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We Miswant

WHILE MOST of us have four key goals—retirement, college for the kids, owning a home and protecting our family—that leaves plenty of room for interpretation. The house your colleague dreams of owning is no doubt different from the one you’re yearning for.

That is both good and bad. It’s good because, if we can visualize our goals in great detail, we’ll be more motivated to make the necessary sacrifices to achieve them. It is worth spending considerable time pondering our goals, so we strive for things we truly want.

That’s where the bad part comes in. We just aren’t very good at figuring out what we want—at what academics call affective or hedonic forecasting. Maybe we hanker after a luxury sedan. But then the sedan turns out to be a disappointment. When we were kids, our parents always owned luxury cars and we remember our childhood as a happy, carefree time. But maybe it’s the happy, carefree time we miss—and the expensive sedan is just a symbol in our air-brushed recollection.

How can we avoid such costly mistakes? We should take our time before making major financial decisions. We shouldn’t impulsively buy the timeshare during the wonderfully relaxing vacation. We should think hard about why we want something. Do we truly believe the pricey private school will give our children a better education—or are we drawn to the prestige or compensating for our perceived failings as parents? Think about the potential headaches. The luxury sedan may be alluring. But what about the car payments?

Leading a thoughtful financial life can help us get the most out of our money. We all have limited means. If we waste money on goals that aren’t important to us, we may not have enough for those that matter most.

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