Financial Wellbeing + Common Money Myths
Please note that in this blog post I am not sharing any financial advice. The main purpose of the post is to ignite your curiosity and inspire you to become more financially savvy so that you could take ownership of your life - including your personal finances.
Health is wealth - and wealth matters to our health
What does wealth mean to you? Do your personal finances support your emotional and physical health? Personal finance is part of the bigger picture of health, meaning that our physical, emotional, and financial health are all interconnected. Personal finance covers managing your money as well as saving and investing. Financial wellbeing is what nourishes you off-the-plate. It is a topic I think we all should learn at school because saving is not enough. All experts know that. Keeping your long-term money in cash or savings accounts guarantees that it will lose its purchasing power over the long run. Why? Because of inflation. You want to do your best to invest your long-term money in a way that it can beat that inflation. You don’t need to be rich to start investing! Investing may sound difficult but it doesn’t need to be that way. The financial world has become complex with all kinds of products and services. Even industry professionals cannot keep up with everything. It’s all about focusing on the right things: what matters and what you can control.
When you are financially fit, you can feel more calm, confident and independent. I absolutely love this discussion between Marie Forleo and Kate Northrup, which partly inspired me to write this post. Kate explains common money myths and how money can be seen as a tool that enables us to show up in a bigger way, and as a tool to make a change. With money we can have a very different world of possibilities and choices. We can make decisions that support our wellbeing: we can live in a safe area, get a good education, explore the world, buy clean food, etc. In other words: we can have a higher quality of life.
Similarly, if we have a lot of financial chaos going on, we have less energy and headspace to create valuable things. It’s a horrible place to be when you need to worry about how to pay your rent, bring nourishing food to your table, or how to afford a medical examination. You never know what life throws at you, and thus, having a separate emergency fund to cover at least your three to six months’ worth of living expenses (I think six months is an absolute minimum given the crazy world we live in) is a really good idea. Emergencies could be things like unpredicted medical expenses, a loss of income, or accidents.
What is Money?
The simplest way for people to exchange value is through direct exchange, or barter. Barter has always existed in human societies. Yet, this direct exchange is highly impractical in more sophisticated, larger, and complex societies because of coincidence of wants as Saifedean Ammous, explains well in his book, The Bitcoin Standard. Money is a good that assumes the role of widely accepted medium of exchange, and it is a good that you don’t buy for its own sake. It’s acquired purely to be exchanged for other goods later on. Money is not a consumption good nor an investment, or capital good. I also recommend watching this interview on Lex Fridman with Saifedean Ammous if you are interested in the topic.
Money allows us to trade, and develop the division of labour. Money is the intermediary good in indirect exchange. People specialize and produce all kinds of things to exchange them with people who have other things they want. Every sophisticated society ever existed has created a form of money (i.e. currency) because carrying around non-money objects is often far from convenient.
As Ray Dalio points out in his book, Principles for Dealing with the Changing World Order, most money (especially the government issued money) and credit today has no intrinsic value, and are only journal entries in an accounting system that can easily be changed. He also points out that money and credit aren’t the same thing as wealth: you cannot create more wealth simply by creating more money and credit. You have to be more productive to create wealth.
It’s true though, that investing and saving have become much harder - but so is living a healthy life. We live in a Fiat monetary system which enables governments to print out money in the forms of credit. Each new loan increases the supply of existing money. So, think again keeping your money in your bank account or under your mattress. If you are more interested in the Fiat Ponzi Scheme, I highly recommend reading the book, The Fiat Standard by Saifedean Ammous. It’s a very entertaining book and explains how the government's control of money in the form of fiat money literally corrupts all areas of our life.
Money Mindset
Money, finances,.. How do these words make you feel? Do you feel excited, curious, and want to learn more? Or do you feel overwhelmed, and stressed out and just want to ignore it. When we discuss financial health, the first thing to do is to get clear on your money mindset which means the way you view your finances. Our money mindset can fluctuate and evolve over time. Like with any area of your life it’s not static. Your past experiences can have a huge role in this. For instance, the way your family used money, the lessons you learned growing up, and so on. And similarly, the victories, set backs, and various milestones may have impacted on your relationship with money. Your financial values are part of your money mindset. The way you spend your money reflects your personal values. What’s important to you? Do you spend money on things that do not align with your values?
The money mindset can range from scarcity to abundance. Often it’s our own mind that creates barriers to abundance and keeps us small. Once you learn to manage your feelings and thoughts, you can set yourself free and feel empowered to take the right actions. Money challenges are never just issues with money. There’s always something else involved. Remember that your self-worth is not your net worth. Even though your feelings of your self-worth can affect your net worth. If you have low self-esteem, feel inadequate and not loveable, you may not fully show up in this world. Recognise that you are enough and you have everything you need to succeed in this life. Although this does not mean that you shouldn’t stay humble. Yes, you should have a growth mindset and always seek ways to improve your skills and learn from the best.
So here’s the myths that may block you from creating the life that you desire.
Common Money Myths
#1 More money would save me
This one is a big “NO”. Do not wait for someone else to fix your personal finances. It’s not the society’s job either. And I am not saying that in all households every member of the family should bring equal amounts of money in since value can be created and measured in various ways. What I am trying to say here is that if you are those people who time and time again end up in the same situation struggling with money, and you tend to consume before you produce, you have an issue. You need to fix your mindset first.
