Loose reflection.

Since I work in finance, and since my area of focus is around investing and personal finance more broadly, a lot of people—friends, relatives, colleagues—ask me for advice on various aspects of their finances.

And in all of this, the one big recurring theme I’ve noticed time and again is that people don’t know that not all money decisions are about cold hard numbers. There is a thing called an emotional return and a financial return. And even the most cold financial decisions are swimming in raging tides of emotions, which means their emotional returns cannot be separated from your financial decisions.

Even the most illogical decisions based on financial metrics can often be a good decision based on emotional returns. Buying a house is a classic example. If you look purely from a financial lens, more often than not it makes no sense to buy a house. But if you look from an emotional returns lens, it makes perfect sense.

And then there are other big decisions: quitting a high-paying job, helping out a dear friend or relative, starting your dream business, and so on. The more I think about money, the more I think about the philosophy of money (which I recently wrote about), the more apparent this becomes—this delicate dance between a spreadsheet and the hormonal soup in your brain.

I’ve also noticed that this dichotomy between emotional and financial returns comes up when you’re building your hobbies, working on your passion projects, side projects, and so on. Most of them tend to be money sinks. When judged from a financial lens, they make absolutely no sense. But when you look at your emotional return—the fun you have, the joy they bring you, and the meaning they add to your life—they are perhaps the highest ROI investments that you can make.

Of course, this isn’t to say that one should purely rely on emotional preference. The trick is to find a balance between both. You can still get a reasonable emotional return while grounding it in reasonable financial assumptions. The point of me sharing this note isn’t to say that one is more important than the other. Both are equally important. The trick is knowing where that line is. The trick is knowing when to prioritize one or the other, and that comes with deep introspection. A good idea about what drives you, what your emotional drivers are, your desires.

And perhaps more importantly, this is another realization I’ve had over the last year: all of these decisions need to be firmly grounded in your philosophy of money. A strong but evolving framework that complements your philosophy of life. This is the framework that keeps you on the straight and narrow both in life and in terms of money decisions. This is what you reach for when life decides to fuck you up for good reason.