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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Heart vs. Head in Financial Decisions: Choosing What Feels Right

In this episode of Friends Talk Financial Planning, John Scherer and Bridget Sullivan Mermel dive into the intricate balance between making financially sound decisions and honoring our emotions and personal values. They discuss the scenario of paying off a mortgage early, the importance of liquidity and emergency funds, the emotional attachment to concentrated stock positions, and the significance of being intentional with financial choices. As they share their insights, they emphasize the significance of considering both the financial and emotional aspects of decisions to avoid potential regrets. Join John and Bridget as they shed light on navigating the delicate balance between the head and the heart in financial planning.

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John: Have you ever had the feeling where the numbers say that one financial decision is the best one, but it just doesn't feel right? In today's episode of Friends Talk Financial Planning, we'll talk about when the technically right thing to do is not the right thing for you. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I’m Bridget Sullivan Mermel. I've the fee-only financial planning practice in Chicago, Illinois. And before we talk about the heart versus the head on financial decisions, please subscribe. It helps us with YouTube. All right, John, so like I said in my little intro, I love this topic because it helps us integrate different parts of ourselves, and sometimes how we feel and how we think are a little bit different. And the signals that we're getting from the head and the heart both help and confuse us. The first example that we wanted to use on this is paying off your mortgage early. And this is an interesting one with low mortgage rates. And it's actually interesting in our current conditions. So how do you approach this with people?

John: Yeah, mortgage, I think it's a great one where I can show you the math. I've done this. And listen if you're going to live in your house for the next 10 or 20 or 30 years, not paying off the mortgage early is a better deal than making extra payments and paying it off early. We got the math. We're going to argue about that a little bit. But listen, I go, “Here's the best economic thing to do.” You look at that, and you go, “Yeah, okay. But what's sort of the American dream?”

Going back to our parents or grandparents, it was having that mortgage burning party used to be a thing where you got to say, “I own the house free and clear.” And not having debt can be a value for a person. And so, this is one of these things for me anyways, that I look at it and think it’s irrefutable. Listen, economically speaking, you're going to be ahead in 20 years if you don't pay extra on the mortgage and instead pack money into your retirement plan or save it in some other place. But one of the phrases that a friend of ours, Ken Robinson, uses is spreadsheets don't have to sleep at night.

That's great. But you know what? If I feel more comfortable paying it off early, then that can probably be the better choice for somebody to make as opposed to the economic right thing, because think about this: our money is about what it does for us. It's about providing peace of mind and security, not necessarily about maximizing the bottom-line dollar. So that's how I look at that. Is that about what you talk about?

Bridget: Yeah, I think of it the same way. Right now, it's even a very interesting situation because we know the prevailing interest rates. For example, you can put money into a decent savings account or a T-Bill and earn 4% versus what you're paying on your mortgage. And a lot of people have mortgages that are at 3%. So it's very obvious that you don't even have to take any risk right now, and you're better off just not paying off your mortgage.

Now, I would say that for some people, one of the ways that they control their spending, is by saying, “Okay, I can't spend too much if I don't have the money available.” They know themselves well enough to say, “Well, I'm not going to put this money into my retirement fund or save it. I'm going to just go spend it.” And so, in that case, if it's a tool to control your spending, I'm maybe a little bit more on the pay off your mortgage camp. But just so you know, in general, I'm in the same camp as you. As long as I can have the mortgage, the better off I am.

John: Let me throw something in there, Bridget. You just made me think of something I'd kind of forgotten about in my personal situation. So we own our house, and we've also got our office that we own and another vacation home up on a lake. Maybe a good example to drive it home for viewers is my wife is, in our vernacular, sort of a nester. For her, having the house paid off early is a value for her. And for me, I'm a little bit more of the numbers, economic hard crunch thing. “No,” I go, “that doesn't make sense.” What we've decided to do is for the office condo and for the cottage, I can control those. And I feel really good that we're leveraging and making extra money and doing the economic right thing.

That provides peace of mind to me, and that feeling of satisfaction. For Allison, knowing we get the house paid off quicker is valuable and gives her peace of mind. And so, there're different ways to approach which one is right. Well, again, we can talk about the math, but the math is just a thing. And so that's how we decide to do it, splitting those up between the two and accomplishing what's important. What are we trying to get to? And yeah, for me, it's getting more money and doing the right thing, but it's that feeling that I'm doing those things that's important. It’s just a little different take on it.

Bridget: It's like feeling like you're playing the game.

John: Right.

Bridget: And you're optimizing your long-term thing. But other people, it's like, “No.” There's a term called debt drag. Especially when you're retired. I think a lot of people have debt drag with their mortgages. Usually, people don't feel dragged down by their mortgage because they're kind of a generally accepted thing in our society. But I think there's plenty of people who have a feeling of debt drag with a mortgage. It just makes them feel bad. So if it’s going to make you feel bad and you have enough money, those are good reasons to pay it off.

