Ramit at I Will Teach You to Be Rich has a fine post about how sometimes the Best Decisions are not the Financially Smart Decisions.

The financially smart decision isn’t always the right one. When I say this, it usually irritates engineers and economists, who love to believe that we all behave rationally.

He provides a couple of examples based on the behavior of his friends. One worked hard to pay off a low-interest debt instead of investing the money at a higher rate of return? Why? Because this friend hated debt. Another friend paid back $100 extra each time she borrowed money from family or friends.

This dichotomy — Best Decisions versus Financially Smart Decisions — reminds me of the Debt Snowball method of debt reduction I described last week in Two Approaches to Debt Elimination. Paying off your debts from smallest-balance to highest-balance doesn’t make the most sense mathematically, but for many people it is the Best Decision because psychologically it provides short term financial victories that lead to long-term financial independence.

I’m sure there are hundreds of little examples of other financial decisions that don’t make sense from a rational perspective, but which are important nonetheless.

GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low, but that is all the more reason to shop for the best rate. Find the highest savings interest rates and CD rates from Synchrony Bank, Ally Bank, GE Capital Bank, and more.