Being rational with your money...or not

from the MyMoney blog comes a posting "behavioral finance" or the lack of...

On the flip side, the field of behavioral finance contends that humans are inherently irrational, and we, well, do stupid things. Here's a list of such stupid things. I don't know about you, but I think some of them definitely apply to me.

* People remember losing a dollar a lot more than gaining a dollar. The losses stick with you.
* You care how much you paid for a stock, and take into account if you are gaining or losing when deciding to sell, when in reality it really shouldn't matter. Your selling price should only matter on the fundamentals of the company.
* People tend to buy investments when they have had a recent run of good performance. Most mutual fund purchases are made in the funds that have the best 1-year returns.
* Overconfident investors tend to trade too much and underperform the market.

A corollary exists in our personal lives. At work, we make plans, have meetings, and focus on communication. We are ready to answer to a board of directors about the next quarter, year or 25 years of the company. We write business plans. However, in our personal lives we do much, much less of this. Perhaps it's because we're not forced to and we know that it'll all change anyway. However, running a business without a plan is no way to run a business and running your life without a "Life Plan" is no way to run a life either.