Numbers are only half the battle. In some senses, getting a grip on the numbers side of personal finance is the easy part. Once you learn the mechanics, you’ll need to work to develop a positive money mindset. This will help you to stay motivated through the journey and allow you to have a healthy relationship with your money.
As your financial literacy increases, you might get drawn into the rabbit hole of learning about minor financial optimizations or trying to squeeze every last drop out of your dollars.
If that’s what you want, all the power to you. However, for others, this can lead to stress, obsession, and burn out.
Below, I’ve listed a few core principles that have helped me to build a positive money mindset. I hope that they’ll be of good service to you as well.
Or put differently:
The sooner you realize that your financial plan doesn’t need to be perfect, the better. Follow the 80-20 rule: chase after the big wins first, and don’t get hung up on the little things that remain.
Focus on:
(jump back to the course agenda if you need a refresher on any of these points)
Once you’ve mastered these core skills, the rest is small potatoes. Perhaps you should be investing in your RRSP instead of your TFSA (Traditional vs Roth for Americans), perhaps your allocation to international stocks should be slightly higher than it is today, maybe!
These are complicated topics that you don’t need to understand fully at this point. You can figure that out later. Master the core pillars first, and then worry about everything else later (or never).
You don’t need to own 12 different investments funds so that you can get exposed to every niche investment asset class (gold, real estate, German tech stocks).
Don’t over-complicate your financial process. Set a regular schedule of sitting down for a couple hours every month to tackle all of your financial to-do’s. Obsessing over the tiny details might bring about a small improvement, but it has a greater chance of making you burn out and lose your positive momentum.
Get a hang of the basics of budgeting. Make some efforts to cut back on the major expense items of housing, transportation, and food. After this, diminishing returns start to kick in — don’t fret about the coffee you bought yesterday or the $5 discount that you missed on your gym membership.
Rome wasn’t built in a day. Likewise, it’ll take quite a bit of time for you to go from being underneath credit card debt to having maxed-out retirement accounts.
Trying to make too many changes all at once will leave you stressed and unmotivated.
Take your time — learning the mechanics of money management and changing your attitude towards money can take months or even years.
Sketch out a rough plan with your target milestones, and take it one step at a time. This isn’t a race, go at your own pace.
Break down your plan into bite-sized chunks (understanding your paycheck, opening a savings account, tracking your spending for one month, opening an investment brokerage account, making your first trade, etc.).
As you start to rack up small wins, you’ll find the motivation to keep checking items off of your list.
No matter where you are on the spectrum of financial literacy, you’ll always be able to find someone who has accomplished more.
I promise you that there’s someone out who’s younger than you, earns more than you, spends less than you, and still manages to jet off on instagram perfect vacations — all at the same time.
Comparing yourself to these people is simply unproductive. You’ll only be hindered by starting to question your decisions and your progress to date.
Everyone was born with different advantages, had a different upbringing, and has benefited from lady luck in a different way. “Some people are born on third base and go through life thinking they hit a triple”. It’s impossible to adjust for all of these factors to make an apples-to-apples comparison.
Comparison is the thief of joy. At worst, it can lead to a vicious cycle of low self-esteem and a desire to stop thinking about money at all.
Focus on your own journey. Take it slow. Focus on putting one foot ahead of the other, over and over again, and I promise that you’ll reach the summit.
Yes, the dollars and cents aspect of personal finance is important. You won’t be able to meet your goals without a solid grasp on budgeting and investing. But the mental aspect is just as important.
Spend the time and effort needed to develop a positive money mindset. You’ll feel happier about your money, and will retain the spark you need to follow your plan through to the end.