I do a lot of writing every week. Most authors do a lot of writing, but I have a lot of other writing tasks that I work on as well. One of the reasons that I continue to publish a blog post on a regular basis is because I genuinely enjoy writing. But the other day, somebody hit me with a question that really slowed me down for a minute. They asked me, "what exactly is personal finance?"
I had to really step back and think about this for a minute. I mean someone was asking me what I talk about and what I teach every day of my life. But at that specific moment I couldn't come up with the words to break it down into a simple, easy to spit out answer.
The more I thought about it, the more I realized that what personal finance is, is complex.
The reason that personal finance is so complex, is because we are human beings. We do not possess the capability of making decisions without emotion and logic fighting for dominance. Really think about this for a minute. In all aspects of our life, every day is a negotiation between emotion and logic. Logic tells us that we should probably have a healthy dinner. Emotion says, "I had a rough day and we should have a pizza."
Our finances are the exact same way. Logic tells us we shouldn't use a credit card that we can not afford to pay off every month. We all know that it is not a wise financial move to borrow money like this. Our emotions on the other hand, tell us it's okay to do it just this one time. Logic also tells us we shouldn't have a car payment. Once again our emotions get carried away and we have to drive that new car home.
The larger point here is that personal finance is very complicated. And as long as we continue to ignore the human side of finance, we are never going to get it correct. You have to allow yourself to make mistakes, and you have to learn from those mistakes and remember the feeling attached to the successes of life. This is so much harder than most people think it is.
The emotion of buying a new car, or a new purse, or a new wardrobe, is so much more exciting than the emotion of putting money in a savings account. We feel like we deserve to have something to show for all our hard work and effort. I completely agree for the record.
Where I disagree with most people, is that my bank account balance going upward instead of downward is a sense of satisfaction for me. I use it as a scorecard to tell myself that I'm doing the right things and making the right decisions in life.
So to answer the original question of this post, "what is personal finance?”, I will say that personal finance is the handling of money in a manner that allows for an emotional response. In other words, most people already know the right thing to do, but continue to do what feels good instead.