Personal Finance Isn’t Math

Have you ever seen someone run down the numbers on a personal finance issue and the math is 100% behind their point, but there’s no way you’d ever follow their advice? I know I have. How about a few examples?

Recently, I read an article on why parents should view childcare as an investment, not an expense. From a mathematical perspective, it’s a great point. Sure, childcare might eat a large portion of one parent’s salary for 5-10 years, but that cost will come to an end, and you’ll have 5-10 years more experience and salary growth in your field, plus no resume gap. Those who write off paying for childcare as “not worth it” will significantly reduce their lifetime earnings by stunting their career as well as forgoing income during their time at home.

I applaud the math, but nowhere does this author consider that some families view raising young children as a real job worthy of full-time attention. And that the reduced lifetime earnings are considered no problem compared with the privilege of being able to raise their kids full time. The math is unequivocal: women should return to work after maternity leave. The numbers are something to consider. But so is the personal side of personal finance, which in this example is about our relationship with the little humans we bring into this world.

Take another hot personal finance debate: should you pay off your mortgage early or invest extra income? Mathematically, you’re likely on average to grow your wealth at a rate of 7-8% compounding interest in the stock market. Over 30 years that can mean tens of thousands more in investments, depending on your property value. Meanwhile, paying down debt only saves you around 4% in interest these days.

However, some people prefer the feeling of freedom and flexibility that comes with being debt free. Others find it ethically preferable to repay their debts as soon as they are able to. Notice, emotions, values, and ethics have little to do with math. They have nothing to do with profitability. But these aren’t small factors for many.

Or how about an example I personally can’t comprehend: buying a new car. Everyone knows purchasing a brand new vehicle means major instant depreciation, yet lots of people do it every day. To them the feelings of peace of mind, safety, or convenience that comes with a new car and a warranty outweigh the thousands they’re losing in the transaction.

If we only look at the math, we can easily become a Scrooge. But if we only consider our emotions, we’ll probably end up broke.

So what does it mean that personal finance is not math? It means you need to look at the math, but also at your feelings and values. Most of us tend to make decisions more logically/mathematically or more emotionally/values-based. Know thyself: which one to you tend toward? Temper it by analyzing the other factors at play.

If you tend to choose based on numbers, consider the human side. Who will be affected by your choice? What might be the long-term implications of those effects? What are you feelings and values about the question at hand? What might you regret later?

If you tend to make choices more on feelings, values, or simply what those around you are doing, run the numbers. Do the math. Use online calculators—there are plenty for almost every personal finance question you could ask. Write down your feelings, your pros and cons, and try to analyze the a bit more objectively with the math in view.

As you read personal finance advice, ask yourself: is this argument more based on objective or subjective arguments? Is it more math or emotion/values? What would the other “side” add to the debate? This is important to think about both for those articles we agree with wholeheartedly, and those we disagree with.

If you are ever asked for personal finance advice, consider where the person is coming from. What is their real hang up? Maybe they aren’t asking you to solve a math problem.

I suspect that more of us don’t look at the math enough, but those who are all about the math tend to gain prominent voices in the personal finance community. We’d all be better off if we acknowledged and considered both in our decisions surrounding money. Try to be a voice of both in real life and online discussions about this wily thing we call personal finance that involves math, but isn’t synonymous with it.

Which side do you tend toward? How do you integrate both factors into your financial decisions?

18 Responses to “Personal Finance Isn’t Math”

  1. Tonya says :

    I think I do both. I know of some people who refuse to wear makeup or never get their hair cut because to paraphrase, “why should I have to spend money to look good for society” or something to that affect. Hey, I think that’s great. But you (PF person who writes that) are already married and also don’t need to go to work. It’s all a personal choice. I don’t want to spend a TON of money to look put together, but I’m willing to spend some to put my best foot forward. How I feel about my outside is how I feel about my inside and vice versa. I think ALL PF advice needs to be taken with a grain of salt and just looked at as basic guidelines.

    • Kalie says :

      Yes, there is so much that depends on your situation. I think location and cost of living is a huge variable, too. The mathematical arguments regarding rent vs. buy look a lot different in Toronto than in Alabama, for example. It’s helpful to hear ideas of how others save, and it’s unwise to write it all off as inapplicable, just as it’s unwise to take all advice to seriously.

  2. Brian says :

    There’s no one size fits all advice. When I read personal finance advice I see how it might fit or not fit into my personal situation and personal beliefs. Often I take bits and pieces of the information and make it my own. It’s rare I take advice word for word.

