Managing your money is not (only) about Maths
I wasn't proactive with my own finances, here's why.
There are two categories of people in finance:
those who are proactive with their personal finances: budgeting, saving and investing.
those who aren't.
I belong to the second group.
The gap between financial literacy and financial health.
According to the 2020 BlackRock global study,
Money is the number one cause of stress.
Yet, 57% of people are not investing.
Only 3 out of 10 adults worldwide are financial literate.
78% don’t believe they’re on the right savings path.
So, why aren't more people managing their own finances?
As a Financial Planner, I came across plenty of clients who are considered financial "experts" (traders, asset managers, CFO, etc.), and I can state with confidence that financial knowledge doesn't necessarily equal active personal financial planning.
"Financial literacy is what you know, financial capability is what you do, and financial health is what you achieve."
Being "good" with their own finances isn't only a number issue. Instead, money is about the stories we tell ourselves.
Understanding your relationship with money
For someone who didn't like money for the longest time of my life, it's essential to understand the root cause of the association between money and "evil." You might want to question yourself, your parents, the environment you grew up with, and reflect on your surrounding's relationship with money.
For my part, my parents did quite well for themselves as first-generation migrants to a new country where they didn't speak a word of the language. Yet, growing up in a wealthy neighbourhood, I witnessed a lot of money-related greed, drama, jealousy, cruelty, and insecurities, such as estate battles and inheritance squabbling.
In short, I labeled money with bad. I didn't want to be like others because:
I wasn't part of them
The more money they have, the less happy they become
Hence, the why I initially ran away from capitalism to the non-profit sector (read "Why did I switch from NGO to Wealth Management?").
"Each of us has come to believe certain stories based on our upbringing and our experiences with money: stories about who we are and who we are not, stories about what we can and cannot do in the world. This is where our relationship with money is rooted, and this is where sound money management begins. It starts with a story." Sarah Newcomb
From awareness to action
My ah-ha moment was when I discovered Behavioural Science, i.e. the conscious and unconscious phenomena to understand the underlying factors that influence our judgements and decision-making.
Finance is all about facts, data and numbers, but Personal Finance involves humans.
And we are irrational creatures.
Financial knowledge is vital, but psychology is the motor of actions (cf. graph below).
Conceptual Model of Financial Health by Cenfri
If you're very rational when it comes to money-related, good for you. You can just go ahead, study neo-classical economy and finance, and start planning and investing.
If not, you’re not alone. There are existing tricks and nudges to get you started. You can end the paycheck-to-paycheck mindset today. Hack your brain to become proactive with your personal finance management. And, start living the life you’ve wanted.
And you, what's your relationship with money? How active do you manage your portfolio? What are your financial goals?
This article was originally published on the Money Blueprint newsletter.
