was wrong. And it wasn’t so much that I was wrong. What we argued about boiled down to a matter of personal preference.

Truth is a pretty rare thing in personal finance. More often than not, what we call truth is simply a state of mind or an opinion. Even when the math points at what seems to obvious truth, feelings can get in the way.

For instance, take the common advice from some investment professionals to borrow as much as you can for your house at the lowest possible interest rate for the longest length of time. Then, take every extra dollar you have and invest it in the stock market instead of paying down your mortgage.

The sales pitch goes like this. The overall stock market earns roughly 10 percent annually over long periods if you reinvest the dividends and don’t trade. Let’s say your mortgage only costs you around 4 percent. As long as you stick with your investment plan for the 30-year term of your mortgage, you’ll end up with more money in your pocket than if you just paid off your home as quickly as possible.

If that’s true though, why have I been to way more mortgage-burning parties than portfolio celebrations? For many people, the cognitive comfort of having the home paid off as soon as possible is worth it — even if the spreadsheet says otherwise. There is security in being free of their largest debt, and that good feeling has real value.

So which one is truly better? The paid-off mortgage or the every-growing stock portfolio backed by a spreadsheet proving you are better off investing the money?

And before you jump on the rationalist bandwagon and criticize emotion-driven, illogical behavior, ask yourself a simple question: What is money for? In the end, isn’t the point of money to make us feel more comfortable, more secure, more at ease and happier? If so, it may not make a lot of sense for us to try to talk our friends (or ourselves) out of mathematically incorrect behavior.

We tend to forget that money is about feelings, and feelings don’t always fit neatly into the “truth.” So the next time you find yourself in a heated debate about money, feeling like a crusader for truth, put the sword down and remind yourself that what you’re debating is probably not a matter of right or wrong, but one of personal preference.

Take a step back, breathe and try again. But this time, leave the truth out of it.

This commentary originally appeared April 4 on NYTimes.com

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Carl Richards, CFP®

Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money."

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