Save More, Give More: My Psychology of Money

Wealth is not about having a lot of money; it’s about having a lot of options.

Chris Rock

I recently read an amazing, no-nonsense book on wealth and finance called The Psychology of Money by Morgan Housel. I highly recommend this book to anyone – at any age and at any level of income – to gain some practical insights on how to achieve financial freedom.

But what is financial freedom in the first place?

To me, it’s not about having a house or luxury car or designer items. It’s also not about running a self-owned business that can earn a lot of money any given month. It’s not even about just doing whatever you want at any time of the day (because I believe freedom doesn’t necessarily mean a lack of structure).

To me, achieving financial freedom is having less reasons to worry about your financial status.

It’s about having savings stashed somewhere safely for emergencies. It’s about having investments that can make potentially competitive gains, especially when compared to inflation and costs. Most importantly, it’s about the mindset to learn as much as you can, change tactics if necessary, and stay calm in the midst of difficulties. Savings, Investments, Mindset (SIM), for short.

Though I’m a long way to go from my own goals for financial freedom, I’m happy to say that I am starting to have less reasons to worry – thanks to an emergency fund and some investments I’ve built up over the years.

But it really isn’t that simple. The SIM formula is something I’ve struggled with for a long time and have had to change or challenge in my own ways, and the nuances that I’ve arrived at to have my own humble psychology of money is the end result of reading a lot of books, having conversations with people who have attained some financial freedom, observing my own spending or saving patterns, and being conscious of the influences of the people around me (e.g. my family) on my finances.

In brief, these five principles form my own “psychology” of money and I hope they could help you in your own journey to financial freedom:

1) In money, ignorance is not bliss. Learn, ask questions, read the fine print.

I can count the first day of my financial journey as the day I read Rich Dad, Poor Dad by Robert Kiyosaki. Though there have recently been criticisms of the guy, I will acknowledge that he shares a very convincing and engaging picture that will make you remember that understanding and taking control of your finances is one of the most important things you can do to help yourself. The book changed me, and pushed me to learn about a whole range of things they never mentioned in school – things like the stock market, insurance, and debt.

Today, I credit this eagerness to learn everything about personal finance as one of the main reasons I’ve been able to take a few steps into my financial freedom journey. The good news is that there are so many ways to learn. Books, podcasts, Netflix series (like Money, Explained), YouTube videos, Woke Salaryman illustrations, even Reddit (/phinvest) have all counted towards my journey.

Of course, it has not always been successful. Looking back, the times I lost money or made financial mistakes were also times that I didn’t bother asking enough questions or reading the fine print. Even though learning isn’t the perfect step towards financial rewards, it helps a lot for you to understand the options and risks involved.

One more thing: You can’t know everything about the future, so one thing to be certain about is that you can never be perfectly certain about the future. So you have to prepare for that uncertainty.

Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.

Morgan Housel

2) Your financial attitude is influenced by your level of privilege and your upbringing. Reflect, adjust, exercise empathy.

I read somewhere that success can often just be the omission of details. We, as human beings, like to show that we’ve made it on our own, and we like to downplay how our family, level of privilege, and luck have propelled us to where we are. I wholly agree.

I was raised by parents who were very conservative with their finances. They aimed to save a big portion of their income. They minimized our expenses, sometimes to the point that it no longer seemed to make sense (i.e. opting for cheap unhealthy food). And in their business dealings, they also approached decisions with a very low-risk mindset. Their attitude – and the financial stability this produced for our family – is something I will always be grateful for.

However, I also now acknowledge that I’m different from them and that I have different priorities. For instance, I want to try investment or business opportunities that may carry more risk but also higher possible rewards, so I’ve had to reprogram my mind to be less risk-averse.

I also know that I am one of the lucky ones. Many Filipinos come from families with less financially stable backgrounds, and thus start the race at the very back of the line. Although a smart financial mindset can help, we also need to exercise empathy to acknowledge that not all of us come from the same background – and, more importantly, that structural changes need to happen in society to aid those who are less lucky.

Financial freedom isn’t just a function of the level of financial education; it’s also a function of how well our society and economy work for the benefit of the people.

Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.

Morgan Housel

3) It all starts with an attitude of saving.

