Welcome to this month’s newsletter. I would like to discuss an interesting phenomenon I have noticed. It concerns how we handle the money we have in the bank and the money we seem to have in our heads.
I have noticed that there are incredible similarities in the way that we manage money at home and at work. For example, most of us mainly focus on our gross income, not our net profit or surplus:
At home: most people can tell you how much their gross pay is per month. However not as many can tell you how much their after tax (or net) take home pay is, let alone how much surplus they have left each month after expenses;
At work: most business operators can tell you how much their total revenue is per month, but very few can tell you how much net cash profit remains for the business after expenses and taxes are taken out.
You can see that we can quite simply put this situation into the category of “how we do anything is how we do everything”. Our money management habits spread from our home into our business and from there into our investing and financial management.
We walk around thinking our job or our business is making us $XX,000 per month, when in actual fact what we have left over after expenses is far, far less.
But why do we not confront the obvious? After all, we do know that it is the NET profit for a business or the NET surplus for a family that we really should be focussing on, if we are to get ahead financially.
As I dig a bit deeper into why I would do the same as most people would, my guess is that it is the pain that is driving us away from confronting the obvious. It is a lot less painful for us to simply put our attention on the future potential revenue, than the current “miserable” net profit or even loss. We learn to put our attention on a potentially more desirable outcome in the future in order to avoid confronting the current pain again and again.
In other words, when situations are not meeting our expectations (which is the case for most people since most of us would prefer to have more money than we currently have), we seem to prefer to look at the money we think we have in our heads, rather than the money we actually have in our bank.
Because we don’t give ourselves a chance to accept the current reality, the new and more desirable reality is unlikely to arrive. Just like a cup that exists on the table in front of us, if you don’t accept its current location, you’re unlikely to be able to move it to a new location.
By the same token, I think we need to learn to accept the money that actually exists in the bank first, regardless of how ugly it may be, before we can eventually experience the money that only exists in our head.
After all, money can only actually arrive in the bank. There is nowhere for it to be deposited into our heads.
Until next month, happy investing.