Human beings aren’t logical, and it doesn’t take a scientist from Vulcan to prove that fact. A corollary to this statement is that human beings do not make logical decisions when it comes to their personal finances. Consider some things that could happen if people thought about the financial consequences of every choice:

• People would save a greater portion of their income, creating havoc for retailers.
• Consumers would buy only what they need, destroying the market for luxury items.
• The Joneses wouldn’t have anyone following them and might die of loneliness.
• Families would not have children, savings hundreds of thousands of dollars.
• Environmentally conscious options more expensive than the alternatives will not be pursued, causing the planet to eventually perish (sooner than otherwise).

Thankfully, people do not base all decisions on financial rationality alone, and thus our economy, species and planet continue to survive and thrive, although the economy has been taking a beating recently. Emotions and money are linked, but there are some instances when an individual will be better off by separating the two as much as possible.

Investing during a highly-volatile market. Your asset allocation should relate to your time horizon, not react to the current hype in the news. If you had decided that you could withstand short-term market plunges with the goal of a long-term gain through stock market investing, don’t let fear and panic dictate changes when the market dives.

Evaluating products and services. Advertising and marketing are important. This is how a company gets information about its products and services to the public. Every year, the advertising industry advances further, using scientific research that explains how emotions are tied to everyday decision making.

The commercials that you see on television are developed specifically to influence shopping decisions. Even non-profit organizations use your emotions to their advantage; how many times do you see commercials for charities using videos of children who appear to be malnourished and obviously in need of help?

Chances are we’re being marketed to in ways we are unaware. Product placement in television programs in passé, now even presidential candidates are advertising in video games. This is a game the consumer can usually not win. Thankfully there are resources that help us see through the marketing noise, such as Consumer Reports, Charity Navigator, and GuideStar.

Getting out of debt. If you’re in debt, there’s a chance that your emotions led you there. While it’s true that many people are in insurmountable debt due to circumstances beyond control like a medical emergency or a natural disaster, a good portion of people are in debt because they enjoy spending money without thinking about or understanding the financial circumstances.

Some authors and radio show hosts want to have these people get out of credit card debt by playing to their emotions, the cause of debt in the first place. This only solves a short-term symptom, the debt, rather tan the underlying problem, spending decisions based on emotion. It is likely that someone who lets their emotions control their spending as well as their path to reduce their debt will fall back into debt later on. This is why I suggest the “Debt Avalanche” method of getting out of debt. It helps separate emotions from your decisions, a pattern than will help keep you out of debt once you reach that point.

Purchasing a house. I wrote recently about ten tips for buying a house in any market. Ron from The Wisdom Journal wrote in with this comment: “One thing I would add, and it’s very difficult to do, but try to take emotion out of the buying process and especially the negotiation process. Emotions can cause you to pay too much and make a decision that you’ll later regret.”

You want to live in a house that you will like, preferably for a long time. That has to be a part of your decision making process. If you plan in spending a lot of time with this major purchase, it should very well be with a product that makes you happy. The danger comes in the belief that that particular house may be the only one for you. You might fall in love at first sight with your soul mate, but a house is just a house. Don’t get so caught up that you feel you must have the house at any cost and be willing to pay any price to get it.

A better understanding of how your emotions are involved with money is a key to overcoming the influence for certain important decisions as much as possible. Here are a few articles that could help.

When It Comes to Money, Emotions Run High, Psychology Today. “Despite our best efforts, economic decisions can be influenced by emotion. Researchers offer a neurological explanation: The part of the brain that controls negative thinking can often override logical thought…”

The Psychology of Money (series), PsyBlog. “Until recently social scientists didn’t know much about the psychology of money. That has changed with an explosion of fascinating findings on how it affects our emotions, our personalities, our sexual behaviour, our risk-taking and society at large…”

How to Treat a “Money Disorder”, Sarah Kershaw, The New York Times. “Among the problem financial behaviors identified by psychologists in recent years are: overspending, underspending (aka Depression mentality), serial borrowing, financial infidelity (“cheating” on a spouse by spending and lying about it), workaholism, financial incest (lording money over relatives to control them), financial enabling (throwing large sums at, say, adult children who then are not motivated to support themselves), hoarding, and plenty of guilt and shame around poverty and wealth…”

Emotions are intricately linked with the financial decision making process, and are in fact necessary to make the correct choices in many situations. Even a small effort to put feelings aside in certain circumstances and think rationally could go a long way towards improving the quality of those decisions.

