The link between money and value has been well established by the field of economics. But correlation of money and personal value as a function of self-esteem and self-worth has largely remained unexplored. In North America, one of the leading capitalist society in the world, economic and financial values are tied to the worth of an individual, despite the multitude of qualities that person may possess. Since the late 1900’s, the American economic expansion has resulted in the current system, where accumulation of wealth is synonymous with process and growth.1 If history has shown us anything, it is that rendering humans to a series of numbers is anything but good. By understanding how money can be used judiciously, we can begin to reassociate the pricelessness of individuality to human value. This can help us understand that financial independence can be achieved without having countless streams of incomes, or having the status of a billionaire. We can contextualize what financial independence means by looking at the aspects of money that relate to each of our unique experiences. In other words, how much is enough for each of us, individually.
Financial independence can mean one has enough wealth to live comfortably without working for the rest of their life.2 That is the meaning of independence from a purely wealth-based point of view; how much money one has accumulated. However, it can also represent one’s ability to manage their money well, allowing them to live a relatively comfortable life. This psychological perspective takes into account one’s spending habits, cultural narrative, socio-economic factors, and many more layers, demonstrating that independence can be achieved without tons of money. We will be focusing on the latter standpoint of financial independence.
Spending and earning are the baselines of managing one’s finances. As people start working, they understand the value of money by earning independently as well as spending a set amount on their needs and wants. Establishing a healthy financial habit does not only encompass the significance of earning, but it also emphasizes how keeping spending under control is a preventative measure for looming financial trauma. Financial well-being does not have to revolve around a minimalist lifestyle. It is a balance to be established around your necessities, as well as one’s physical and emotional health. Therefore, one’s financial independence is unique to each person’s situation. For instance, when comparing a student to an entrepreneur, financial independence will look different for each, seeing that their priorities and financial status are unalike to say the least. While the mentality of success might be present in both cases, spending money on traditional education, in this case, is a cost that an entrepreneur would not think of. Conversely, the student is not burdened by the need to reinvest into their business even at the expense of one’s own financial independence. The earning capacity of a student varies from what an entrepreneur can earn. Cultural backgrounds and upbringing also affect one’s outlook on their definition of financial success and independence. Knowing that a financially fulfilling and sufficient lifestyle is unique to each individual is crucial in managing their spending.
For many, financial independence as described above is feasible. However, changing certain habits throughout this personal journey can be the most challenging aspect of attaining financial independence. Change in behaviour is quite complex due to the unfamiliarity when implementing a new set of habits.3 Scientifically, once a neuronal pattern of firing has been formed with a set of habits, it is then ingrained in our brain. Difficulty of breaking financial habits comes with psychological pressure we put on ourselves in order to make changes in our behaviour.4 The result is negative emotional experience accompanied by self-judgement, guilt, perfectionism and fear. Moreover, acknowledging and learning how to tackle the obstacles that come our way during this change is also important when trying to improve one’s financial habits.4 When we face a hurdle in this process, our internal critique come out to label these unwanted behaviours as lazy or stubborn.4 However, it is in these exact moments that self-care, self-reflection, and problem-solving skills are required, to get through the impasse. It is not necessarily perfection that can establish a healthy relationship with money, rather starting with small changes in order to create a habit that is conducive to one’s lifestyle.
Overspending and underspending are financial behaviours that many partake in despite its potential damage to one’s financial, mental, and physical health. In many cases, these behaviours mask the true source of these actions, such as stress, psychological pain, or trauma. Adopting a new habit not only tackles the superficial problem of spending too much or too little, but it also addresses the psychological source of the behaviour. Understanding the “why” behind this new habit will make it a lot easier to continue managing and implementing these new actions and not do them mindlessly.
When do you know you are financially independent?
If you are solely looking at the number, it is quite simple to see if you can maintain a comfortable lifestyle with the current saving. However, from a psychological perspective, financial independence is not a moment or a day. It is a continuous action, a lifestyle, to build a healthy relationship with money in ways that you are in control.
– Acknowledging bad financial habits and replacing them with good ones
– Separate money from your worth
– Know what is financially enough for you
– Stop comparing yourself to others
These are a few pointers to start us all on our way to financial independence. Our inclination of using money as a measure of growth and self-worth is embedded in our society. Neglecting the importance and power of money will not do us any good. It’s weight, however, should never exceed one’s worth nor ability to think for oneself.
1. Cook, E. (2017, October 20). How Money Became the Measure of Everything. The Atlantic. https://www.theatlantic.com/business/archive/2017/10/money-measure-everything-pricing-progress/543345/.
2. Probasco, J. (2021, July 1). Declare Your Own Financial Independence Day. Investopedia. https://www.investopedia.com/financial-edge/0611/declare-your-own-financial-independence-day.aspx.
3. Call, M. (n.d.). Why is Behavior Change So Hard? https://accelerate.uofuhealth.utah.edu/resilience/why-is-behavior-change-so-hard.
4. Jaffe, A. (n.d.). Why Is It So Hard to Change Bad Habits?Adi Jaffe Ph.D. Psychology Today. https://www.psychologytoday.com/ca/blog/all-about-addiction/201903/why-is-it-so-hard-change-bad-habits.