I like to share with you a term that I learned from Bro. Bo Sánchez, author of the book “My maiden invests in the Stock Market”, psychological wallet.
What is the psychological wallet and why do you need to increase it anyway?
On the way home one night, my girlfriend was sharing with me a conversation she had with two of her classmates from law school. They were talking about how they differ in monthly salaries and yet they all seem to struggle and live paycheck to paycheck.
My girlfriend even mentioned that one of her classmates was making only P12,000 a month (half of what my girlfriend makes), but my girlfriend is no better off financially. Yes, she can afford more things than her classmate, but when it comes to wealth, they are equal.
He told me that he still remembers the time when we were both earning close to minimum wage, while working in a government agency, and dreamed of earning P20,000 a month. That was in 2009 and we feel that earning that amount of money on a monthly basis is already big. We feel that P20,000 a month will be more than enough to cover all our wants and needs and we still have enough left to save.
Fast forward to 2013 and my girlfriend is now earning more than the P20,000 we dreamed of making 4 years ago (we both hit that amount in our next job after leaving the government agency). Now he has a higher monthly salary, but the financial struggle is still going on. She realized that higher income is not necessarily the answer to financial problems, sometimes it leads to bigger problems.
Welcome to the rat race, where higher income means higher expenses.
I’m sure many of you feel what she feels, believing that a higher salary will be the answer to your financial solutions only to discover that a higher salary usually means higher expenses.
The quick and obvious fix, of course, is proper money management. Living on a budget and not spending too much on necessities are key things people need to learn so they don’t have to struggle financially.
But that is easier said than done. It is not easy to live on a budget and avoid buying that beautiful new dress or that new model of phone that the store offers at 0% interest and to pay in installments. And why is that?
It’s because of your psychological wallet, a brother term. Bo shared in one of his talks. Brother. Bo mentioned that the only reason many people spend money when they are promoted or receive more money than they are used to is because the money they receive does not fit their psychological wallet.
Your psychological wallet is the amount of money you are comfortable receiving, or the amount that fits who you are. A person who receives money that is greater than the amount in his psychological wallet usually does not know what to do with the excess money, so he just spends it.
A good example of people who are like this are lottery winners.
Most lottery winners usually end up wasting the wealth they earned in a few months. They spend lavishly on luxury items and gamble their money away. They feel that the money they earned is infinite and they will not be left without it. And this is because most lottery winners are not prepared to handle that kind of money. The money that does not fit in your psychological wallet. It doesn’t fit their lifestyle, their personality, so they resort to spending, spending, spending, thinking the money won’t run out, only to be surprised one day that they don’t have any more money and are in a lot of debt. .
So how do you expand your psychological wallet?
Through financial education.
Being financially educated will help people prepare for what to do if they get a lot of money, like winning the lottery, getting promoted, or getting a raise.
Why do you think the rich have no problems when it comes to managing a lot of money? Because they are financially educated, they know what to do with the money 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 make money for them.
Therefore, it is important to educate yourself financially, not only to be rich and have a secure future, but also to be prepared in case you happen to have large amounts of money.
Earning large amounts of money is not the key to achieving financial wealth, but learning how to keep it and make it grow and work for you is.