On the surface, personal finance seems to be primarily about money: getting rich and optimising your investments and so on. It's definitely about all of that stuff, but in a larger, more important way, it has nothing to do with money at all. It's more about using it to optimise your values and priorities. Photo by Dooder (Shutterstock).
Learn to Manage Your Money So It Doesn't Manage You
My dad used to say, "Money isn't the problem; the lack of it is." And it's true: money doesn't buy you happiness, but not having enough of it can be a pain. And the level of pain varies, depending on your situation.
Growing up, my parents had a hard time making ends meet, at least for a few years. They wanted to move to a better neighbourhood with better schools, but that wasn't going to happen. Others have it even worse. In Scarcity, Why Having Too Little Means So Much, authors and researchers Sendhil Mullainathan and Eldar Shafir describe study after study that shows a lack of money affects our decisiveness, well-being -- even our politeness. The authors write:
Scarcity is not just a physical constraint. It is also a mindset. When scarcity captures our attention, it changes how we think. By staying top of mind, it affects what we notice, how we weigh our choices, how we deliberate, what we decide and how we behave.
Like it or not, money is powerful. Most of us are controlled by it, and that's where personal finance comes in. Personal finance is about learning to manage money so you can use it to your advantage. It's about taking control. Ironically, the goal of personal finance is to get to a point where you don't have to worry about money at all.
Money Itself Is Not The Goal
It's easy to assume that managing money means chasing after it. Obviously, having more money always helps, but if money is the end goal, you're doing it wrong. And for a long time, I did it wrong.
After I graduated, I wanted to travel. My goal was to get out of debt so I could afford to go to Europe. That was a specific, concrete goal, and it motivated me to pay off my student loan. After I travelled, though, I started earning a bit more money, but I didn't really have another financial goal. In a way, I was drifting; my goal was simply to accumulate money. That goal was vague and boring, because it was just about hoarding pieces of paper. There's little point in accumulating money if it doesn't have some purpose. In my situation, it felt pointless, so eventually, I stopped saving as much and started spending mindlessly. Which is fine, I guess, but if I'd given it a bit more thought, I could've been saving for something that actually mattered to me.
It took me a while to realise that money is a tool, not an ideal. Personal finance isn't about accumulating tools. It's about using that tool to live the life you want. Here's how Luke Landes of Consumerism Commentary puts it:
Money is only worth what you can do with it...So when I hear that someone's goal is to have a nest egg of ten million dollars, it is an empty goal. This goal is nothing more than having bits and bytes in a certain configuration on a certain server in a database record associated with your identity. I accept that it will be difficult to get the bytes to arrange in that fashion, but look beyond this. What would you like to do with that money?...Assign your goals to the reasons you are saving money, not the money itself.
That last sentence pretty much sums up what people think personal finance is versus what it's actually about. I also like the way writer Colin Wright puts it over at Big Picturing:
There is absolutely nothing wrong with money, and there's absolutely nothing wrong with pursuing more of it, if doing so will help you become more you, and allow you to do more of what makes you feel alive. It's also important to have enough so that you can keep a roof over your head and food on the table: I'm certainly not suggesting that the desire to have any money is a waste of time, particularly when it allows us to sustain the societal fundamentals.
Just make sure you know why you're pursuing it. That you see the big picture and allow it to guide your steps.
In short, money is not the focus. It's not about busting your arse at a job you hate so you can earn pieces of paper and then one day retire and finally relax. It's about using money to pursue more of what you want in life. That might even mean saving enough to leave the job you hate and do something you actually enjoy instead.
It's More About Mind Than Maths
Sure, there are some basic financial rules that come with personal finance. Rules like:
- Spend less than you earn
- Pay off your debt
- Invest so your money can grow
These are important, but they're not the meat of what personal finance is really about. Most of personal finance is, well, personal. And sometimes that even means breaking these basic tenets and doing what works for you. More than maths and rules, personal finance has to do with behaviour: your habits, mindset and actions.
I'd even argue that the focus should be more on behaviour than the rules. You can read about the best methods to pay off debt all day long, but if you're not in the right mindset, you're probably not going to do it. This is precisely why the Snowball Method is the most effective for paying off debt, even though the Stack Method makes more mathematical sense.
People tend to brush off money management because they "don't care about money". Oddly enough, that's exactly why they should care about managing it. If you don't like to think about money, the best way to make sure you don't have to is to set up a system for properly managing it. Yes, personal finance has to do with money. However, it's really about learning to control it so you can get on with your life, whether that means travelling, affording the lifestyle you want or paying your bills without worry.