Money is an interesting topic – it is both very quantitative and rational, as well as a touchy-feely, as people are not very comfortable discussing it. How important is it and how much is enough?
My view on the topic of money has evolved over the last years since I started working and will probably keep evolving. The evolution has been driven by both changes in my income (luckily in the positive direction) as well as my spending habits (key inflection point in our family’s cash burn rate was the birth of our daughter!).
When I think about income, I (simplistically) differentiate three levels – income level necessary for (i) surviving/getting by, (ii) living comfortably (nice house; a family car; school fees; annual holiday), and (iii) spending lavishly (sports cars; multiple homes; designer clothes, etc). There are at least 50 shades of grey between these levels, but you get the point.
I finished my undergrad school with loans, so my first desire was to earn enough to be able to repay the loan and ‘break even’ in my life, which happened after around two and half years of working. That was exactly the time when I went to business school, and went to the red zone again, in a much bigger way. It again took me around two years to repay the loans and break even. At that point, my savings started increasing, and my money desire started changing from the first level (surviving) to the next one (living comfortably) – this was further accelerated with the establishment of a family and arrival of our daughter. It was not only about my comfort, but family’s comfort in the first place.
Even after I reached the ‘comfortable’ level though (which I expected to be my end-destination), the importance of money in my life has not decreased. It may be related to my work where I meet high-net worth people / founders of successful businesses, which has changed my perspective. When I tried to think about why I am still attracted to money, I have come up with the following list:
- Providing for my family and ensuring there is a safety net, should anything happen. I mean not only my immediate family (wife/daughter), but also my parents/broader family.
- Help my child(ren) in their early life/career. I am a bit torn on this one, as on one hand, I realize that coming from humble beginnings may increase their drive and willpower. On the other hand, I want them to pursue in life what they really want to do, without paying undue consideration to financial rewards. As Warren Buffet said when asked about giving money to their children, he wants to leave them ‘enough money so that they would feel they could do anything, but not so much that they could do nothing.’ That pretty much sums up my thinking (although I do not expect to have the same size of ‘problem’ as Buffet..).
- Be able to become financially independent and do what I truly want to do in my life, rather than be dependent on my job with golden handcuffs. I like the idea of working because I want to, not because I need to. At some point, I may want to teach, or maybe even engage in politics – and I don’t want lower income to become a consideration/obstacle to doing that.
- Help causes I believe in through philanthropic efforts.
- Move up on the definition of ‘comfortable living’ by a couple of notches of grey 🙂
The five reasons above all result in spending/distributing the earned money. But there is another reason for wanting to earn (lot of) money – and that is psychological (or ego-driven, if you wish). In certain cultures and certain careers (finance industry in particular), money is a measure for success. It is crude; it is far from perfect; and it is not the only one yardstick, but it is easily understood and widely used. If the incentives are well aligned in your job, you earn more only when you create more value for your customers and your shareholders – i.e. become more successful. There is an external recognition aspect to it, but more important (at least for me) is the internal satisfaction.
I recognize how controversial (or touchy-feely) the subject is, and how difficult it is to speak about it. That may also be a reason why there is essentially no financial education whatsoever at most of the schools in the world, and most children graduate from high school financially illiterate. But money is an important aspect of our lives, and there is no reason for it to be a taboo – transparency and openness about financial topics can lead to a more healthy approach to earning, saving, and spending the $$$.