When you sell one house and buy another, the overall market conditions don’t matter as much. Unless the two houses involved are in areas with drastically different market conditions, you are exposed to the buy side and the sell side at roughly the same time. Whether it’s a “buyers’ market” or a “sellers’ market,” you will in theory have the advantage with one deal and the disadvantage in the other.

The situation is different when you’re buying your first home. Financial wisdom would say that it would be beneficial in the long run to understand the market condition and buy only when the pricing makes it advantageous, in reality you buy your first house when it’s time. Usually external forces drive that decision.

No matter what the market condition, consider these ten suggestions from MSN Money for buying a home.

1. Determine your limit and stay within your budget. You may have heard recently that the United States is experiencing a credit crisis. Banks are freezing up their capital and not sharing with borrowers. However, if you were well qualified for a mortgage before, you can most likely still get one now. I have noticed that I’ve stopped receiving poorly targeted spam email with home loan offers, so it’s possible the more risky mortgages have dried up. But for those who qualify for a mortgage, stick to a reasonable, affordable amount.

2. Find the right real estate agent for you. A co-worker of mine had a horrible time dealing with a real estate agent provided by our company as one of our “benefits.” The agent called incessantly, wouldn’t respect her price range, showed her houses that were a poor fit, and wasted her time. She fired the agent and tried again a year later with a new agent recommended by a friend and had a much more pleasant and fruitful experience.

Before working with an agent, interview them. Discover how they like to work and whether you will be compatible.

3. Research beyond the information provided by your agent. For this I recommend a useful tool: the Internet. Search listings to find houses you’d like to see. Find out as much as possible about the community in which you are considering living. If it’s relevant for your family, look into the local public school system. Find blogs written by residents about the community.

4. Visit the neighborhood. I can explain from first-hand experience why this is a good suggestion. for me, it has applied to my search for apartments in the past. Don’t only visit the neighborhood, visit the neighborhood at night. the character of the community might change, either for better or worse.

5. Be ready to negotiate. Houses are usually priced with negotiation in mind. This also goes back to your choice for agent. Since they may receive 3% of the sale price if split with another agent, they might not be extremely motivated to work with you to negotiate a lower price. Also, if the same agent represents the buyer and seller, it’s in the agent’s best interest to keep the price high.

If the house has been on the market for a while or if the local market is weak, you may have the ability to offer a price 20% lower than what the seller is asking.

6. Use caution when buying foreclosed properties. Across the country, foreclosures are at all-time highs. These homes can present great values, but they can be risky. It’s going to be difficult to snag a great deal because the best foreclosed houses in the best areas are priced knowing that there will be a lot of interested buyers. The best deals are left for the people who are willing to put a lot of work into fixing up a house to get it to the point that it is appealing for living.

7. Find the right lender and mortgage. MSN Money suggests dealing with lenders with roots in their communities but still look for the best deal. If you’ve been saving for a down payment and you have good credit, you’re in a good position to find the best interest rates.

8. Find a good home inspector. The same co-worker who had problems with her agent had problems with her inspector. They did not keep appointments and did not complete the job. Stay with the inspector while he or she walks through and around your prospective purchase and ask questions about anything that looks suspicious.

9. Buy long-term. Try not to view the house you plan to live in as an investment. Yes, it is a major purchase and will provide you with a major asset, but don’t go into home ownership thinking that you’ll make a lot of money. First of all, to see any appreciation, you’d have to sell the house. most likely you’ll buy a new house with the proceeds (if any) when you sell. Over the long term, real estate barely beats inflation. And keep in mind that if you consider your house an “investment,” your mortgage interest, maintenance costs, community fees, and any other house-related expense should be considered your “cost basis.” That will reduce whatever you consider your “profit” when you sell.

10. Don’t time the market. For the last four years or so, people around me have told me that the best time to buy a house, when the prices will be at their lowest and homes will be most affordable, will be in 2009. The best time to buy a house is when you need to buy a house (if ever).

10 home-buying tips for uneasy time, David Koeppel, MSN Money

Homeowners in New Jersey are eligible for a partial rebate of property taxes paid. If you owned and lived in a house in New Jersey on October 1, 2007, you are eligible. Renters like me are eligible for a separate rebate up to $860.

If you haven’t received an application, you should shortly. The state suggests calling the Homestead Rebate Hotline if you haven’t received this application by July 23.

Tenants will not receive an application. The rebate form for tenants was included in the 2007 income tax package. I checked my state tax return, which I filed via TaxAct, and my rebate application was submitted with my income tax form. As I am neither disabled nor over the age of 65, the maximum amount I can receive for this rebate is $80, a 6.7% increase over last year.

