Jedi – the stuff of legends.
Brave, disciplined, and unwavering in their beliefs. We have much to learn from them when it comes right down to money. Set down your light sabre, young padawan, for we have much to talk about.
Rule 1: The path to the Light starts with awareness
Jedi understand their limitations. They recognise, and take responsibility, for their failures and develop a level of modesty about them.
Applying to personal wealth management, to be a master of your finances we need to be truthful with ourselves.
Take account of how you have managed your finances since receiving your first paycheck. What is your current financial situation? Are you leaving no emergency funds for rainy days? Are you splurging on luxuries in the vain wish that your next bonus will offset everything?
Only when you are mindful of where your money is being spent, only then can you begin to properly budget its use. And as far as budgets go, simplicity trumps all.
One exceedingly useful budget allocation I’ve found is called the balanced money formula. Basically, we cut the entire disposable income into 3 portions and allocate them as such.
Initially, you may find your allocations to be far different from what is shown here – just sit down to reprioritize some your monthly spending and you will be in far better shape than before.
Be open and honest about your spending habits, at least to yourself. Only then can you set limits to what you should spend on various items according to your budget.
Rule 2: Do or Do not. There is no try
Jedi make a commitment to their cause and to humanity. It takes lifelong dedication to hold true to their ideals.
In our context, setting the budget is easy. But keeping to it through thick and thin – that isn’t. To manage your personal finances, it takes a lot of self-discipline and mental effort to stick through certain milestones you have set for yourself.
It could well be the toughest endeavour you will ever face in your lifetime. Why? Let’s say if you have an existing investment account that is meant for retirement.
It has been growing steadily for years and you are satisfied with the returns.
But all of a sudden, COE prices crash. That continental car now is within your grasp. It can be oh so easy to just justify to yourself: I only live once, why not take advantage of the low prices?
Or Apple launches their reply to Nokia – and you just are a huge fan and have to own their technology.
Or there is an irresistible travel sale that is only valid for the next 2 weeks. You must act now or it will be over in an instant.
The list of temptations goes on.
That is when it all goes downhill.
You either stick to the budget or you do not. There will be temptations to deviate or “reasons” that crop up to justify a deviation. Resist those at all cost and you will be fine. Famously, Warren Buffet built his wealth upon this core principle: Spend what you have left after saving, not the other way around.
The best way to do this is to practice mindfulness. Each time when you going to take out your card to swipe for the item you are purchasing, take at least 20 seconds to ask yourself if your truly need this item? If It is a much bigger purchase item like a car or a luxurious condominium, take more than 30 days to think through.
Rule 3: Obsession is the path to the dark side – avoid it
The Jedi are wary of attachments, both material and personal. The obsession over possessions and the fear of losing them often lead to disastrous consequences.
We are talking about NOT obsessing with the wealth that you already have.
As social psychologist Paul Piff discovered, as a person’s wealth increases, their feelings of compassion and empathy decrease. Yet they feel more entitled to what they have. He also found that wealthier individuals are more likely to moralise greed and self-interest as favourable, less likely to be prosocial.
In other words, don’t be a Scrooge McDuck.
As you amass more wealth, do not let it get the better of you. Do lend a hand when you see people around are in need. Most importantly, don’t forget to buy a life insurance policy to take care of your family. Make sure you have an emergency fund, and at the same time accumulating for your retirement funds and your children’s’ education funds.
Bonus Rule: Every battle is won or lost in the mind
The Force can have a powerful effect on the weak-minded, a phenomenon Jedi sometimes take advantage of in pursuing their missions. An experienced Jedi can use the Force to implant a suggestion in the minds of those they encounter, encouraging them to comply with the Jedi’s wishes.
Taking a leaf out of their book, to be a master of your finance, apply the force on yourself instead.
Plant your own mind with suggestions of wealth and its accumulation. Resist those thoughts or suggestions that cause you to spend unnecessarily.
In books on personal finance, authors would often mention that financial success is more often influenced by personal psychology rather than any other attribute of a person.
Below are some examples how our minds play a role in money management:
- Marketing and advertising over the years have invaded our attention space. It influences our spending habits – and you may well be unaware. When we reduce our exposure to advertising, it is easier to control spending.
- Making investment decisions based on involuntary psychological reactions to “economic indicators”, are exactly the reason that causes people to buy high sell low.
- People with lower self-esteem are more prone to “keep up with the Joneses”. They tend to spend more, and on items that draw attention to themselves. Read about the study here.
Our brain does not behave like a computer or robot, neither does our brain process things in a binary format. The fact is we can never completely remove the emotional or psychological aspects of money management. However, I still do believe that we can reduce the emotional aspects when making financial decisions.
For example, you can reduce your exposure to advertising by reducing your visits to any shopping mall, watch less television, install adblockers. Simply cut off all forms of advertisement that could rouse your interest.
In regards to debts, to avoid temptation, limit to using one or two credit cards in your wallet. Most importantly, avoid comparison. Live life within your limits. Learn to develop a healthy ego so that you have a positive self-image.
May the Force be with you!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.
This article was proudly contributed by Zest Chia. He represents an Independent Financial Advisory Firm and sees himself as a Jedi master trapped in a young padawan’s body. To contact him regarding Financial Planning or to learn about the finer points of wielding a light sabre, he can be reached at 9675 9587.