In a session I led on our relationship with money in 2016, I was curious about where people stood with this topic. We had 50 people in the room, and as we circled up and went around the room, everyone shared something about their relationship with money. I realized every person in that room was in fear about money—from the 80-year-old with millions of dollars to the 20-year-old already $20,000 in debt. It infuriated me that we live in a society where everyone is terrified by something so central to our lives source.
This fear seemed to stem from the irrational and often narrow framing of our financial decisions source. People tend to look at immediate problems rather than taking a broader view that considers their financial health over a lifetime. For instance, many save and borrow simultaneously instead of treating their entire portfolio of assets as a unified whole. This narrow framing can lead to poorer decision-making source.
Financial Freedom: Distinguishing Independence and Freedom
Financial freedom is more than just having money; it’s about freeing your mind from the pressures of the consumer culture source. It’s understanding that you are sovereign and the economy is secondary. This mindset shift is crucial to moving away from wage slavery and debt. Whether you are at the low end or the high end of the income spectrum, if you are caught in the cycle of wanting more, you are not free source.
The first layer of financial independence is mental freedom—understanding that you are in control of your financial decisions source. The second layer involves getting out of debt, which can feel endless but is achievable once you stop going into debt and start paying it down. Many people have flattened their debt in a few years by understanding the long-term opportunities they are missing out on due to their debt source.
Building Financial Resilience
Having six months of savings in liquid assets is another critical step towards financial independence. This emergency fund protects you from being thrown back into debt by unexpected events like job loss source. Over time, surplus savings can be invested to generate passive income, leading to further financial stability.
Knowing how to manage money effectively means tracking every purchase and understanding compound interest source. Being numerate and framing financial decisions broadly helps in making better choices. It’s essential to avoid strong emotional reactions to financial gains and losses and to view money as a tool for long-term planning rather than immediate gratification.
The Emotional Aspect of Money
Many people project onto money the ability to make them happy, safe, or better than others source. However, the relationship between money and happiness is complex. While money can’t buy happiness, certain types of spending can contribute to well-being. Research shows that spending on experiences rather than material goods tends to result in more happiness source. Experiences often involve social interactions, which are a key factor in increasing happiness.
Teaching Financial Literacy
Eighty percent of children reach college without ever having had a conversation with their parents about money source. This lack of financial education can lead to poor financial decisions later in life. It’s crucial to talk to children about money, involve them in household financial decisions, and let them make mistakes with small amounts of money to learn valuable lessons.
Redefining Enough
The old roadmap for money emphasized endless growth and consumption. The new roadmap focuses on the concept of “enough”—having everything you need for a life you love and full self-expression without excess source. This approach involves being aware of the flow of money and stuff in your life in light of your true happiness and values.
References:
- The Atlantic: How America Lost Its Mind
- Psychology Today: Negativity Bias
- Harvard Business Review: How to Overcome Our Biases? Walk Boldly Toward Them
- BBC: The Rise and Fall of Celebrity Culture
- Greater Good Science Center: Four Ways to Fight Your Negativity Bias
- The Conversation: Why Do We Care So Much About Celebrity Gossip?
- Pew Research Center: Social Media and Political Polarization
- Psychology Today: Tribalism Explained
