I like to share with you a term that I learned fro Bro. Bo Sanchez, author of the book “My Maid Invests in The Stock Market,” psychological wallet.
What is psychological wallet and why you need to increase it anyway?
On our way home one night, my girlfriend was sharing with me a discussion she had with 2 of her law school classmates before. They were talking about how they differ in monthly salaries and yet they all seem to struggle and live from paycheck-to-paycheck.
My girlfriend even mentioned that one of her classmate was making only P12,000 a month (half of what my girlfriend makes), yet my girlfriend is not better off financially. Yes she can afford more things than her classmate, but when it comes to wealth, they’re just the same.
She said to me that she still remembers the time when we were both making close to minimum wage, while working in a government agency, and dreamed of earning P20,000 a month. That was 2009 and we felt that making that kind of money monthly is already big. We felt that P20,000 a month will be more than enough to cover all our wants and needs and still have enough left to put aside for savings.
Fast forward to 2013 and my girlfriend is now making more than the P20,000 that we dreamed of making 4 years ago (we both actually reached that amount in our next job after we left the government agency). She now has a bigger monthly salary but the financial struggle still continues. She realized that bigger income is not necessarily the answer to financial problems, sometimes it leads to bigger problems.
I told her welcome to the rat race, where bigger income means bigger expenses.
I’m sure a lot of you feels what she feels, believing that bigger salary will be the answer to your financial solutions only to find out that bigger salary usually means bigger expenses.
The quick and obvious solution of course is to have proper management of money. Living on a budget and not spending too much on wants are key things that people need to learn so that they won’t have to struggle financially.
But that’s easier said than done. It’s not easy to live on a budget and prevent yourself from purchasing that lovely new dress or that new model phone that the store offers at 0% interest and to pay on installment. And why is that?
It’s because of your psychological wallet, a term Bro. Bo shared in one of his talks. Bro. Bo mentioned that the one reason why a lot of people spend money when they get promoted or receive a bigger amount of money than the one they’re used to is because of the money that they receive doesn’t fit their psychological wallet.
Your psychological wallet is the amount of money that you’re comfortable to receive, or the amount that fits who you are. A person who receives money that is greater than the amount in their psychological wallet usually doesn’t know what to do with the excess money, thus they just spend it.
A good example of people who are like this are lottery winners.
Most lottery winners usually end up squandering the wealth that they won within months. They spend lavishly on luxurious items, and gamble away their money. They feel that the money they won is infinite and they won’t run out of it. And this is because most of the lottery winners are not prepared to handle that kind of money. The money they won don’t fit their psychological wallet. It doesn’t fit lifestyle, their personality, so they resort to just spend and spend and spend, thinking that the money won’t run out, only to be surprised one day that they have no more money and they have a lot of debt.
So how do you expand your psychological wallet?
Through financial education.
Being educated financial will help people prepare themselves on what they need to do in case they come in possession with big money such as winning the lottery, getting promoted or getting a raise.
Why do you think the rich have no problems when it comes to handling big money? Because they are educated financially, they know what to do with the money that they have. They know how to make it grow and how to make it work for them so that even if they spend it, parts of it still earn them money.
So its important to educate oneself financially, not only to be rich and have a secure future, but also to be prepared in case you come in possession with big amounts of money.
Earning big amounts of money is not the key to achieving financial wealth, but learning to keep it and make it grow and work for you is.
Source by JeanClaude Diguangco Arnobit