The term ‘personal finance’ can mean a lot of different things to different people. Your mind may jump to student loans, a dream house, or a mid-twenties-something in a tight dress shirt trying to convince you to buy crypto currency. The truth is that personal finance encompasses all these areas, but it’s more than simply debt, large purchases, and investment strategies.
Personal finance is the study, practice, and control of how money and resources flow through an individual or family. This includes: income, expenses, budgeting, debt, saving, investing, taxes, insurance, and retirement. Notice that I said it’s the study, practice, and control of all of these categories. I think a helpful way to understand this is comparing it to working out. If you want to lose weight or gain muscle, you won’t get anywhere by just hoping it’ll happen. Obviously, that’s not going to work. Instead, you first have to study. If you walk in a gym with no instruction and start picking up weights, you’re going to hurt yourself. You have to start with a trainer, a knowledgeable friend, or some YouTube videos. Next, you need to practice. It’s not enough to just watch others work out or know what motions you should be doing – you actually have to do them! And finally, possibly the hardest part, control. You might have one great workout, but if you don’t come back to the gym for 3 months after that you aren’t going to see results. You have to exercise control by creating a plan and sticking to it.
This advice probably seems obvious in the context of working out, but now apply it to your finances. Have you studied to understand what your investment options are or how to manage the risks of debt? Have you practiced by contributing to a 401k or planning for large purchases? And have you controlled by sticking to a rigid budget? If your mental answer to any of these questions was no – don’t worry! I’m here to help and it’s really just as simple as setting any other kind of goal in your life.
Another important note on personal finance is I believe it’s 90% behavioral. In all my experience with clients, their concerns rarely stem from an overly complex situation they can’t outthink (although it may feel like that sometimes). Instead, the biggest issues in personal finance almost always boil down to behavior. For instance, take the super simple principle of spending less than you make. Let’s just say you make $70k a year. It’s not hard to add up all your expenses and make sure they’re under $70k annually, but it is hard to behaviorally practice keeping expenses below that threshold. Let’s imagine you have student loan payments, rent, and a car payment. Those all seem like essentials – right? And obviously on top of that you’ve got things like groceries, utilities, and insurance. Maybe you throw in some eating out, a vacation, and new clothes – and you could easily be over your $70k.
To be good at personal finance, you don’t have to be good at math. Take that from somebody who took calculus three times and still doesn’t know how to find a derivative. The most you’ll ever need is a basic understanding of middle school level math. Really. You also don’t need to understand all the complicated wall street lingo that gets thrown around. People in finance are excellent at making simple things sound complicated – it’s how they keep their jobs.
Instead – if you can learn to study, practice, and control your finances you already have everything you need to build wealth and accomplish your goals. You just have to get started. In my other posts I’ll take you through some basic, easy steps you can take to transform how you see your finances. It’s not scary, it’s not impossible, and I promise there won’t be any guys in tight fitting dress shirts here.
