We all like to see ourselves as coldly rational but we are sadly not walking, talking spreadsheets, we are a mishmash of human emotions prone to making odd decisions.

☕ I am baffled by the obsession with coffee, maybe because I don’t drink it myself, whereas you might think it’s perfectly normal.

🗞️ Similarly, some people read The Guardian, I read The Times and others read the Daily Mail.

🌐 But these decisions make the world go round; I think something is worth buying, you think the same item is worth selling.

Just because people read different newspapers doesn’t make one right and the other wrong, they are both reasonable decisions for each person.

💰 With money, it’s really hard to be coldly rational. In fact, it’s probably not worth trying to be coldly rational because your innate biases will fool you into telling you whatever you did was rational, it’s how we justify our actions to ourselves.

So instead of trying to be coldly rational, be reasonable.

Here’s an example:

I am often asked by clients if they should invest (e.g. Stocks & Shares ISA or pension) or pay down their mortgage.

My answer varies depending on who asks but often goes something like this:

“Interest rates are low so mortgages are really cheap. The return on your investments should be higher but there are no guarantees of that. We can analyse numbers all day but if paying down your debts makes you feel better, then do that. Your feelings outrank other thoughts.”

❓Coldly rational? Nobody knows, only time will tell.

✅ Reasonable? Yes, I think so.

❓What do you think?

👍 Being reasonable is much more realistic. It works. You have a much better chance of sticking to your financial plan in the long-term this way. And therein lies financial success and financial freedom.

Here’s a real-life example:

In a recent Zoom meeting, Mr B was really pleased that the value of his investments, despite drawing some of the capital out every month to pay the bills, had hit another all-time high.

😲 Yet five minutes later I suggested selling some of his shares and buying bonds. Why?

For a number of years, Mr B has held 65% of his investments in shares and 35% in bonds. The stock markets have done so well recently that he now had 71% in shares and only 29% in bonds, he was taking more risk now than he had done for many, many years. You just don’t know what might happen tomorrow, next week, or next month, and this particular client doesn’t need to, and more importantly isn’t comfortable with, too much risk. I want my clients to sleep well, not be kept awake worrying about their finances.

When you rephrase the question, the answer becomes acceptable.

❓Was this action coldly rational? Nobody knows, only time will tell.

✅ Reasonable? Yes, I think so. And importantly so did Mr B.

❓What do you think?