“Unfortunately, people need good advice, but they want advice that sounds good.”
— Jason Zweig

In an age where we have access to vast amounts of news—often contradictory—that tries to capture our attention in every way, this statement takes on even greater significance. The fact is, “desire” (what we want) and “necessity” (what we need) lead to completely different and often conflicting paths.

This divide is especially evident in personal finance, where emotions and impulses can often override rational decision-making. We may know what’s best for us in the long run, but it’s easy to get swayed by the allure of quick gains or easy solutions. This is where the challenge lies: how can we stay rational when we’re constantly surrounded by temptations?

The Dilemma: Desire vs Necessity

What we desire is often tempting: quick profits, instant results, risk-free promises. However, what we truly need for long-term financial health requires patience, discipline, and careful planning. In other words, the choices that benefit our financial future most are often the ones that are less immediately gratifying but ultimately more sustainable.

A Practical Example: Personal Finance

1. Advice we would like to hear: Follow this easy strategy, buy this financial product, give your money to this trader, and in a short time, with no risk, you’ll get rich.
2. Advice we need: Understand your short-term and long-term financial goals, build a strategy consistent with your plan, diversify your investments, and don’t let emotions take over.

In the first case, the desire for quick and easy gains is strong, but this approach often leads to unnecessary risks and impulsive decisions that hurt long-term financial health. In the second case, rationality and planning take center stage. The idea of planning, diversifying, and maintaining disciplined behavior is less exciting, but it’s far more useful for building a solid financial foundation.

Rational vs Emotional: The Inner Battle

As Daniel Kahneman, the Nobel laureate in economics, points out:
“The real difficulty is that we don’t really know what we want. We want what we want when we want it, and we forget what we really need.”

Kahneman explains that we have two systems of thinking: System 1, which is fast, emotional, and intuitive, and System 2, which is slow, rational, and reflective. When it comes to personal finance, System 1 pushes us toward immediate gratification (like investing in a “hot” new financial product without understanding the risks), while System 2 encourages more thoughtful decisions, such as investing in a diversified portfolio with a long-term strategy.

However, it’s not always easy to listen to System 2, especially when we’re bombarded with emotional triggers and temptations. That’s why it’s essential to be aware of our natural tendencies and learn to manage them.

Simple Steps to Stay Rational

1. Set Clear Goals: Define your short-term and long-term financial goals. What are you saving for? Retirement? A house? College tuition? When your goals are clear, temptations become less appealing.
2. Diversify Your Investments: Don’t put all your eggs in one basket. Diversification is one of the keys to reducing risk and building long-term financial security.
3. Manage Your Emotions: Fear and excitement are powerful emotions. Learn to recognize them and don’t let them dictate your decisions. Remember, the market is cyclical, and in the long run, patience pays off.
4. Use Technology: Leverage tools and apps that help you track your progress and stay on course. Automating savings, for example, is a great way to avoid falling prey to short-term temptations.

Conclusion: The Choice Is Ours

It’s not easy to make rational decisions in a world full of emotional triggers. But as Kahneman shows, we can train our rational thinking, especially when we’re aware of the emotional biases that often guide our choices. The real challenge isn’t knowing the right path, but walking it, despite the temptations along the way.

So, the next time an “easy choice” seems too good to pass up, stop for a moment. Reflect on what’s truly best for your financial future, and ask yourself: is it desire in the moment or necessity for the long-term that’s driving my decision?

The best choices are the ones that help us build a solid future, not the ones that provide instant gratification.