Perspectives on Finance

In my normal daily reading I come across lots of different ideas on finance – invest in this or that, diversify or put everything into one basket and so forth and so on. Lately I’ve seen at least twice people talking about avoiding budgets because they enforce a mindset of lack of money or a mindset of scarcity. I have written previously about a focus on spending – and I admit I hadn’t thought of the mindset behind it. The average Australian full time employee earns $1585.30 per week (gross I think) according to the Australian Bureau of Statics (see this page here) which is $82,435.60 per year (pre-tax again). Pop that into http://www.globalrichlist.com/ and the average full time employed Australian is in the top 0.26% of the world!

From Global Rich List (http://www.globalrichlist.com)

Wow! Even the average Aussie is ranked incredibly highly if this site is to be believed. Even if you only make $25,000 in Australia, then you are still in the top 6.4% of the world! Naturally living is expensive around here, but even so – imagine taking that kind of money to Zimbabwe or Indonesia or another country where things are so different. I looked at that Global Rich List site and suddenly felt a lot more wealthy indeed – it’s all about perspective. In Australia I might earn the median salary, but globally I’m a rich fat cat! I feel like an “Aussie Aussie Aussie” chant should come on.

But back to perspective. Whether you focus on restricting by budget or managing by spending, I think the outcome should remain the focus and the perspective will be shaped by that. Do you want to be rich and if so, why? Do you want to retire early and if so why? And what will you do once you are retired? It’s no good to drive towards these things without having thought through where you want to end up (at least in a general way). I’m not saying you have to have it all planned to the nth degree, but that might be handy. And just saying “I want to be rich” is a bit vague. After all, what is rich to you? According to the stats I just wrote, chances are that in a global context you’re already rich – but in context of where you live etc, what does rich mean then? And once you reach that goal what next? Stockpile cash? I’m not saying any of these things are bad and your perspective on money will shade whatever way you turn on this.

Personally, I’ve used the budgeting method to get freedom from worrying. Even at the end of a pay fortnight, when my spending accounts are at zero and I’m staring down the barrel of having to restrain my purchasing impulses all the major bills are paid, I’ve invested in savings and my loan paying accounts are adequately funded. Stress managed! Now that I focus on spending, it’s less likely (but still sometime happens) that I end the pay period broke. Usually there’s still a few dollars in the kitty that I roll over to the next week. So I’m going out on a limb and say that maybe a combination of budgeting and focusing on spending can bring you to financial success, whatever that looks like for you. I don’t have a perspective of scarcity, but I am aware that money is a renewable resource and has to be managed. What works for you?

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