It's been an interesting topic amongst our financial planning friends, too, because when we get together in groups, this is a hotly debated topic amongst financial planners. One thing I would say is that when I have clients who are retiring, I try to get them to wait as long as possible. So it's like, okay, if you really have to pay off your mortgage when you're retired, can you wait until you're actually retired? Don't think, “Oh, I'm paying it off when I'm 50. That's great. And I'm retiring at 65.” So that's one thing that I say. Let the money that you put in the stock market grow as much as possible. And then if you want to use that to pay off your house, I'll live with it.

John: Yeah, that's great. I love that. I'll tell you one other place, as we think about this, when is the best economic advice not necessarily what you should do, is having enough liquidity and what that means for a person.

Bridget: Liquidity? What does that even mean?

John: Yeah, well, I look at that sort of generically as cash in the bank, having the triple whammy, the emergency fund. And we talk to people about saying, “Listen, we want to see you have something like 30% of your income, whether it's checking and savings, whether it's the emergency fund and CDs, those sorts of things. Something in that ballpark.” But we've got some folks that say, “Listen, can I have less than that? Or wait a minute, that's not enough. Can I have more than that?” And it's sort of like, listen, we can tell you economically that, hey, that 30% number does a pretty good job, but if it doesn't make you feel secure having more, having 40% or 50% or 60% is fine.

At some point we get to a limit where you go, listen, you have a million dollars just sitting in your checking account that's probably not awesome. But you go, listen, if it makes you feel better to have more cash, awesome. And we don't have too many people where it feels better to have less, but we do have some who ask, “How much do I really have to keep in there?” Again, we could look at the economic thing: having enough liquidity or the right amount enough, but not too much sort of thing.

I think a similar thing maybe goes for things like life insurance. They go, “Listen, you got to have a certain amount.” And some people really love it, want to make sure they've got more. And that's okay. And some people go, “What's the minimum that I have to have?” But you can kind of come up with, well, here's how much insurance you need. Here's how much cash you need in the bank, or you should have in the bank. But then the right answer for individuals can be very different.

Bridget: Absolutely. And another topic we had was concentrated positions. Okay, so I'm using jargon there. Who's using jargon? That just means I got a lot of Apple stock, I got a lot of Google stock, and I want to keep it. I like it. I want to bet on this horse, I like this horse, and this horse has done well. From a financial planner standpoint, we like to really not have one position, one individual stock with more than 10% of your total portfolio, but some people have a lot more than that, and they like it.

So that feels bad for them to sell it, which is an interesting conundrum, because from our point of view, you're better off the other way. Again, intellectually, we can show you many graphics that betting on any specific stock, there's a high risk. There's a lot of people who lose in that situation. So there's a lot more Enrons than there are Googles, but yet people like to feel engaged with the stock. It's usually just something that they love. It's hard to argue with that. But again, our point here is to understand the intellectual side of it.


John: Yeah.

Bridget: And make the decision consciously.

John: Yeah. I love that. We talk all the time in our office about being intentional. And that really does come down to the end. What's the right answer? Well, I think the wrong answer is I haven't even looked at what's the risk of having half my money in one stock, or I haven't looked at the downside of paying off the mortgage? The other opportunity costs. To me, it's, listen, if I've looked at, oh, the math says it's risky to have so much money in one stock. And what happens when that stock goes down 90%, like has happened on a lot of high value stocks over the years? What could I have done? What are my choices with my mortgage?

This is as opposed to blindly saying, “I'm just going to pay off the mortgage. I'm not even going to consider the other options.” Once you've considered the other options. Oh, yeah. This is putting me at a lot of risk. If things go bad with Apple or whatever, here's what it does to my net worth. Here's what it does to my retirement plan. If I choose to pay off the mortgage, I miss this opportunity for having this much money in retirement in my retirement account. Once you've looked at that, then you can make the choice.

To me, you don't have regrets when you look at the options and you make a choice. Where I do think that people can have regrets is when they say, “Wait a minute! There was a choice that I could have not paid all that on my mortgage and had this much more money sitting in my 401K plan, or I didn't think about what would happen if something went bad with my one stock that's so much of my portfolio.” If I've looked at those and made an intentional choice, I think that that's a key to success and not making sort of unintentional choices with that.

Bridget: Exactly. So we are trying to say that when you make decisions based on your emotion of feeling good about the particular financial decision, don't forget that you don't want to end up regretting it. So take that into consideration, too. Okay. In what cases am I going to regret this decision?

John: Right. Be thoughtful. I think that's a great place to wrap things up here again. I'm John Scherer. I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. Both of us are proud members of ACP or the Alliance of Comprehensive Planners, which is a group of fee-only, comprehensive, tax focused planners that help people all over the country. We're both taking clients, but if you're interested in a planner in your area, we'd tell you to hop over to and see if there's one in your area.

John: And don't forget, hit that subscribe button.



At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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