How managing my personal finances made me grow as a person

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Managing your own personal finances is never an easy thing to do, at least for me when I first started. Initially, I thought that the things I learned from managing my personal finances wouldn't really be transferrable to other areas of life because everyone manages money differently and personal finance was after all, personal. However, over the years, I realized that unknowingly, concepts in personal finance were somehow transferrable and it helped me in other areas of my life as well.

Here are all the concepts that have helped me in other areas of my life as well:

1) Delayed gratification (The Marshmallow Test)

source: Tenor

The concept of delayed gratification can be seen in many examples of personal finance and can be defined as resisting the temptation of an immediate reward in hopes of a bigger reward in the future. This can be seen in practices such as spending less to put more into savings or leaving unrealized gains of investment to compound even more.

Practicing delayed gratification in one's personal finances can also be translated to other areas such as health and fitness. Examples would include snacking lesser and getting into a weekly routine of running. This increases productivity and motivates one to repeat the cycle, creating a virtuous habit loop to boost your health and fitness.

2) Pattern recognition

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Picking my own stocks meant that I had to train my pattern recognition skills, look for common traits of successful investments, and form an investment framework for myself. After which, I would have to apply this framework/checklist to new investment ideas to see if the idea is worth pursuing or if there's something that I have seen before in other investments previously.

In today's world, problem-solving skills are essential and pattern recognition aids in solving similar problems. Recognizing problems of similar traits will mean that the same solution can be modified or used directly to solve the problem at hand. An example could be algorithmic problems where similar problems can be solved with the same algorithm.

3) Recognizing the downsides and protecting against them

Source: Tenor

Having insurance to protect yourself in case of unforeseen illnesses or emergencies is essential to make sure your finances do not face a huge setback. This is because medical costs in Singapore are still quite high despite subsidies, which will inevitably eat into your savings or investments.

Outside of personal finances, we have to make decisions about our lives and some of these decisions require further thoughts about our downsides. Some examples could include starting your own business/start-up, taking a pay cut to join a new role with more learning opportunities and many more. Many pivotal decisions require us to sit down and think about the downsides, so as to minimize regret.

4) Leverage and Time value of money

Source: Tenor

"Leverage" may come off as a term with a negative connotation, but if used prudently and correctly, can be a way to boost your finances. A timeless concept in personal finance, the time value of money is simply saying $X today will be worth more than the same $X amount in the future. These two concepts come hand in hand, as using leverage requires the understanding of the time value of money.

One example could be the tuition fee loan for university students in Singapore, whereby 0 interest is charged on the loan until one graduates. The loan reduces the burden on students and students can free up their existing capital to start a business or invest with a goal of earning their fees before they graduate. (Assuming that the student is confident of their investing skills and knows what they are doing.)

Similarly, this can be applied to our working lives as well. Understanding that our productivity levels will be diminishing as we age and perhaps our salaries will be going downslope at some point in time, we should leverage on our youths to make hay while it shines. This could mean preventing lifestyle inflation even as our salary increases when we are young and investing early to have a longer time horizon for compounding to happen.

5) Sunk cost fallacy

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Sunk cost fallacy - a tendency of following through with an endeavor if we have invested time, money, and effort into it. This could come in the form of holding losses on your investments solely because it has been held for a long time. Sunk cost fallacy could incur more than just the losses that you have currently, but also opportunity costs if you are unwilling to change your mind.

This can be applied to other areas of life as well, such as education, where if a course doesn't suit your interest anymore, don't be afraid to change it. Similarly, in business, multiple iterations of trial and error are needed, and changing one's mind for a better idea would be better off than sticking with the original idea. Changing your mind is powerful in opening new doors of opportunity.

Some Closing remarks:

Source: Tenor

Who says personal finance can't be extended to other areas of our lives? Perhaps, there are many other concepts that we are unknowingly using in our daily lives as well. This is probably the reason why it's so important to start exposing basic personal finance knowledge to the younger generation today. Some of these concepts have helped me a lot over the years and I hope this inspires you to identify your own set of personal finance concepts that have helped you in your life as well because everyone's personal finance journey is unique.

Disclaimer:

The above article is solely my opinion and for informational purposes only. The information presented in the article should not be taken as investment and business advice. In fact, the information presented should not be seen as advice for anything. The information presented is not a recommendation to do anything as well, be it buying or selling any investments. Please do carry out your own due diligence before making any financial decision or seek a certified financial advisor if necessary.

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Cover image source: Canva