When you think of Maslow’s hierarchy of needs, or Maslow’s mountain as I charmingly heard it called recently, you typically start at the bottom and work your way up. Without food, water and warmth, it can be hard to focus on prestige or fulfilling your full potential. For me, that’s why personal finance is so important: it gives you the space and freedom to focus on the rest of the mountain.
So what is personal finance?
A lot of people get intimidated by finance. It can seem technical, with a lot of knowledge of markets and business needed. I’ve heard people say they wish they could get into it but find it too hard, or that it’s not for them. If we think of personal finance as a proxy for freedom, though, I think it gets a lot easier. For me, personal finance is just that; it’s about trying to build up enough of a surplus that we are not subject to the vagaries of life’s fortunes.
If we accept that definition, then two things follow: successful personal finance is about increasing how much we have in reserve, or reducing our needs. Neither of those needs to be complicated. There are plenty of complicated details à la tax optimization, interest rate deductibility, etc., but you can get it 90% right without much effort, and then decide if you want to put the time in to get the final 10%.
It’s more than just money
That definition also means it isn’t just about money. Personal finance is intertwined with ideas of environmental sustainability and reduced consumerism. It isn’t just about making as much as you can, but also about making sure you’re focusing on what’s important, prioritizing the things you care about.
Today, it’s trendy to talk about retiring early. That’s fine if that’s what you want, but that has never had much appeal for me. What I want is the option to retire early; the option to leave whenever I want. If you can’t leave, you are shackled. In contrast, if you know you can leave, then you can choose to stay for all the right reasons.
So much for the philosophy of personal finance, though it’s a topic I could wax on about at length. When you’re trying to get better at something, though, it pays to have concrete steps you can take. Implementation intentions, as they are sometimes referred to in the literature. Given this post is already a bit long, tune in to my next post for just that. You can expect talk of nest eggs, paying down debt, plugging leaks, budgets, and more!