Finance 101: A New Psychology

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YoungBlackProfessional Network & Charlier Paul
May 02, 2024

Finance 101 Recap

In the Chained to Consumerism newsletter, we explored African American consumer behavior, starting with insights from the 1954 film "The Secret of Selling to the Negro" discussing how consumerism harms long-term financial stability in Black communities and urged readers to rethink spending habits and resist societal pressures to buy non-essentials for social approval.

In the Broke by Monday newsletter, we explored personal finance in the context of classifying expenses as wants versus needs. Acknowledging the subjective nature of expense classification, we discussed the influence of personal psychology and external factors that leave many of us living paycheck to paycheck. It leaves off with tips on how to classify expenses as wants or needs.

Key takeaways 

As we wrap up the series on personal finance, allow us to introduce an additional framework that financial advisers believe is an essential part of everyone’s personal finance management journey:

  1. Understanding the Purpose of Money

  2. Understanding your Philosophy of Living

  3. Align your financial habits with your Philosophy of Living

The Purpose of Money

As discussed in our previous newsletters, we in the black community must shift our mentality regarding money and its purpose. 

Instead of viewing money as an object to purchase non-essential goods and services for prestige and social approval, consider a new perspective:

  • Money is a limited resource and tool.

  • Money is a means to an end.

Money is how you can enhance your quality of life and live the life you desire. Your management of your finances and spending habits must align with your long-term goal.

Spending such a precious resource on fleeting things will only take away from your quality of life. 

Philosophy of Living 

Before devising a financial management strategy, you must take time to reflect on your individual goals and aspirations. You must understand your Philosophy of Living. Otherwise you risk the misalignment of your financial plans and long-term goals. 

Philosophy of Living = Values + Ambitions + Goals + Desired Experiences 

Financial advisors often say “Financial advice is not one size fits all, the best financial advice is one tailored to your specific long-term goals and dreams.”

For us (the authors of this newsletter you cannot wait to tell your friends about) this reflection always brought us back to how much of our valuable time we spent on our 9 to 5 jobs. 

How tiring is the 9 to 5 grind? 

Even the most slow-paced office job takes that emotional toll and leaves us wondering whether to skip work or even quit altogether. 

Coupled with the fact that the past 50 years have seen a rise in the standards of living and resulted in many experiences that were once reserved only for the few, accessible and affordable to many. 

There are now abundant opportunities to experience and do things that one could only dream of just a few short decades ago. Why sacrifice the majority of our time just to make ends meet when we could explore, travel, and live life fully each day.

We value our time. We want to spend time with our families, being active, reading, traveling without the bind of the 9-5 social contract. Consequently, achieving financial independence became a key component of our individual financial management strategies. 

Financial Independence = having enough money to live the life you want without income from a job (unless you want one).

We are both aiming for Financial Independence because it would fulfill a key component of our philosophy of living. Being financially independent gives us the freedom of choice on how we spend our time. 

Now that we understand the purpose of money and have our Philosophy of Living serving as the compass directing our financial habits, we can now proceed with creating the financial strategy that will aid us in achieving Financial Independence. 

Self Assessment 

We encourage you all to take some time and do the following self-assessment to ensure your habits align with your philosophy of Living:  

  • Set aside time for reflection:

    • Define personal goals (long-term and short-term), values, and ambitions.

    • Reflect on current spending habits. 

    • Do your current financial plans contribute positively to your overall philosophy of living?

  • Understand the role of money: 

    • Money is a means to an end, it is crucial to align your financial decisions with your life objectives.

  • Identify areas for improvement: 

    • Pinpoint all unnecessary expenses/spending habits areas where your spending habits may be hindering your progress toward your goals.

    • Calculate the financial cost of that habit.

  • Create a plan for financial alignment: 

    • Develop a concrete plan for managing your finances in a way that supports your goals and ambitions. 

    • Set actionable steps and milestones to help you stay on track and make progress towards the desired outcomes.

  • Regularly revisit and adjust: 

    • We encourage you to make adjustments as needed based on changing circumstances or priorities.

    • Celebrate progress along the way!

Thank you for your time, and look forward to our next newsletter!

Money is a terrible master but an excellent servant - P.T. Barnum

References

What is financial independence and how can you achieve it ?https://www.fidelity.com/learning-center/personal-finance/how-to-retire-early

The Most powerful way to think about money by Paula Rant
https://www.youtube.com/watch?v=ugIuHWc6Nuc&t=134s

The Psychology of Money by Morgan Housel
https://static.booktopia.com.au/pdf/9780857197689-1.pdf