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Why Personal Finance is Personal

by The Happy Rock on October 24, 2007

illusion-queen-money.jpgThe reason they call it personal finance is because there aren’t any right answers. That’s right, no right answers. If there were right answers, we could call it something like personal financial decision science. Everyone would be doing the same 20 step program and trying to achieve similar goals.

That isn’t how it works. It is our money. We are all different. We all have our own quirks, goals, personalities, and dreams. Personal finance can not escape that fact that it has to deal with humans, and that is where the personal side of equation comes into play.

Consider two families who just went through their house and de-cluttered. They are both left with a pile of junk, but they decide to do something different with that stuff. One family sells the items through eBay and Craigslist, while the other donates the items to the local children’s shelter. Did either family make a wrong decision? No, they both chose according to their own goals, desires, and values. One was willing to sacrifice income while the other willingly sacrificed the benefits of altruism. One of the tricks to learn to be aware of what our decisions are really costing us.

Sure, maybe the family who sold the stuff will have more money, but that isn’t the goal of personal finance, is it? If it were, we could move closer to a finance science since we have an empirical goal by which to judge all actions. The fact is our money goals are very personal and cover a broad range of topics.

Does that mean some choices aren’t better than others? Of course not. It is still possible to judge the value or helpfulness of a given choice, but it is hard to do without having some understanding of the personal and situational context within which the decision was made.

Ok, so why do I mention this? I honestly feel that we will only cause ourselves trouble without truly understanding the realm in which personal finance decisions are made. In order to make the best decisions and help others make wise decisions, we must be honest about imperfect nature of personal finance. We must be willing to judge actions by not only outside empirical evidence, but also how the decision relates to our goals, personality, and values.

{ 5 comments… read them below or add one }

pfmoron October 25, 2007 at 10:00 am

I couldn’t agree more. Excellent Post.

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m October 29, 2007 at 2:37 am

I agree, context is really important. And I think even better than judging with context in mind is not judging others’ choices (except in terms of whether they’d work for us or not) at all. We can never really know the full context of others’ lives so better not to judge at all, I think.

Great post!

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Harrison November 2, 2007 at 7:17 pm

I think another reason why personal finance is so “personal” is fate. If you are lucky, you can make more money or save more, however if you are bad luck, you have to spend some money to solve problem. This is why emergency fund is very important. We really hard to predict what happen in our life.

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Credit, Debt, Life April 16, 2008 at 5:54 am

I agree completely and the irony is that the whole reason it is called personal finance is that it is personal. It is our finance and yet people tend to assign this responsibility to others.

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Payday Loans Guy October 31, 2008 at 7:14 pm

Finance is largely personal because it is the direct result of our day to day decisions and a reflection of our priorities. Although it is individualized, we are all moving towards the same goal, which is prosperity and more financial freedom.

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