❝If you want to hit me with logic, I don't want to chit-chat.❞ -Dean Martin
When most people think about personal finance or any subtopics related to finance, they often conjure up images of spreadsheets, equations, and complex terminology. And while it may be true that finance contains complex terminology and equations often tracked and analyzed in spreadsheets, it’s also true that many people overcomplicate matters. Nonetheless, whether people think of personal finance as complicated or simple, the default setting for most people when they think about personal finance is to think about what to do with it.
Yet, few people stop to think about their relationship with money. All of the financial knowledge in the world will be useless if we find ourselves unable or unwilling to do anything about it. Many people overspend or don't save enough, and it is not because they don’t have the knowledge.
Implementing financial knowledge is the often overlooked side of personal finance. It turns out that simply having information isn’t enough. There are two sides to the personal finance coin.
TWO SIDES OF PERSONAL FINANCE
If you want to improve your financial health, then you will need information. We need to know how to handle money and what to do with it.
It’s just that information isn’t enough. Even if you have all the data and information, you need to think it’s important to implement, have reasons to implement it, want to do it, and have confidence in your ability to do it. Information is only part of what you need to improve your financial health.
Information falls under the realm of exterior finance. Motivation falls under the realm of interior finance. Let’s talk about exterior finance first.
Exterior finance is the part of personal finance that applies to everybody. It’s outside of us and exists “out there.” Think of exterior finance as the nuts and bolts of how money works - or the mechanics of money.
As stated above, most people think about this when they think about money.
You’ve no doubt read articles about exterior finance. Exterior finance is about strategies and tactics, and so every time you see a listicle (clickbaity articles written as a list), it’s generally an exterior finance article. They have titles like “The Five Things to Do Before Tax Day,” “The 10 Things Most People Forget to Do,” or “Seven Things to Do Before You Run Out Of Time.”
Effectively, exterior finance is tactic- and strategy-based, which means it’s heavy on the equation side. It’s finding optimal solutions. This doesn’t mean there’s no personalization involved because the optimal solution will differ depending on individual people. It’s just that it’s on the numbers side and not so much on the human side.
Interior finance, on the other hand, happens inside of you and is different for everyone. Interior finance lies underneath exterior finance. Exterior finance is important, of course. It just relies on having paid attention to interior finance.
Some people have a friendly relationship with their Money Story.
Others feel like their Money Story is out of control, and they are always trying to catch it.
Others feel like their Money Story has control of them.
Improving your relationship with your Money Story is the first step to building a solid foundation upon which exterior finance can lie.
INTERIOR FINANCE AS A FOUNDATION FOR EXTERIOR FINANCE
Exterior finance is important, and everybody knows that. Therefore, it’s common for people to address exterior finance while ignoring interior finance. By ignoring interior finance and focusing just on exterior finance, you may have trouble implementing and/or sticking with your new strategies.
If you ignore interior finance, then you may be trying to build exterior finance on a cracked foundation. This may be a situation where no matter how good the advice was, you’re in no position to implement it. You’re in no position to stop financially enabling your children. You’re in no position to start saving for your future. You’re in no position to handle stock market risk. You’re in no position to get your spending down.
The best advice in the world won’t help you if your foundation is cracked.
If you try building too much on top of a cracked foundation, the whole structure will come down. It’s possible that you can even make things worse.
If you overspend and try to cut your spending by depriving yourself, you may relapse and end up spending more. If you’re giving money you can't afford to your children who shouldn't need it, you might try offering an ultimatum. But, if you give them money despite the ultimatum, you've taught them that your words don’t matter. If you are nervous about the stock market but invest it anyways, you may panic sell after a significant dip.
It’s important to address your relationship with money because it serves as the foundation for the financial strategies and tactics that you need to put in place. By addressing interior finance first, exterior finance becomes relatively easy.
Understanding that there are two sides to the personal finance coin can be eye-opening. It helps you understand that you have a relationship with your Money Story and that you can work on your relationship with it. Doing so can make the financial tactics and strategies easier to implement for yourself.
You get one life; live intentionally.
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References and Influences
Ariely, Dan & Jeff Kreisler: Dollars and Sense
Hagen, Derek: Money’s Purpose in Your Life
Hagen, Derek: Your Money, Your Values, and Your Life
Housel, Morgan: The Psychology of Money
Kinder, George: Seven Stages of Money Maturity
Klontz, Brad, Rick Kahler & Ted Klontz: Facilitating Financial Health
Krueger, David & John David Mann: The Secret Language of Money
Newcomb, Sarah: Loaded
Robin, Vicki: Your Money or Your Life
Zweig, Jason: Your Money and Your Brain
Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.