Largest number is not the end goal
Morgan Housel’s thought-provoking book The Psychology of Money starts with stories of two men.
The first man is a learned man who earned good money and had a patent in his name, but he ended up bankrupt because he used to spend more than he earned. The second man is a humble man who worked as a car mechanic and janitor but died with millions in his bank account.
Guess who was good with his finances: the first man or the second?
I'll come to the answer in a minute.
I’ve friends who invest in the stock market and know less about investing than I do. And many times, many of them book more profit in a year than I do. Whenever it happens, I think of getting my money out of boring index funds and investing in high-growth, popular technology stocks.
But then I remember, ending up with the largest number in the bank account is not the end goal of personal finance. For me, good personal finance means:
- Earning a satisfactory amount of money while enjoying the job
- Spending less than what you earned and making sure that you spend for joy, not impressing peers
- Safely investing the rest of the money and not bothering every minute how your investment is doing Having enough funds for your emergencies and helping your loved ones
Whenever I think of investing my money in riskier assets, I remind myself that there are more aspects to good personal finance than grow, grow, grow. It helps me cool down and not envy my friends.
Now, let’s call back the stories of two men. Who’s good at personal finance, the first man or the second man?
The answer is, we don’t know. Because we don’t have enough facts. Yes, the second man ended up with a lot of money in his bank but did he enjoy his life while growing his money? Did he enjoy his job while earning the money? We don’t know. What we know is that he ended up with a lot of money.
The conclusion here is that achieving the largest number is not the end goal, enjoying your life while staying financially independent is.