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Friday, November 09, 2007

School should teach life, beginning with how to deal with Personal Finance

Why should schools teach personal finance? It’s because a fulfilling life depends on it!

Does personal finance fit into the theme “A Fulfilling Life By Self Help”? In my opinion, it’s a resounding “Yes”! One of the four key pillars of a happy and fulfilling life is financial stability. Being financially sound has far reaching effects on other areas of your life; probably more than you understand or expect.

The aim of this blog is to deliver practical and actionable tips to help you achieve a fulfilling life. Other than advocating high moral sounding principles of courage, and integrity, which are necessary for spiritual fulfillment; we also need to balance that with life’s practicality of having to pay the bills and our needs to bring bread to the table everyday.

An unbalanced approach to life, skewed in either direction will not help in achieving happiness.

what they teach:
1) Study hard
2) Work Hard
3) Get Promotion
4) Get Increment
5) Get what you want


WHY THE OLD SCHOOL WAY DOESN’T WORK.

There are three fundamental flaws in the old school thinking about money:

The more you earn, the more you spend. - By saying that we can get what we want when our income increases, it encourages us to spend as much as we earn. Looking around, that is indeed what is happening to a majority of people today. Most people hardly save, and their net assets is near zero. When rainy days like retrenchment, economy downturn or a major misfortune in the family happens, there is very little financial support to fall back on.

How can you have a fulfilling life when you have to worry and be stressed about possibilities of external financial circumstances which are beyond your control?

YOU must work really really hard. - The old school thinking teaches us to exchange our time and energy for money. This means if you don’t work, you don’t get money, simple. As such, we throw all our time and energy into our work, hoping we will be rewarded with more income eventually.

How can you have a fulfilling life when you have little to no time and energy for family, friends and self growth?

Dependence on single source of income. - When all your time and energy is focused on one source of income, we subject ourselves to the mercy of ill-intending employers, bosses, customers; so that we secure this single source of income. This means we are put in a position which compels us to make personal sacrifices and compromises about what’s truly important to us.

How can you have a fulfilling life when you are compelled to do what you don’t believe in, don’t enjoy or don’t get any sense of accomplishment from?

MY PERSONAL STORY.

I remember during the first few years of my working life, the annual increments and bonuses meant chances to ‘upgrade’ my lifestyle. It meant chances for me to get the latest electronic gadgets that I had been wanting. Sometimes, I would save my money for a while but still ended up making a big ticket purchase later, which reduced my savings to zero.

My understanding of investment then was limited to the bank’s savings account, and I saw no benefits in putting my money there for a few cents of monthly interest. There was no motivation to save; as such, any excuse to spend was easily acceded to.

I also choked up some debts by credit/installment purchases. The idea of carrying home a big ticket item costing a few thousand dollars for a few hundred dollars of monthly payments was just too nice to pass over. As such, at one point, I ended up shouldering a few debts which amounted to nearly 50% of my monthly income. Can you imagine what it feels like to have your monthly income slashed by half before you can even count them?

If I wasn’t happy with my job, I couldn’t do much about it; as I had debts to repay. The short-term happiness that I purchased came with the price tags of long term liabilities and lost of freedom to choose my career or self development path.

This went on for many years. Later, my contact with personal development also introduced me to personal finance management. For the last 4 years, I got myself free of debt, saved a small sum for rainy days, and the rest are invested for passive income. If I’m retrenched tomorrow, I’ve at least a year to look for the next job without getting into financial difficulties. If I die from a fatal accident tomorrow, my family does not have to worry about their livelihood.

Financial stability is a very liberating feeling. In fact, it frees me of unnecessary worries and to detach myself emotionally from my job to perform my best. I believe that we are at our best when we are given the freedom to pursue a worthy cause of our choosing.

Yet, these benefits are only the tip of the ice berg. Financial stability is only the first step; there are even greater freedom that can be achieved through good personal finance management.

PERSONAL FINANCE - 3 LEVELS OF FREEDOM.

There are 3 levels of financial achievement. Each level results in increasing freedom to pursue a fulfilling life:

Financial Stability. - This level gives you the peace of mind in knowing that your life is not compromised by any major negative eventualities. It is achieved when:
You have enough money to cover your current expenses for a minimum of six months.
You have insurance to protect you and your family against any major crisis or eventualities.
Financial Security. - This level allows you to maintain a very BASIC lifestyle based on passive income only. You will probably still need to continue working in order to maintain a certain lifestyle, but any disruption in your primary income is not going to threaten your basic livelihood. It is achieved when:
You have achieved financial stability.
You have streams of passive income which cover your BASIC monthly expenses.
Financial Freedom. - This level allows you to stop working and maintain your current lifestyle based on passive income alone. At this point, you no longer need any active income. If you continue to work, it is probably because you enjoy your work so much that you are working for the sake of your personal fulfillment, not money. It is achieved when:
You have achieved financial security.
Your passive incomes are enough to cover your current lifestyle or even more.
BENEFITS OF GOOD PERSONAL FINANCE MANAGEMENT.

You don’t necessarily have to reach financial freedom in order to enjoy a fulfilling life. As I have shared in my personal story, financial stability is already a very liberating achievement. The following are some of the life impacting benefits that good personal finance management has brought me:

Good mental and physical health. - Being in debt can be very stressful and discouraging. I remember those days when I worried each time the bills arrived, and the sense of lack whenever I couldn’t buy what I want because I had to repay my debts. Now that I am free from debt, my perspective and considerations when it comes to money are totally different; it’s definitely more positive and this positivity does carry into other aspects of my life.
Better relationships. - Maybe you have also seen couples who argue about money all the time? A sound financial status takes away the worries about money, and sense of insecurity. This allows the couple to focus on what truly matters; each other.
Freedom to pursue my passion and be myself - I’ve gained more freedom to pursue my passion and causes that interest me. I am free to be myself at work, to speak up and strive for what I believe in. At worst, I only lose my job, nothing else.
PERSONAL FINANCE MANAGEMENT SHOULD START FROM YOUNG.

I hope that you see the far reaching impact of proper personal finance management. It goes beyond having more money for a luxurious lifestyle; that is secondary. I like to repeat the statement I said at the start of this article:

The good thing about money is not the luxuries or goodies it can buy for you, but it is the freedom that it affords you to do the things you want to do.

Money, if properly managed, gives us freedom to pursue a fulfilling life; if not properly managed, it can destroy individuals and families. A topic of such importance is ironically not taught in any formal educational institute.

Good personal finance management includes having the correct mindset about money, managing it, investing it, and proper leverage. All these should rightly start from young to inculcate the right values on money matters.

The aim of education is to equip the next generation with the knowledge and skills, to enable them to flourish and succeed in their life. If personal finance has such far reaching impacts on an individual’s life, why isn’t it taught in schools today? I wasted many years before I realized how wrong my mindset about money was. By then, a lot of time, money and heartache were already wasted. Of course, it’s never too late to start now .

I hope this helps create better awareness on the importance of good personal finance. Share it with your friends who may benefit from this; educate them today and save some heartaches.

by A long long road
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