Emotional Financial Management

We'd like to think humans are rational creatures, but in reality, we are all subject to bouts of irrational actions guided by very "human" emotions -- fear, jealousy, and greed, to name a few.

In my personal finance class we read about a study in which a group of people were asked the following question:

Would you rather recieve 10 days of vacation when all of your acquaintances get 5 days OR would you rather receive 20 days of vacation when all of your acquaintances get 40 days

In this situation, almost everyone responded "rationally," choosing to receive 20 days of vacation over 10 days.

As a follow up, the same group of people were asked the following question

Would you rather make $50,000 a year if all of your acquaintances made $25,000 a year OR woud you rater make $100,000 a year if all of your acquaintances made $200,000 a year?

A "rational" person would choose $100,000 because it is obviously twice as much money as the other option. In this study, however, an overwhelming number of people chose the first option because they would be making twice as much as other people. This shows the natural human reaction to judge your financial situation by comparing yourself to others. The emotions brought about by doing this can cause you to make a less than rational decision.

I admit that I compare my financial situation to others, but it is also important to remember that another person's financial situation may not be what you think. I look at co-workers who are buying $350,000 homes and driving nice cars and wonder how the heck they do it when I know they can't be making that much more than I do. Then I look at single parents successfully supporting a family on a single income and I wonder how the heck they do it when I am struggling to just support myself.

This is one of my favorite commercials that helps me answer my questions:


While this isn't the case in all situations, it helps me remember that I shouldn't compare myself to others...I can only keep trying to do the best that I can for myself.

Welcome

As I was driving home today, I was thinking about how I'm doing on my budgeting and other areas of personal finance when it hit me...I LOVE PERSONAL FINANCE. I've grown up carefully managing my money, aceing my high school Money Management class, and aspired to become a Personal Financial Adviser. I think about personal finance issues all the time...both my own and in trying to help others. I Tivo The Suze Orman Show and friends have come to call me "Suze" on occassion. I get financial magazine subscriptions as Christmas gifts and my leisure books of choice are those related to personal finance. Perhaps I am just obssessed with money...but aren't obsession and compulsion symptoms of passion?! So, I thought of this as a good thing.

In my recent obsessions with personal finance issues, I was doing some research on the internet and stumbled across someone's blog that was dedicated to personal finance and documented their journey to reach their short-term and long-term monetary goals (save $100,000 in cash for a home down payment and reach a net-worth of $1 million, respectively). Since I found it, I've been catching up on bits and pieces when I have free time. It's interesting learning new things and hearing new perspectives. Then it hit me...I should make my own money blog to share my passion and knowledge with my family and friends.

The disclaimer: Even though I have taken a personal financial planning course in graduate school where our assignment each week was to say "I am a financial planning expert," outloud and with a straight face, my knowledge is nowhere near complete and I am in no way responsible for the actions my readers chose to take after reading my blog (although feel free to credit me with any positive results that may occur!). I hope to offer information that you may not have known and share a new perspective on personal finance, but like everything you read on the Internet, it is someone's opinion and should be treated as such. I may not always have the best advice, but hey, it's FREE!