Photo by Rikki Chan
We all operate based on our own set of internal values and principles. We make financial decisions based on them, and our choices shape our financial life.
If you aren't aware of the financial principles you're living and operating by, you might have internalized someone else's, like your mother's fear or risk. Or your father's illusory confidence in his abilities to understand complex financial instruments. Your uncle's skepticism of everyone "trying to make a buck." Your aunt's overconfidence in the intentions of others.
Since there is so much we cannot control, you have to take responsibility for what you can control. Make sure you're acting on the values you truly value.
Here are my own financial operating principles to help guide me to make the best financial decisions with limited information. But really, they are principles to help me on my path to inner peace.
Always remind yourself that everything is a gift
"When I started counting my blessings, my whole life turned around." โWillie Nelson
Creating an abundant mindset requires you to focus on being grateful for what you have instead of what you lack. When you are truly thankful, you can see possibilities in the face of obstacles. When you are genuinely grateful, everything, even your pain, and suffering is a gift. If you're reading this and you're resisting this idea, I get it. It's corny sounding, and being grateful is a vulnerable act. It requires you to open up your heart and deeply connect with your emotions. So if you're struggling with this idea of gratitude, try a different perspective. As human beings, we have some pretty amazing tools that we can use to improve our lives. Gratitude is just a tool we can use to help us cope with life.
Always do your best
Growing up, I had a coach that would discourage us from cheating on our exercises. When we did lunges and squats and pushups and stretches, instead of singling out any one person slacking off, he would say to all of us, "Don't cheat. The only person you're cheating is yourself." This little nugget of wisdom, dropped into my eight-year-old head, still influences my behavior to this day. When you don't do your best, at a minimum, you're cheating yourself. But you're probably cheating all of your fellow humans, or at least your circle of influence.
Especially if doing your best only requires effort and no actual skill, like waking up early, setting up automatic transfers or learning about finance and money. There isn't a reason why you shouldn't do your best in these instances; it requires only effort, not talent or skill. Always doing your best will probably be less painful than regretting how you lived your life.
Be open to new ideas about making money
Making money doesn't just come from trading time. It comes from solving other people's problems. It comes from making your employer's life and your customer's lives better. You're probably really good at something that other people find valuable. Just because it's easy for you or you can do it quickly or you enjoy it doesn't mean it isn't worth more to someone else. You don't have to follow your passion; you can find other ways to make money so you can still feel passionate about your passion. Sometimes making money might require you to put a lot of effort into it, but it doesn't have to.
It's important to realize there isn't just one way to make money. There are a lot of different ways. When you are open to the possibilities that there are other ways to earn money, like creating passive income that equals your current living expenses, then you can feel a little less trapped in your old way of thinking, and feel a little freer.
Focus on growing wealth, not just increasing your income
Most people don't realize there is a distinction between income and wealth. Society tends to focus on income, assuming that professionals like lawyers, business owners, and actors are rich solely because of their high salaries. Often they're rich as a result of focusing on building their wealth.
While income and wealth are related, they are two different economic measures. Income is your salary or your earnings over a period of time. Wealth is your net worth, which is the difference between the value of your assets and your liabilities. When you focus on your net worth, you're focused on keeping more of what you earn - a requirement for building wealth.
Spend less than you earn now because you might not be able to later
At some point, you'll be in a situation where you'll need to spend more in a month than you earn. You might have some unexpected home repairs, you might need to buy a new car unexpectedly, or if you're American, your family might have a surprisingly costly medical emergency. There is no way to control the unexpected. And usually, it's a matter of when and not if.
What you save and invest today will see you through any bad luck and misfortune later.
Save at least 20% of your income. If it doesn't hurt you to save 20%, save more. Save until it hurts.
Don't let your ego convince you that you're rational
We all make emotional decisions that we try to rationalize later. The only genuinely rational among us are sociopaths. The sooner you can accept that you're an emotional creature, the sooner you can start recognizing how your emotional decisions and behaviors may be leading you financially astray. You can start to hedge risks by setting up systems to protect yourself from yourself, or you can get to the root of your emotions to try to change your behavior.
Practice delayed gratification
Fast so you can feel hungry. Put off buying something you don't need so you can understand what you're truly seeking. Meditate before looking at your cell phone. Exercise before indulging. Save some of your income before spending any of it. Modern life is way too comfortable and convenient. Always chasing comfort and convenience leaves you in a constant state of restlessness, dissatisfaction, and tension. Delaying gratification isn't about the payoff later, it's about letting yourself feel free from always chasing fleeting pleasures.
Don't screw your future self, help your future self
Please don't go into debt now telling yourself you'll figure it out later. Your future self won't have as much energy as you do now. And you have more knowledge about your circumstances today than in the future. Don't forgo saving for retirement now, thinking that you'll be better poised to do it in the future. Ambition is a young person's game. When making financial decisions, consider your future self. Be kind to your future self.
Accept that there are no guarantees
Life is crazy. It's unpredictable. There will be painful inevitabilities, stupefying joy, boredom, and confusion. We all want to feel secure, but security is an illusion. Certainty is also an illusion. Insurance helps, but nothing is guaranteed. I don't make those statements to justify acting irresponsibly and taking insane risks. But it's easy to get too fixated on the 'what if's,' to never take action and put off living the life you want. Once you embrace that life has no guarantees, then you'll truly be free.