Since reading some comments on my last post, I had been thinking about what this whole deal with “personal finance” is about; is it about making the most amount of money? or is it about saving the most amount of money? or is it about spending the least amount of money? or is it about reducing stress due to money matters? or is it about this obscure concept called “financial freedom”?
The more I think about it, the less specific I get about possible “correct” answers to that question. In fact, looking back at my life, it seems that at different times, a different answer suited me depending on my financial and personal situation at that time.
What came out of this thought process was the realization that personal finance is not just about “maximizing money” - as I used to think earlier - and like most people probably think about it.
It’s not about maximizing. It’s about optimizing.
Given a financial situation, personal finance is about making the best of that situation. Sometimes it means trying to make as much money as you can, and at other times it means trying to make your money work to make you more efficient by reducing your stress, and at some other times it means that you save every penny to make sure that your children don’t inherit your burden of debt.
There is nothing wrong in trying to “maximize money”, but it is important to realize that, depending on your personal situation, there are costs (in terms of stress and time) associated with trying to do that.
Examples are numerous (but vague and difficult to explain) in this area, but a simple one would be to think of a job in which you are paid overtime. Every extra hour you work might mean that you will become richer than the previous hour, but it does not mean that you would be stress-free - or that you would be able to devote enough time to your family. If you overdo it, it wouldn’t be too hard to make yourself and your family feel miserable even with the extra money you earn.
Working your ass off for a few extra bucks might be a good idea when you are a bachelor with hardly any cares in the world, but if you are a family man, then you might be better off by working a little less in lieu of spending a little more time with your family. Now, just because you gave up that little extra money to spend time with your family or to reduce your stress, it does not mean that you are careless or frivolous with your personal finances. In other words, just because you chase every penny, it does not mean that you are an epitome of financially astute people. 
In general, for the sake of the betterment of the whole universe and your own self, try optimizing your money instead of maximizing it. It also helps to reevaluate our understanding of “personal finance” in perspective of our changing personal situation and revise our money-chasing efforts accordingly.
Duh!
{ 17 comments… read them below or add one }
Great post. I believe that more people should integrate their financial goals with their life goals so that a work-life-money balance is achieved. Saving or being frugal for its own sake is not fun and not life enhancing.
Beautifully stated. Yes. Being responsible sometimes means being NOT as frugal as you could be. And being reasonable often means you let a few extra pennies go.
Interesting post. But for me, personal finance main goal is really financial freedom. It means you have enough cash flow to do the things you want in life like spend time with family, do things you’re passionate about etc…You get this by spending less that what you earn, increasing your passive income and ensuring you have enough money in your emergency fund.
“It’s not about maximizing. It’s about optimizing.” this says it all. I think time efficiency is huge because you can work 1 hour and be just as productive as 10 hours. Maximizing productivity optimizes income
Informative post. I recently heard a quote about financial freedom that really jumped out at me. “True financial freedom is being able to wake up in the morning and have the power to decide how you will plan your day”. Being in charge of my own time and earning potential is the ultimate way to maximize your time and minimize your stress.
Thanks for this great post! I think it is important to arrange your goals in such a way that it coincides with where you are in your life. For instance, like you said, if you are a bachelor, you can work more, because you are all you have to take care of. But if you are a family man, then it may be that you need to worry less about making a few extra bucks, and a little more about spending more time with your family.
I think the whole Personal Finance field is filled with people wanting to better themselves, have more time for themselves and maybe become financially independent in the long run. It just so happens that money - it’s savings, the lack of spending, optimising as you say - is the vehicle for all those other things to happen.
In one of my recent posts, I asked the question “Who do you Consider Rich?” and my conclusion was that it was those people with time to do volunteer work, hobbies and generally do whatever gripped their imagination … it just so happens that this is possible through the use of money.
@stock:“It’s not about maximizing. It’s about optimizing.” this says it all. I think time efficiency is huge because you can work 1 hour and be just as productive as 10 hours. Maximizing productivity optimizes income. I agree as it more about optimising your potentials
And there is what some alternative?
I can say only one thing - Work smart, not hard.
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I can also agree to say only one thing - That is Work smart, not hard.
I would say it is about finding your personal equilibrium point between all of the three main points you mentioned, and optimizing that equilibrium point.
Till then,
Jean
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