Saturday, December 12, 2009

The Tao of Personal Finance

From the Tao de Ching, I found a fantastic quote that summarizes at least half of responsible money management:

He who knows he has enough is rich.

That is satisficing! When you ask yourself "what do I need" vs "what do I want" it puts your spending into the right perspective.

When you buy fewer things, you don't have to pay as much attention to price. This frees up space in your brain for more productive, or more pleasureful things, like thinking about the next blog post you are going to write.

The first question you should ask when you are buying something is "do I need this." The second question is "can I afford it." If the answer is yes then no - you better be talking about food, basic clothing, or shelter - if you aren't you need to reconsider how you define need. If the answer is yes then yes - great, buy. If the answer is no then yes, it is an affordable luxury and you have to ask yourself the question - do I want this?

Shockingly, after a few years of "do I need this" you find yourself wanting fewer and fewer things, while being able to afford more. And every item you don't buy feels freeing - you aren't trapped by illusory desires, and you aren't wasting your resources.

But, be reasonable. We don't technically need cars, computers, the internet, or cell phones for basic survival. But, they are enabling devices - or, thought of another way - they are investments.

Why do I need a car? Because it saves me at least 40 hours a month in transportation time. Even at $5 an hour - that's $200. Most of my readers are going to be making substantially more than that per hour. I need a car because it is a good investment.

And good investments are one of the most critical needs in modern life.

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