Personal finance

A financial decision based on emotion

Sounds like a bad idea? We are taught that financial decisions are made on numbers. Do the math, calculate the options then select the best one.

Well, I just did the opposite. I paid off my student loan even though it’s not the debt with the biggest interest (that’s my mortgage) and I could probably earn more in compounding interest if I put it into my ETFs.

For a long time, it’s been my plan to only pay the minimum on my student loan so I can put more into these other areas. Financially this makes sense. The risk is also minimal even if I were to loose my income as the payments would freeze. I did the math on the interest I would pay if I continued at minimum payments and it would only be about $1,000 total over the remaining three years (my loan is with the UK Gov). But despite the spreadsheets I decided this year to pay the whole thing off as soon as I could.

Why? Even though I make bulk transfers once every quarter, and I can allow for this in my annual zero dollar budget, the payment can’t be automated and still creates a task for me. The task itself is pretty minor and doesn’t take long, but it still creates noise. I’m overseas from where I originally studied, so any administration is twice as difficult. I have also needed to keep a UK bank account open solely to make payments. This brings its own admin, but I also worry about my details getting stolen. As it’s not an account I check as regularly there’s more risk than with my regular accounts.

All these emotional ‘hassle’ factors have finally become more than the potential benefit I might gain from putting my money elsewhere. So this week I made my final bulk payment and eliminated the debt. And it feels great!

Have you made a good financial decision based on emotion? Has anyone had success with the ‘snowball’ method of paying off debt?

5 thoughts on “A financial decision based on emotion”

  1. I think you made the right decision for YOU. That’s a huge step realizing the balance between our emotions and “book” smarts if that makes any sense. This often doesn’t get discussed much in the literature. I commend you for facing and working your debt. My recommendation is the snowball method just for this reason. Those small wins feed are emotions and keep us moving forward. Great job my friend!


    1. The snowball method had never really appealed to me before because mathematically it didn’t make sense, but it just goes to show the role that emotions play in financial decisions. It’s like when you make a list of pros and cons but then just end up going with your gut anyway. Thanks so much for your comment!

      Liked by 1 person

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