Personal Finance

personal for a reason

Dec 31, 2023

Hi and welcome to another issue of this newsletter.

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I

Everybody has a different set of fingerprints. We are a perfect mocktail of the same but unique ancestors. Our DNAs are 99% the same, but the one percent that is different is so unique, you won’t find another person with the same.

This together with our upbringing makes us react to things differently. The way you’d react to a thing is different from the way your parents, siblings, or friends would. Why?

Because we are different.

But how?

Morgan Housel explains in Psychology of Money, “Everyone has their own unique experience with how the world works.”

What seems crazy to you is the most obvious thing to do for another person. And no, neither of you is crazy.

So, why should it be any different with how you handle money?

You see, two people might both be 24 years old, but their finances can be on entirely different trajectories.

If they both earn the same amount of income, but one has student loans, do you reckon they’d spent their money the same way?

What if the other without student loans is the breadwinner of his/her family? Are their priorities going to be the same?

The answer is no.

The same way you’d look at your colleague spending their hard-earned income on something so frivolous to you, is the same way your colleague will look at you as you buy the thing you’ve saved up for over the last 24 months. It doesn’t make any sense to you, just as it doesn’t make any sense to them. Why?

Because your priorities, fears, and goals are different.

Have you also thought of why your parents keep saying you are wasting money on X (whatever it might be) and you are stunned because you can’t possibly live without it?

Well, here is a decent explanation:

“People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.”

You are asking, where is this going?

Here is where it is going, as we’ve all planned or are planning our goals for next year, or reviewing this year, there is this human tendency to compare ourselves with our contemporaries especially in the monetary part as that’s easily quantifiable.

It is also easy to lose focus on our why or where we are coming from. It’s human nature, but we should try as much as we can to avoid it, as it only leads to envy. And envy in the world of the late legendary investor, Charlie Munger,

“Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”

II

A lot of personal finance rules of thumb are simple to read out.

Budget
Earn
Save
Invest and pay off your debts

It looks the same if you read all the personal finance blogs and books. But as they say, the devil is in the details. The how is usually missing. Why? Because we aren’t the same or in the same position.

The way a first-generation immigrant handles their finances is different from the way their child, (second gen immigrant) will. All the 23-year-olds in the world can’t save and invest the same.

As much as books and blogs advocate for people to save 10-20% of their earnings, their environment, experiences, goals, fears and perspectives which impact their actions are different.

A person recked by a bank failure in the early banking days (before depositors’ insurance) would have a hard time opening another bank account. And you can't blame them for that.

The reason why a lot of “pseudo-financial religions” such as FIRE get the smoke is because it’s mostly general rules, and if you follow those rules to the tee, a small change in the inputs (especially the ones you can’t control) drastically affects you.

Another reason is that these rules do not take into account what you want in life. Do they really make you happy?

At the end of the day, not everyone would be happy because they have a bunch of money they’ve saved. Yes, it makes you comfortable, but beyond your needs and extra for just in case, it’s just a number on the screen.

So, what am I trying to say?

First, is to know that you are as unique as your fingerprint, so you mustn’t compare yourself with someone else, especially financially.

All the rules of thumbs apply, all else equal. But “else” isn’t equal, just like your fingers aren’t. This means you have to adapt a general rule to yourself. Not all rules apply to you in your current state, and not all rules should be applied. Do what’s best for you, the rest is noise. Ignore noise.

You shouldn’t have expectations for anyone except yourself. That a person uses an expensive thing doesn’t imply they are wealthy. And even if they are, you don’t know of their responsibilities.

Know what you want to want. You don’t want to go down a journey only reach the goal and feel like you’ve wasted your life. Play games where you want the rewards.

"One day, you look in the mirror.....the light in your eye is gone. Suddenly, it hits you. How much youth did you waste, chasing something that was never yours?"

Don’t do things because others are doing so. Yes, there is safety in numbers. You think if I do as others are doing, then this must be right, or if we are wrong and fail, at least I won’t be failing alone. Misery loves company.

The reason to win the game is so that you can leave the game.

You don’t want to get stuck playing games that bring you no joy and trap you in a lifestyle you never really wanted.

You want to be rich so that you don’t have to bother about money problems again. Not so that you live without living, just increasing a number on the screen. But if that makes you happy, then go on.