The Philosophy Of Personal Finance

Eastern philosophy is based on the concept of balance. The symbol of Yin / Yang illustrates the theory. (If you can not visualize this symbol, a Google search will lead you to several illustrations of the Yin / Yang.) Day and night, good and evil, pleasure and pain, inner strength and physical strength are examples of opposites that need each other in order to maintain equilibrium.

The approach commonly used in personal financial planning focuses on a rigid set of rules that works well in business budgeting but fails too often when used by individuals. In developing a business plan the primary day-to-day expenses, such as rent and utilities are identified first. Then the next level of expenses is listed, and so on. Having all expenses prioritized in this manner allows for a systematic reduction of expenses when income targets are not met.

Individuals are told to do something similar. Review all personal expenditures and categorize them into two categories, "needs" and "wants", forming a table.

After you pay for all your "needs", you can then decide which "wants" can be fulfilled with whatever money that's left after the "needs" are paid for. People fail to meet their goals with this system for several reasons:

1. We live in an "instant gratification" society. We're encouraged to buy now and pay later making the distinction between "needs" and "wants" difficult.
2. The rigidity of partitioning all expenses in a table form is intimating requiring a level of discipline that few people have.
3. No expense fits neatly into either category. For example, you can pay $ 500.00 a month in rent or $ 5,000.00 a month. There's no question that you "need" a place to live but there certainly is a "want" component in determining how expensive a place you decide to live in.

Developing this table is an effective starting point; after all you can not reach your goal of improving your financial health without knowing your current position. It's from here is where the concept of balance comes into play.

Visualize Yin / Yang in your mind, the black half is your "needs" and the white is the "wants". There is fluidity in the boundary between the two halves of the circle. The "needs" and "wants" of your life not only continually cross back and forth but will straddle the boundary.

It's only after you recognize this fluidity can you focus on understanding what you need to do and begin to implement your changes.

If you're serious about improving you personal finances you need to acknowledge that it's going to take time. No major change in life happens overnight. It's also not going to be easy and mistakes will be made. Is it surprising that oriental philosophy also holds perseverance in high esteem?

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