Sound personal finance and investing decisions flow from two things: (1) knowing the numbers and knowing ourselves. If we know the numbers but not ourselves, our decisions will look good on a spreadsheet, until our real world decisions deviate from the plan. If we know ourselves but not the numbers, our decisions may feel right, but lead us down the wrong path. So what’s the answer? We need to think like Mr. Spock, but act like Captain Kirk. Allow me to explain.
Mr. Spock was a human computer (at least when he wasn’t mating). He took in data, processed it and spat out an answer. He could calculate the odds of the outcome of an action to multiple decimal places. Any decision that deviated from his statistical analysis was, in a word, illogical.
And that brings us to Captain Kirk. Kirk was one big ball of energy, emotion and passion. He made decisions based on instinct and gut feeling. He listened to Mr. Spock, but he didn’t always follow his advice. He was the yang, Mr. Spock was the yin.
And that brings us back to personal finance and investing. To make sound money decisions, we need to know the hard, cold numbers like Dr. Spock, and we need to know our own emotions and human nature like Captain Kirk.
Follow the link for how to apply this advice to decisions such as buying vs. renting, paying down debt vs. investing, which debt to pay off first, and more.
Here's a great video montage showing the difference between the two:
See more great financial advice at the last Carnival of Personal Finance for 2007.