personal finance for residents of Japan
Retire Japan
  • Home
  • Blog
  • New Forum
  • iDeCo (J401k)
  • NISA
  • Robo-Advisors
  • Further Reading
  • About
  • Consulting
  • Contact
  • J-Pension
  • Wills
  • Taxes
  • US citizens and green card holders
  • Old Forum (archive)

The Three Elements of Money Mastery

8/11/2017

2 Comments

 

Take a seat over there, grasshopper

Picture

There are basically three things you need to become capable at if you want to do well with your personal finances.

  • Earning money.
  • Saving money (not spending it all).
  • Investing money.

Being good at one of these and bad at the other two is a recipe for poverty. Just ask Mike Tyson, who earned over $400 million and ended up declaring bankruptcy and appearing in sketchy movies to try to pay his debts ;)

If you are good at two out of the three you will do okay and be comfortable.

Master all three though, and amazing things happen.

The interesting thing, and this came up in a Facebook discussion yesterday, is that there seems to be an optimal order in which the three elements should be learned.

Learning to save, to spend mindfully, to become frugal is the base. If you haven't made this a habit yet earning more or investing like a genius won't help as much as it should. This is the reason lottery winners often go broke: they hadn't mastered spending when they got all that money, so they just spent it all. This is also why receiving a large inheritance can be so dangerous for many people who aren't used to managing money.

Once you have figured out how to live below your means and use your money effectively so that it provides happiness for you, earning more turbo-charges the process. If you are happy spending x, then anything you earn over x can be saved or invested without affecting your base happiness. For frugal spenders, earning more has unlimited potential: there is no upper limit on how much you could earn.

Investing is usefully seen as a way to keep your money or grow your money, as opposed to a way to make your money. Trying to invest your way to riches is unlikely to work, and can lead you to make risky decisions.

The safe and steady approach to investing (low cost, diversified, passive) works best with larger amounts of money. It's pointless to focus on investing if you don't have much in the way of savings. Even a world-beating return isn't going to make any practical difference. In a way, this works in our favour: making mistakes with small amounts of money is easy to recover from, and the lessons learned can help you as your net worth gets larger.

What do you think? Have you mastered the three elements? Do you agree that they are best learned in order?

2 Comments
Catherine Haskin
13/11/2017 18:36:39

Very well put and easy to understand. Can you make this into a PDF? I would like to send it to my daughter, she will not read your article on the website.

Reply
RetireJapan link
13/11/2017 21:46:52

Hi Catherine

Thanks!

Now really something I have considered for the site. Maybe in the future...

In the meantime, feel free to copy the text into a word document, then you can save as PDF to create the PDF file :)

Reply

Your comment will be posted after it is approved.


Leave a Reply.

    Author

    Ben Tanaka is a teacher living in Sendai, Japan.

    RSS Feed

    Categories

    All
    2018
    8 Now!
    Amazon
    Blog
    Book
    Budget
    Car
    Coaching
    Credit Cards
    Cryptocurrency
    Desmond P.
    Earning
    Electricity
    Event
    Exchange Rates
    Financial Planners
    Furusato Nozei
    General
    Government Policy
    Guest Post
    Health
    Home Improvements
    IDeCo
    Immigration
    Insurance
    Investing
    J401k
    Junior NISA
    Kokumin Nenkin
    Loans
    Manga
    Mark Brierley
    Mobile Phones
    Monday Read
    Movie
    MYDC
    My Number
    News
    NISA
    Online Course
    Only In Japan
    Pension
    Planning
    Poll
    Portfolio
    Presentation
    Progress Report
    Publication
    Rakuten Wrap
    Reader Profile
    Real Estate
    Renovation
    Review
    Robo Advisor
    Robo-advisor
    Roundup
    Saving
    Scams
    Sending Money
    Spending
    Tax
    Teaching
    Telephone
    THEO
    Travel
    Tv
    UK
    US Citizens
    Video
    WealthNavi
    Website
    Work
    Workshop
    Ziv Nakajima Magen
    Ziv Nakajima-Magen

    Archives

    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    January 2015
    December 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    February 2014
    January 2014
    December 2013

We respect your email privacy

✕