What is Personal Finance and Why Does it Matter?

I mentioned in my welcome post that we'd occasionally venture outside traditional finance topics. The first deviation we’ll take is into the world of philosophy.

Why do you spend money?

Perhaps it’s to meet a set of needs: like food or shelter;

Maybe it’s to generate happy memories: by travelling or dining with friends;

Or any other reason you see fit.

In the end, you likely aim to spend money on things that bring you happiness and help you lead a fulfilling life. Personal finance is a set of tools that allow you to manage your spending over time to get the most out of your life.

This understanding makes it a lot easier to answer questions like:

Why would you budget?

Budgeting helps you ensure you’re spending money on what brings you happiness, rather than out of subconscious habit.

Why would you save?

Saving money allows you to make larger purchases, like a car or house, which may bring more happiness than a series of smaller purchases. It also allows you to continue spending even after you’ve stopped earning an income, which prevents significant changes to your standard of living later in life.

Why would you invest?

Investing your money provides the potential for you to spend more in the future, which is beneficial if the value of the additional spending outweighs any unease caused by the process.

Why plan for your estate?

Estate planning provides confidence that anything you haven’t spent in your life will go where you intend, which provides happiness and peace of mind throughout your life.

Often people look at personal finance as a set of rules that allow you to achieve objective results like a set account balance for retirement. This one size fits all approach misses the fact that everyone has different interests and preferences. The question for personal finance isn’t what do you have to do, but instead, what can you do with your money to help live a fulfilling life.