The calculation for the homeowners’ rebate is different. For those under 65 and not disabled, you will receive either 20% of the first $10,000 of property taxes paid (if your income is below $100,000), 10% of your total property taxes paid (if your income is between $100,000 and $150,000), or nothing.

To receive your rebate, you muat file your application by August 15.

2007 Homestead Rebate Program

Money Magazine released the results of the publication’s survey of the towns with the highest median household income. New Canaan, Connecticut tops the list with a median income of $231,138.

Considering a move to help your income go farther? Don’t choose one of these locales. Considering a move to be closer to culture, leisure, and advanced education without living in a city? These towns might be for you. Here are the top ten.

1. New Canaan, CT, $231,138. “New York City’s elite once chose New Canaan as a vacation town, but they liked it so much, they decided to stay there year-round and turn it into one of the nation’s wealthiest residential communities.”

2. Darien, CT, $218,130. “Darien was once a vacation community for New York City’s upper crust who decided to lay down year-round roots.”

3. Lake Forest, IL, $212,122. “With a town plan heavily influenced by English gardens, Lake Forest is home to mansions and vast estates seated on the bluffs overlooking Lake Michigan.”

4. Saratoga, CA, $196,420. “The [Paul Masson] Winery is still there, but so are the best and brightest of Silicon Valley, whose fortunes have spilled over into this upscale bedroom community.”

5. Westport, CT, $193,540. “Once an artist’s colony, Westport is now better known as an affluent bedroom community on Long Island Sound that’s held on to its cultural roots.”

6. Los Altos, CA, $189,839. “The village, in San Francisco’s Bay Area, has become a haven for techland’s top earners. Still, the birthplace of Hewlett-Packard prides itself on maintaining a semi-rural feel.”

7. Potomac, MD, $183,258. ”[M]uch of Potomac has been turned over to the Washington, D.C., area’s wealthiest residents… If you are of an equestrian bent, the area still offers a number of riding schools, breeders and stables.”

8. McLean, VA, $180,103. “If you want your neighbors to be rich AND powerful, move to McLean. Vice President Dick Cheney is said to be building a home there for when he leaves the West Wing… [B]e careful who’s listening: The CIA is headquartered in the town’s Langley area.”

9. Wellesley, MA, $172,900. “The Boston suburb is home to the school of the same name, which is consistently rated as one of the nation’s top liberal arts colleges. Notable alumni include Senator Hillary Clinton…”

10. University Park, TX, $170,150. “University Park started as a group of houses surrounding Southern Methodist University almost 100 years ago. Since then it’s been swallowed up by Dallas’ urban sprawl, but the area still likes to maintain its identity.”

Other towns in the top 25 include Bethesda, MD, Greenwich, CT, Ridgewood, NJ, Los Gatos, CA, Deerfield, IL, and Garden City, NY.

25 top-earning towns, Money Magazine, June 14, 2008

Earlier this week, a few real estate market survey results were announced in the media. This could be good news for house shoppers. In January, prices of homes on average were 11% lower than prices of homes at the same time last year. These results are based on the S&P Case/Shiller index, which collects actual sales prices.

Here are the metropolitan areas included in the survey and the associated 12-month sales decline (or increase in some cases).

In addition to the national price decline, more people were buying houses in February. According to the National Association of Realtors, an organization whose members would benefit from any positive spin on the housing market, sales by homeowners increased by 2.9% from January to February.

I live in the New York metropolitan area. According to the numbers above, our price decline was less than the average, which has me thinking that there may be more declines ahead. Unfortunately, I can’t predict the future. I’m not shopping for a home right now, so I’m not plugged into the market. I don’t have the desire to lock myself into one location for the long-term and furnish and maintain a home, especially on my own. I’m wondering how much longer I’ll feel this way, however.

When I made the decision to settle down, it will not be a financial decision based on market trends. I will buy when and if the right time arrives for me. I’ll try to make the best buying decision at that time while taking the market into account.

Most people moving from one house to another are buying and selling at practically the same time. This negates the basic effects of the market; the disadvantage you have on one side of the transaction is the advantage you’ll have on the other side. If you’re buying your first house, you don’t have the benefit of the flat market, so perhaps the state of the industry should play a bigger role in the decision.

Would you wait for more positive market signs before buying a house—particularly if you’re buying your first house?

Home prices: Down record 11% [CNN Money]
Home sales rise on biggest-ever price drop [CNN Money]