To get the reward that you deserve (in this case money), you need to get your special gifts out into the world - and do the work. I know, the Fiat monetary system we live in encourages a mentality of immediate gratification, and many of us lack patience and capability to make long-term plans for their future. This is problematic. Time preference refers to the ratio at which individuals value the present compared to the future. People always value present consumption more than future consumption, because consumption is necessary for our survival, and because the future is uncertain: we do not live forever and could die at any moment. The time preference varies from one individual to another. Human beings who have low time preference are willing to delay immediate gratification and have a long term wealth builder mindset. These individuals are literally willing to invest in their future. And this is the mindset that you want to adopt. You want a vision for your future and meaningful goals to strive for.
As human beings we tend to always want more, and as we get more money our lifestyles tend to change due to clever marketing and peer pressure. Maybe you want to live in a larger house (even though real estate could be a great investment…), buy more designer shoes, drive a fancier car, travel around the world, etc. See, it’s more like a mindset thing, and which is why we need to make conscious decisions to invest in our future. Think of it this way, “I’m choosing to invest my money smartly as an act of self-love”.
#2 Having a lot of money is not spiritual, or wealthy people are greedy
This is something that sometimes annoys me with the spiritual community. To me financial wellbeing equals self-care and as explained above, it is part of our wellbeing. It helps us to become stronger and more vital so that we can better show up in this world, and build awesome things. I also believe that when you share and produce something valuable on this planet, you do deserve a reward for it. That encourages innovation and growth, which creates positive ripple effects within society - and that benefits all of us. Moreover, anyone can be greedy: rich or poor and everything in between.
#3 I am bad with money
You need to study and practise to become a master. Stay curious, and learn so that you can create the ideal portfolio for your needs. Depending on who you ask, you would get different types of recommendations on asset allocation and diversification. Obviously, when you are young and free, you are more likely to be ok with more risky assets, whereas when you become older you are more likely to be happy with less risky things. Like with any area in life, saving and investing are something very individual. We all come with different backgrounds, experiences, and preferences. As a rough rule, owning stocks and real estate help you to get to an escalator that goes up. That’s how the system works. But no matter how you invest your money, there’s always risk involved! Higher returns mean greater risk.
There are certain things that seem to work well. For instance, in the book, The Little Book of Common Sense Investing, John C. Bogle, the founder and former CEO of the Vanguard Group, explains why owning the stock market (such the S&P 500 or total stock market index) over the long-term is a winner’s game, but trying to beat the stock market is a loser’s game. And this is the most important thing I learned when I studied Finance at the university. When you invest in a low cost, well diversified index for the long term you will get your fair share of returns. Avoid short-term speculation to keep the fees low and taxes down! This is something very similar to what Manisha Thakor, MBA, CFA, CFP, recommended during my IIN Health Coach Training: choose passive investing and avoid active investing. Passive investing requires very little effort and minimal expenses. And how great is that: you’ll have more time to do other productive things! Thakor also emphasized how most financial products and services are “junk” like highly processed foods; They have low returns and come with high costs and fees.
Again, this is not financial advice - just my random thoughts and learnings. ;)
Here are some tips to improve your relationship with money:
1. TELL THE TRUTH
Very honestly look at your situation and determine where you are right now, and where you want to be. Calculate your net worth. This is something most experts, like Manisha Thakor, will tell you to do first. Your net worth is how much you own in the market minus how much you owe. It’s a single digit. The long-term goal is to have more assets than debt.
2. SAVE
You cannot invest until you have the money to invest. When you spend your money, you spend your life energy. When you work you exchange your life energy and time for money. Honour it. Think about the amount of time you need to work to get what you want.
Become aware of where your money is going. Track what is coming in, what is going out. Identify areas where you can cut corners. For instance, are you paying a rent that is way more than reasonable in comparison to your income? Are you addicted to monthly beauty treatments at a high-end salon? What if you skipped your morning take-away lattes? Little things add up over time. On a daily basis purposefully align your spending with things that bring you joy - just don’t go overboard. What’s important to you? Become aware of your behavior. If certain things trigger your compulsive spending habits, get help or find ways to deal with the urge. Forget unrealistic (social) media images and the lifestyle you cannot afford at this moment. You have your unique journey so it’s better to focus on that and find ways to create more value so that you can eventually live the life that you have manifested.
If you have a hard time noticing where the money goes, Thakor recommends doing a Highlighter Test: write down everything you spend money on for a month, and then highlight on that list all the things that didn’t bring you joy, such as junk food, a dress too small, etc. The goal is to spend way below your means.
3. START INVESTING NOW
The biggest mistake most people make is that they don’t start early, and this is because of the miracle of compounding investment returns. Even small amounts will add up eventually big time. The longer you are on the market the better. This requires patience and commitment to just hold.
Plan your spending ahead to avoid last-minute decisions that could empty your wallet. There are tons of ways to look fabulous and have fun without spending your entire income. Choose a haircut that is easy to maintain, wear classic style, use promo codes, sell old items, and so on. And the best tip to look awesome: start training! When you are fit, everything looks better. And automate your savings if you don’t have the discipline to otherwise do so or cannot remember. You will have less money to spend, but you will adjust to your new spending habits quickly.
4. BE CALM AND COOL
Learning to breathe deeply and meditate is super powerful. Ignore the noise and focus on your life. Successful, passive investing is Zen-like. Buy and hold. REPEAT.
Whatever you focus on evolves, because that’s where your energy goes.
RESOURCES:
Videos:
Marie Forleo: 4 Money Beliefs That Limit Your Wealth Inside and Out | Kate Northrup
What is money? | Saifedean Ammous and Lex Fridman
Books:
The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous
The Little Book of Common Sense Investing by John C. Bogle
The Fiat Standard: The Debt Slavery Alternative to Human Civilization by Saifedean Ammous
Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail by Ray Dalio