    • Kalie says :

      Yes, it definitely depends on your situation and needs. I think it’s helpful to analyze where the advice is coming from and counter-balance that with other factors.

  3. Oldster says :

    I think everything starts with the math, but not everything should end there. Generally, if something does not make mathematical sense, it just won’t work. If it does make logical sense, it can almost always be tweaked to fit anyone’s lifestyle/circumstances.

    • Kalie says :

      We are definitely people who are very interested in the math! And yes, there are budgets that are never going to add up, and that way of living isn’t going to work long-term. But values are very important to us as well and we do things that don’t end in the highest number at the end of the ledger, but are still worthwhile to us.

  4. Ann says :

    You have hit upon, with your discussion of the child care cost-benefit ratio, my biggest soap box. Beyond the monetary expense of child care for working mothers (it’s huge these days), the even bigger issue is being home with your children to give them a sense of security, to teach them your values, to keep the home running in something better than crisis mode each day (the fate of many families where both spouses hold down jobs), and to enrich your husband’s and children’s life within the home. I maintain that many of the off-the-rails symptoms of today’s world have a lot to do with mothers not being home to balance and monitor their family members. So, as you said, this is not at all just a dollars-and-cents issue. Some women have to work to support their children (I was one of them). For those who have a choice, I pray that they take the long view when deciding.

    • Kalie says :

      I’m with you, Anne, though I certainly see the other side of things. I try to not to get preachy or dogmatic about the issue because it’s so personal and people are coming at it from such different viewpoints and values. But it was a no-brainer for us, since we were financially able. I’ve struggled with giving up the career and income, but in the long run I know it’s worth it for us.

  5. CS says :

    I really enjoyed your article. My late wife was on the emotional side of personal finance while I was on the math side. It made for some interesting discussions over the years, but with compromise and willingness to listen to each other, we made it work for both of us. I think many couples may find themselves struggling with spending conflicts because they don’t realize the issue behind it all.

    • Kalie says :

      What a great application point–understanding where your spouse (or other friends or family members) are coming from can be very helpful in communicating about difficult issues. My husband and I happen to see things pretty similarly here, but I think that also means we have the same weaknesses to be aware of and guard against.

  6. Jack says :

    Money is always on my mind, just to make sure I’m making the right choices. But part of those choices is the choice of where to spend my time.

    We’re a single income (currently no income) family with 2 small boys. So while having this year of unemployment has been a joy that I’ve been able to spend so much time with my boys, it’s been an incredible stress while looking for a new job. But of course, if we weren’t so financially savvy, and hadn’t saved such a large cash cushion against this type of emergency, this past year would have been a complete disaster.

    So it’s always a balancing act. I’m just glad I learned to juggle, and balance, early enough in my life to make this year a hiccup not double pneumonia.

    • Kalie says :

      It’s hard not to think about money when there’s a family to provide for. While I hope you find the right employment soon, that’s so nice that you were financially prepared to weather this season, and also got to enjoy your children more. That’s what financial flexibility is all about.

  7. JoeHx says :

    Personal finance is definitely just that – personal. It’s balancing needs and wants, math and feelings, possibilities and far-off dreams.

    For instance people often argue which way to pay off debt is the fastest, or which way is the best. Some say they have math on their side, while others say they have empirical evidence on there side. The key is to find something that works for you, not (necessarily) for the math or what worked for someone else.

    • Kalie says :

      I agree that you need what works for you, and that can mean a lot of different things for different people and situations. But it’s always sad to see people insisting something works when in reality it leads to a lot of debt and difficulty.

  8. Jeremiah Ramsey says :

    I’m afraid of financial stuff because of all the math involved. Even seeing the word “finance” and “math” in the same sentence makes me feel anxious. All I can think is, “time for another F grade. why bother. I already know I can’t do that.”

    • Kalie says :

      Sorry to hear that, Jeremiah. I just use online calculators so I don’t have to remember much math at all! And of course my engineer husband comes in handy a lot.

  9. Daniel says :

    Great post. Another one that makes absolutely zero mathematical sense financially is giving. There is no “ pay off” in a financial sense, according to the maths. However we know that we receive much more than we give, And if we throw in the biblical reality that “when you give to the poor, are you lend to thethe Lord” our excel spreadsheet implodes

    • Kalie says :

      Perfect example, Daniel. When I think about what our investments could like if we’d been putting our giving into the stock market these last 12 years–wow. But when I think about the eternal investment we’ve made, and what God has already done with those funds–bigger wow. So worth it.

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