Personal Finance Question – Do you know yourself?

Welcome back, today we are going to discuss the financial concept of knowing yourself – Immediately, this may be confusing to some as it differs from traditional personal finance thinking but stick with us.

So, what do we mean by knowing yourself in regard to personal finance? Well, there are significant implications if you are interested in learning more.

If we take a couple of minutes to reflect on how we are doing, the results can be immediately self evident. For example, are you reaching your current goals when it comes to money, career, and life in general? If yes, congratulations and we wish you all the best going forward. For those who are not as certain, this is where the “knowing yourself” part comes into play.

Natural Tendencies

What are your natural tendencies when it comes to personal finance? Do you meticulously plan with a giant spreadsheet, budgeting app or other method? Do you funnel money away into separate accounts for individual purposes? Or do you receive a weekly, bi-weekly, or monthly paycheque, look at your account a few days or weeks later and wonder where it all went? This is why we bring up this topic today. Based on your natural tendencies, you may be helping your future self succeed or fail either consciously or sub-consciously.

For example, if you are a planner personality type and work with a future goal in mind, it will be relatively easy for you to set a personal finance goal, setup a measured plan to get to this goal and work diligently to achieve this.

In another example, if you are a mover personality type, you are more concerned with living within the moment and would rather let the future work itself out or let someone else take care of it. Movers tend to be most spontaneous and want to live life and not worry about the future.

Obviously, these two types are at opposite ends of the personality spectrum and likely you will fall into the middle somewhere. However, it is good to know that these are the natural tenancies for each of these personality types.

What is the impact?

You can see that based on these personality extremes, there might be significant draw backs between each of these methods of thinking 🤔.

For the planner personality, it may be spending a large amount of their time in saving and scrimping mode, while missing out on life. You can see some posts within the FIRE (Financial Independence Retire Early Community) on this, some people have hit the “savings bug” and coupled with their planner personality, it maybe compulsive behavior to save as much money as possible. The danger in focusing all your time working and saving money is you don’t know what the future holds and you may miss out on the daily or yearly experiences or relationships that make life unique and exciting.

For the mover personality, it may be easier to spend a large amount of money on experiences, travel, dining out and living life to the fullest. While this may be fun in the short term, over the course of 5-10 years, you likely will see that your financial position will remain stagnant and no significant progress will be made. This is likely due to paycheck and spending imbalance, where the money comes in and leaves just as quickly.

Alternatively, we need to talk about debt in this section as well, especially if you are young, as it’s likely there isn’t much income coming in during your initial career/job or you still have large student debts looming over your finances like a pending storm cloud.

We recommend that focus be made to eliminate all debts before they have the power to overwhelm your life and steal your happiness. Temporarily stop spending on luxuries, going out, dining out and focus all possible efforts to kill off debt before it has additional time to grow into something that will not just steal your current happiness but also have the potential to steal your future happiness as well.

Unfortunately, there are plenty of examples of people who want to buy a home, start a family or travel the world and they are held back by decisions they made as students years or even decades ago that have grown into significant debts of $50k-200k or even more – At those levels, the interest growth of these loans will quickly overwhelm your ability to plan for your future or even live for today. We recommend finding a non-profit debt service like Credit Counselling Canada or a similar service in your area to assist you in attacking and eliminating these debts as soon as possible.

How Do We Cope?

So now that we laid out some of the potential pitfalls with each personality type, how do we cope with either of them or a mix of the two?

For the mover personality, if you have a tendency to ignore personal finances, please take the time to learn, even at a basic level how investing can help you work less and enjoy life more – See our previous article for some motivation on working 70% less and meeting your lifestyle – Saving VS Investing – How to Meet your goals with 70% less effort? – Personal Finance Experiment. Ignoring the future doesn’t make it any less real. You may not notice any immediate differences within a 2-3 year timeframe, but likely after a decade or two of work, you will look back and see that your wealth hasn’t increased or perhaps more debt has been accumulated and progress is actually moving backwards. This can be dangerous over the long term and potentially limit your options in old age as you need to scale back your working hours. Please take control today and set some goals to help yourself – Are you Financially Resilient – How to protect yourself? – Personal Finance Experiment

For the planner personality, if you tend to get engrossed into personal finances, please take the time to socialize and spend some time with others to share some life moments, experiences. After all, life is fleeting and temporary, don’t spend all your time saving money and find out 20-30 years later that the potential best moments have passed you by. Find someone who you can spend time with (spouse, friend) and invest into relationships as well as personal finance.

Conclusion

So hopefully this article resonated with you today – Remember, small changes over long periods of time can make a huge impact in the destination you find in the future.

People overestimate what they can do in the short term and underestimate what can be done in a decade; small steps in a positive direction will get you there.

Thank you for reading and stay safe out there.

Regards,

The Lab Manager (Personal Finance Experiment)

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If you want to support our efforts at http://www.personalfinanceexperiment.com, please leave a comment, hit the like button and subscribe to the blog.

Also, if you like what you read – Please consider supporting us with a coffee – https://www.buymeacoffee.com/PFExperiment