Most financial advice centers around the principle that you MUST save MORE than you spend, which I believe cannot be understated. Most experts say that you have to have at least 6 months worth of emergency fund (EF) saved up (i.e. 6 months’ worth of your total living expenses).

We all earn at different levels, and of course there is value in striving to earn more through different ways, but those higher earnings will matter little if our expenses rise in tandem. Unfortunately, in a world where we are constantly bombarded by ads on websites, social media, and beyond telling us to buy and spend and splurge, it can be quite difficult to do so.

As physical stores started to open in the past few months, I found myself developing a new habit: retail therapy. Because there were few opportunities to travel or over the pandemic, I started feeling a kick of giddy excitement when I bought something at the mall, or when I added to my online cart. These were small things, but over time, I realized I had been spending a lot. I had to fix it.

Luckily, I reinforced the habits that have helped me for years to increase my savings rate. I tracked my expenses more religiously through a mobile app I use (MoneyLover). I committed to setting a monthly limit to my expenses. And I made sure to check my savings and investments every month to show myself what progress I’ve made (and why it’s important not to undo the progress).

After you’ve built that 6 months’ EF saved up, it’s time to turn to investments.

The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.

T.T. Munger

4) There are many ways to invest, so choose the method that’s right for you. Don’t give in to hype.

Through the years, I’ve classified (albeit very generally) some of my investments in the following ways:

• Stocks (owning a piece of a company that I believe will have good profitability over the years)
• Bonds (lending money to a company for a fixed period of time, with which you earn interest)
• Mutual funds (owning a set of stocks and/or bonds from a pool managed by a different entity, for which the entity will charge you a fee, believing that the entity will capably provide good returns over time)
• Crypto (owning a blockchain-enabled digital currency that will hopefully someday increase in value)

If you noticed, I used the term “over the years”, “fixed period of time”, and “someday” because my investment horizon is long-term, meaning I expect to invest an amount of money now that I don’t have to use for at least 5-10 years. My risk appetite is probably between medium- to high-risk.

I’ve chosen these investments because I’ve used money that I don’t need now and can tolerate the risk of losing a portion of that money in the worst case scenario. If I used money that I would need pretty soon or if I can’t lose any of that money, I would probably invest it in another way.

What investments are right for you? There are many tools you can use to determine that (such as this basic decision tree). Some investment firms also give you tests or indicate the time horizon or risk appetite that would be ideal. Again, study in detail.

Don’t give in to hype as well. For a while, everybody wanted to get into crypto, but the massive volatility of Bitcoin, Ethereum, and other top coins and things like NFTs should get us thinking more about what we’re getting into.

In an unstable and uncertain economic landscape such as the one we have today, my piece of advice for beginner Filipino investors would be to check savings accounts offering high-interest promotions (offered by digital banks such as Tonik, CIMB, or Maya). They currently give returns (4-6%) which are much, much higher than traditional savings accounts.

Never depend on a single income. Make an investment to create a second source.

Warren Buffett

5) Lastly, create your own psychology of money because every one defines financial freedom in their own way. You do you.

One part of my financial journey that may be different from others is my significant spending – mostly time and energy, and some money – on an item that doesn’t technically yield a financial return: volunteer work.

For 10+ years since my student years, I’ve been working for a non-profit organization called KRIS promoting peace and development through education and youth leadership in the Philippines. Though the expenditures are no small matter (including most of my scholarship money from college, plus about ~10% of my salary per year), the biggest investment I’ve made for KRIS is the time and energy which could have been spent on another things (i.e. opportunity cost).

But, to me, every second and every peso spent is worth it because I believe I am doing value-adding work that will hopefully create positive impact for others. I know that I am lucky to be able to do this because I come from relative privilege, but I acknowledge that not everyone will think this is the right thing to do.

Regardless, if you spend money and time and effort on things that create meaning and joy for you (especially if you do it smartly), then that in itself is already a step up the success ladder. Many of my friends love to spend on their family, travel, hobbies, sports, and passion projects – and no amount of money can replace the feeling of fulfilment and happiness that they get.

Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.

Morgan Housel

Ultimately, your money journey should form part of the larger picture of your life journey. And as with other parts (your family journey, your fitness journey, your career journey), you have to make decisions that speak to you and to your goals in life. It’s not going to be the same for everyone.

Good luck!