Managing personal finances is about temperament and not about numbers
When people talk about managing money, they think of it as rocket science — numbers / mutual funds / investments. But that’s not what managing money is about. Managing money is more to do with our temperament and values and less to do with numbers. The numbers are important but they are not what defines our financial health. What defines our financial health is our state of mind and our temperament. If we are reckless with our life, it’s likely that we are reckless with our money. If we feel lack in our life, it’s likely that we will feel lack with our money. On the other hand, if we are reflective and intentional about our choices in life, we would be mindful about how we spend our money. If we think we have a lot in life, it’s likely that we think we have more money that we need.
Managing money really starts with getting our fundamentals and first principles right : how much money do I need? It starts with an inside out approach. It’s not about how much salary should I be making or if my salary is less than or more than others. Just a very simple question — how much money do I really need. This can be done by a simple calculation of looking at our monthly expenses — how much of these expenses are mindful purchases and how much are reckless. How much of this is must have or how much of these expenses are good to have? To make this decision simpler, imagine yourself sitting in a room all by yourself — when no one is watching you. What would you buy then? Now imagine yourself being surrounded by other people in the room. Do your choices differ? If so, why? What is it about other people that makes you spend on things that you otherwise would not. Would other people love you more if you dressed a certain way or possessed certain things? Is that love or is that attention?
After we look at our expenses, now we can answer the question how much should be my monthly income? How much money do I need to earn as a minimum? If, therefore, I have a monthly expense of 100, do I need a salary of 100 or 120 or 150 or 200. That would depend how much of what I earn today do I want to save for my future goals — both personal and professional. To identify what my goals, we can look at our values — what matters to me in life. Is it important that I live in a fancy house or drive a fancy car or is it more important to me that I get the freedom to do what I am passionate about even if it means living live frugally. Again to identify what our goals are and how they authentic they are, imagine yourself sitting in a room alone and making that choice. Now imagine yourself, being surrounded by people and making that choice. Do your choices differ? And why so? What about being around other people makes you choose a way that you otherwise would not.
It’s only when we have mindfully looked at our expenses and have identified our goals — that are true to who we are — can we decide how to be intentional about money both in terms of how much we need for today and what we want it for in the future. Do you see yourself living a debt — free life? Or do you see yourself repaying loan from a degree, which only in retrospect you think that you needed more for validation than actual learning or education. Once we have answered these difficult questions about our choices, can we deliberate about where to invest the money. Where to invest our money, therefore, becomes a question of logistics instead of a fundamental question. It’s when you have got your fundamentals about the money right or what value you ascribe to money, can you begin to ask the question of what to do with that money.
