Rhyme and reason in personal finance

Question: Is personal finance restricted to left-brained people?—Psychologist working in the human resources department of a company

Answer: It is interesting to see what you can read on the Internet. National Geographic or Nat Geo, for instance, has several articles about the human brain. Nat Geo’s article titled “Inside the Brain” says that the brain’s left hemisphere is responsible for language, analytics and human reasoning. On the other hand, the brain’s right hemisphere produces creative, artistic and spontaneous thoughts. For a person practicing personal finance, there is definitely a great use of the left part of the brain when it comes to crunching numbers, formulating budgets, setting financial goals, performing complex investment math and tracking performance.

But thanks to the rise of financial planning, personal finance is now as much a right-brained activity as a left-brained one. Financial planning covers not only hindsight and foresight but also insight.

First and foremost, financial planning brings back the “personal” nature of finance. Money is after all just a tool to achieve financial freedom as it relates to major life events like getting married, supporting a family, sending children to school, buying or financing a house acquisition, buying a car and even preparing for retirement. It’s like balancing a long feather on your palm. To balance the feather, you focus not on manipulating the position of your palm, which is the tool, but on balancing the far end of the feather, which is your goal.

To reach goals, a good budget is needed. Just like goals, budgets need to be SMART. That is, budgets need to be Specific, Measurable, Achievable, Realistic and Time-bound. Budgets that are not SMART will produce only “bad-gets.” And while we are on the topic of SMART goals and budgets, targets that are too lofty will only degenerate into “far-gets” that will eventually turn into “forgets.”

The same Nat Geo article says that yawning may actually be the body’s way of keeping us alert by expanding the pharynx and the larynx, thereby allowing for more oxygen intake that the brain needs to function properly. Yawning in personal finance is akin to a wake-up call to the brain. It should be read as a warning sign that consumerism might be creeping in.

As human beings, we always want what we don’t have and easily get tired of our current charmed life, which was once just a distant dream. A family vacation in the province is simply not enough anymore. We “need” to spend it in a foreign land. The once indispensable landline has now been replaced by the ubiquitous mobile phone. Personal computers that were once limited in their location in the home by the length of their power cords have been replaced by Internet-enabled laptops and tablets. I should know as my daughters and I are each using laptops in a mall coffee shop on a Sunday afternoon as I am writing this article; they’re doing their homework while I am trying to beat my deadline for this column.

Personal finance teaches that as we yawn at what we own, we should never forget about the bigger things in life. This boredom with what we have can be dangerous to financial health as it can motivate us to live an income level that is higher than what we actually have. A yawn, when misread, can lead to the desire to own through a loan that can, in turn, cause you to groan when amortizations strip you down to bare bones. Debt can be a TRAP if you don’t mind the Time you pay, the Rate of interest you pay, the Amortization you pay and the Principal you borrow and repay.

The Nat Geo article also says that stress can interfere with the brain’s functioning. Sleep deprivation can be related to stress as nerve impulses that are always racing to your brain at their top speed of 402.5 kilometers an hour can keep you awake. A body that is deprived of the proper amount of sleep will develop “microsleep” where the brain shuts off for a few seconds at a time. A person suffering from microsleep could actually lose track of a conversation or a task. People who are under the control of individuals suffering from microsleep could easily sneak in a dishonest financial request or two during these bouts of reduced consciousness. If this happens to you, imagine the potential financial consequences.

Moreover, you will need to control stress or else your will to live might just turn into your wheel to leave this life sooner than your appointed time. And you know very well that life insurance will not cover that.

If you want to learn (about) and earn (from) the rhyme and reason in effective personal cash, debt, risk and wealth management, attend the EnRich training scheduled on May 16, 2012. A limited number of human resource practitioners will be allowed to attend for free. Visit www.personalfinance.ph,email [email protected] or call (632) 216-1541 for more details.

At EnRich, we welcome both left- and right-brained participants.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected]. To learn more about the RFP program, visit www.rfp.ph or e-mail [email protected].)

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