We tend to spend so much time on ‘how’ to do personal finance, that we often forget ‘why’ we do personal finance. Articles, books, TV shows, speeches, workshops all focus on ‘how to’. How to get rich, save, invest, budget, etc. Yet, if you forget what you’re working toward, or worse yet, haven’t figured it out in the first place, you’ll be working and managing your money for nothing. So before you spend any more time budgeting, saving, investing, earning, spending or learning ‘how’ to do personal finance, spend a little bit of time figuring out your ‘why’.
Don’t Do It For the Money
Many people, even many personal finance experts, simply assume that the whole purpose of personal finance and life in general is to make as much money as possible. They seem to think that life is a game of Monopoly and the person with the most at the end wins. Unfortunately, this is a myth. Spending your entire life only chasing after money and trying to make more than anyone else will make you miserable. Making money your life’s goal will turn you into a greed infested workaholic who cares nothing for anyone. Spending your life chasing money ultimately makes you a slave to money. Allegedly, a millionaire once said that it would always take one more dollar than he had to make him happy. If you’re not content with what we have now, you won’t be content when we have more.
But You Still Need to Manage Money
While money enslaves some people by becoming their sole purpose in life, others become enslaved by going to the opposite extreme. By not managing your money intentionally, you allow money to master and enslave you. If you don’t manage your money, you will likely find yourself living paycheck to paycheck or in debt. Debt locks expenses in your budget that have to be paid for month after month. This often ties you down to your job that you may or may not like. Living paycheck to paycheck without a budget does the same. When you can barely cover your lifestyle with your current job, you feel trapped and enslaved to your work.
By managing your money, you can learn to live within your means. As you learn to live within your means, you’ll rid your dependency on money and be able to make money work for you.
So Why Do Personal Finance?
So if chasing money will not make you happy, why do personal finance? Why bother managing money to make it work for you? The simple answer is to pursue your goals and values. Recognize that money should be a tool to pursue other goals, rather than a goal unto itself. Figure out what your goals in life are, and then center your personal finance plans around those goals and values. Recognize that because your goals are unique, your personal finance plan will be unique as well.
Time and money are both limited resources in life. For most people, there’s a direct trade-off between the two (despite what Tim Ferris claims his book, The Four Hour Work Week). Much of why you do personal finance is about finding a balance between time and money. Of course, you need a certain amount of money to survive with any degree of comfort. But spending time doing the things you love is also very important. When you recognize the value of time, you realize that the rat race of working as much as possible to make as much money as possible really doesn’t make sense. Even if you find a job that you really love, remember to make time for things that are important for you outside of work.
You may just crave a life of stability. You may be very satisfied with a 9-5 til 65 career. Great! Pursue a career that you enjoy. Buying a modest house likely makes a lot of sense. Build an emergency fund to buffering for life’s curve balls. Budget so that you can balance your needs and wants. And since your presumably want to retire comfortably, you should develop your retirement savings accounts.
You may have big dreams- things you’ve always wanted to do or accomplish. These may cost money. They may cost time- specifically time away from work. Either way, its important to tailor your personal financial plan to include these dreams. Use your financial plan to make these dreams a possibility, perhaps adjusting those dreams to fit within reality.
If you really want to travel the world for a year when you’re still young, you may decide to put off owning a home, and focus on saving money in accounts that are accessible before retirement. You may also focus on developing a freelance career that can be continued online from anywhere in the world. If you want to retire from full-time work by 35, live a minimalist life and develop passive income streams. If you want to start your own business, learn the skills necessary, save up startup cash, and perhaps start small with a side hustle.
Jumping off the ‘Monopoly rat race’ of trying to die with the most money helps us realize the importance of community. This means different things for everybody. It may mean giving to your favorite charity, buying those (slightly overpriced) girl scout cookies, or just keeping an eye out for people in need. And your involvement in community may not be financial. Having your finances in order may allow you the extra time to volunteer throughout the community.
Money in Perspective
Matching your financial planning with your goals and values will make you much happier than working 60 hour weeks trying to die with all the money in the world. This doesn’t mean that money is a bad thing. As long as you keep money in perspective and learn to master money, money can be a very powerful tool. If you lose that perspective, however, money will quickly master you and turn you into its slave. So get in the habit of routinely reminding yourself why you do personal finance.
Write it Down
It’s a good idea to write a few of your goals down. This is a way of making a commitment to yourself to focus your personal finance plan on your personal goals. Stick your goals on the fridge or in your checkbook or whatever helps you remember why you’re doing personal finance.