Relationship With Money - To Control Or Be Controlled
Money is a great servant but a bad master - Francis Bacon
A subject that plays a pivotal role in everyday living, but not talked about enough objectively or taught sufficiently during most of our upbringing days. It is interesting that although our current education system prepares us to provide value and contribute to the society through employment and entrepreneurship, it doesn't prepare us in terms of managing the medium of exchange we get in return - money. And this in my opinion, often gives rise to very bad decision making when it comes to personal finance.
Money Habits
Chasing the latest fashion trends, trying to impress others with your latest possessions, or the constant need for instant gratification? Such consumption behaviour could easily lead to spending beyond your means, raking up huge credit card debts in return. In a downward spiral, these spending habits when continued enslave individuals to their jobs or worst, lead them to believe in speculation (gambling/ risky investments) or financial scams in hope of easy money.
Yet on the flip side, it isn't difficult to find retirees (both old and increasingly younger adults) who are content with what seems to be a very simple lifestyle. Of course, what 'simple' means is subjective to each of us. My personal understanding of a 'simple' lifestyle, is to live within my means and to be in harmony with my needs and desires (I do spend on my wants now and then, using money that I had set aside specifically for such purposes!). That practice by itself ensures that I can afford whatever I am going to spend on and that the purchases I make will benefit me meaningfully. This also means that I have to be very intentional when it comes to spending, consciously aware of where I spend and why I need to. For example, my home does not have a television. This is rather shocking to my guests as having a television appears to be a home necessity to them. However I am aware and satisfied that my laptop can serve the same purpose (entertainment) as a television, I consciously made the decision not to purchase one. As a result, I allocate the money saved from purchasing a television to other areas of my life that I deem to be more meaningful. At the same time, I have more space at home too.
If you are convinced that you need certain things in life, remember to review and consider again. Based on my experiences, I was able to put off a significant amount of purchases as the benefits either could not justify the costs or were simply unnecessary. In today's technologically advanced society, there are many platforms for corporations to bombard consumers with mass media and marketing. It is increasingly easy to convince us to make the next purchase. More often than not, these purchases satisfy our impulsive wants rather than needs.
That brings me back to the quote by Francis Bacon, that money can be a very bad master. Essentially, this means that when money is not managed properly, many problems arises. The biggest problem in my opinion would be living a life revolving money, missing out on unique opportunities to pursue life on your terms as all your mental and physical energy is exhausted on solving money issues. Remember, the more financial obligations you have after spending beyond your means, the more tied down you are to chase after the next bigger pay check. This takes you away from pursuing your true purpose in life, keeping you busy on that never ending run on the hamster wheel.
Financial Freedom
This leads me to the concept of financial freedom. Simply, it is the ability to explore life without financial limitations. Usually, this sweet spot is achieved when you have accumulated sufficient income generating assets, where your passive cashflow is greater than your liabilities or expenditure. Sounds easy, because the concept really is that simple. But first, you need to sort out your purpose in life and have a conservative estimate of how much money you need to achieve that. A common mistake that many individuals make unknowingly is to keep chasing a bigger pay check because they don't have an idea of how much is enough. Without a target, there is no end. You will never be satisfied because there is no limit to how much money you can earn in your lifetime. You need to know when you have arrived and to stop chasing the money.
I too was busy on the hamster wheel, until I sat down and have an honest conversation with myself over what I want to achieve in life and to write out the ideal lifestyle I want to have. Going through the numbers, I came up with a conservative estimate after factoring in some buffer for my monthly expenses to sustain that lifestyle. Working backwards, I then determine how much money I need to save and invest in assets with a predetermined rate of return and establish a timeline on how long it will take for my cashflow to exceed my estimated expenses.
With my initial calculations to achieve financial freedom, I now have much greater clarity on how much money I really need. And this empowers me to make conscious choices over my career and finances - whether to chase after a bigger pay check at the expense of higher commitments or to adjust my risk appetite when choosing my investment vehicles. Before committing to any of these choices, I am able to assess how the different choices could affect my timeline towards achieving financial freedom and evaluate them objectively.
The Fisherman and the Businessman
Let me share with you a story to highlight the takeaways discussed above.
In a small rural village, there lived a fisherman who owned a small rowing boat and made a living by selling the fishes he caught each morning. Everyday, the fisherman would fish in the morning, spend time with his family in the afternoon and chill out with the villagers at the local pub over drinks and songs in the evening.
One day, a businessman was by the shore when he saw the fisherman docking and readying the fishes he caught to be sold at the wet market. The businessman asked the fisherman why didn't he try to catch more fishes by spending more time at sea, so that he could make more money by selling more fishes. Before the fisherman could answer, the businessman offered to help the fisherman by using his business management experiences. The businessman suggested that the fisherman could put in more hours fishing to afford a bigger motorised fishing boat to catch more fishes. Next, the fisherman could expand his fishing feet by buying more boats and hiring other fisherman. After, the fisherman could set up a canning facility to can the fishes and distribute to the international markets. In a few years time, the fishing company would have grown sufficiently to be listed on the trading markets and be managed by professionals. The fisherman will then be able to retire with lots of money, allowing him to spend time with his family in the day and chill in the evenings with friends over dinner and songs.
To the lengthy proposal by the businessman, the fisherman replied in a puzzled manner, "I am already leading that lifestyle that you have mentioned, all while using my small rowing boat!".
Concluding
From the story of the fisherman and the businessman, we can see how important it is to envision your ideal lifestyle and be clear on what it takes for you to achieve it. With clarity, the fisherman was able to lead a lifestyle he wanted early using the limited resources he possessed. When presented with what seemed to be an amazing opportunity to make much more money, he was able to distinguish whether it was a necessary choice for him and his family. Had the businessman evaluated the resources required for the retirement lifestyle he was pitching to the fisherman, the need to commit several extra years of hard work to chase a bigger pay check would have been unnecessary. Had the story continued, I am certain that the businessman would have been enlightened by the conversation with the fisherman, and realised that he too could have already retired long ago with his accumulated wealth.
Are you leading your life like the businessman, only focusing on making more money? There comes a point where you will have enough for your ideal lifestyle. Find out for yourself how much financial resources is required, and be conscious in how you manage and spend your money. It is entirely up to you whether you lead a life like the fisherman or the businessman.