Last week I had a call with a client. We had a very heated conversation that we almost emailed Sundar Pichai, CEO of Google, to add weapons to their google meet features. We were fighting over the virtual call.

Here’s how it went down.

My client (let’s call him Trevor had some financial goals that he wanted to achieve. In brief, he wanted to clear his debt, build a new house for his parents and buy a family car.

He also wanted to rebalance his portfolio as he was more inclined toward the traditional side of investing. Almost his entire portfolio was parcels of land and nothing more.

He wanted to venture into other asset classes, get more diversified and spread his risk.

The problem was not diversification, risk spreading or even repaying debt. Not at all. Trevor has a high-income job, a high savings rate, and a wife who helps settle all their household expenses, including rent and other bills.

It would only take time before he achieved his financial goals.

Even though it was easy to come up with a roadmap of how he would achieve all these, he wasn’t satisfied. He couldn’t agree with the clear road map that we had formulated.

For example, it made all sense for him to clear his debt before building a new house for his parents, but he didn’t want to. He argued that his parents had made a lot of sacrifices for him to finance his studies, and it was only plausible for them to be his number one priority.

He also wanted to buy a new car  (a family car) since he felt that it would make his family trips more enjoyable and the memories more satisfying.

Even though it made more sense for him to first clear his debt, he wanted to build his parents a new house and get the family car first.

He didn’t really care when he would be done with the debt payments. Building a house for his parents and buying a family car were more important things to him.

At night, the failure to achieve those two goals gave him more sleepless nights than clearing debt ever did.

The Hard Thing About Personal Finance

It may have taken me a few minutes, but I finally understood Trevor and saw where he was coming from.

Ever wondered why it’s very hard to stick to a budget? Have you ever wondered why we often fall for impulse buying despite claiming that we have financial discipline? Ever wondered why some people make financial decisions that make no sense? Have you ever wondered why people panic sell during bear markets?

It’s because our lives are not only about numbers, spreadsheets and what makes financial sense.

Our lives are more about who we are, our personality, our unique view of the world, our core values, and the people and things that really matter to us. In the psychology of Money, Morgan Housel writes,

“Few people make financial decisions purely with a spreadsheet. They make them at a dinner table, or in a company meeting. Places where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together in a narrative that works for you.”

Most of the financial decisions we make are not numbers-driven. Spreadsheets help us budget, but they do not determine how we spend. It is our personalities and our preferences that greatly influence our spending habits. Our spending often reflects who we are and what we care about.

Still in doubt? Let’s look at one of the most significant money decisions you will ever make.

The Biggest Money Decision

One of the most significant financial decisions you will ever make in your life is choosing the right way to finance your housing. Whether to buy a house all cash or to go the mortgage way.

Going the mortgage way makes so much financial sense because you can always get a mortgage with an interest rate of around 7%(Kenyan market).

You can hence use your money to invest in other high-yield assets that can earn you more money rather than using it to buy your house.

Even though, backed by financial sense, that decision isn’t easy for most people.

In the Psychology of Money, Morgan Housel makes a bold confession,

“We own our house without a mortgage which is the worst financial decision we’ve ever made but the best money decision we’ve ever made.

Mortgage interest rates were absurdly low when we bought our house. Any rational advisor would recommend taking advantage of cheap money and investing extra savings in higher-return assets like stocks.

But our goal isn’t to be coldly rational, just psychologically reasonable. The independent feeling I get from owning our house outright far exceeds the known financial gain I’d get from leveraging our assets with a cheap mortgage.

Eliminating the monthly payment feels better than maximizing the long-term value of our assets. It makes me feel independent.”

The Bottom Line

Whether in personal finance or investing, who you are and what you care about will always come in the way of your financial decisions. And if your financial decisions are not congruent with who you are and what you care about, you will always have difficulty achieving your financial goals.

That’s the hard thing about personal finance. That’s what most people don’t get about personal finance. When most people don’t stick to their budgets, they think it’s because they lack financial discipline. But in the grand scheme of things, their budgets are not congruent with who they really are.