I like to share with you a term that I learned from Bro. Bo Sánchez, author of the book “My maid 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 an argument she had earlier with two of her classmates from law school. They talked 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 classmates was making only P12,000 a month (half of what my girlfriend makes), but my girlfriend is not better financially. Yes, she can afford more than her classmate, but when it comes to wealth, they are the same.
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 he dreamed of earning 20,000 pesos a month. That was in 2009 and we feel like making 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 will still have enough to save.
Fast forward to 2013 and my girlfriend is now making more than the P20,000 we dreamed of making 4 years ago (we both reached that amount in our next job after we left the government agency). He now has a higher monthly salary, but the financial struggle still continues. He realized that higher income is not necessarily the answer to financial problems, sometimes it leads to bigger problems.
I welcomed him 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 her financial solutions, only to find that a higher salary generally means higher expenses.
The quick and obvious solution, of course, is to have proper money management. Living on a limited budget and not overspending on wants are key things people must learn to avoid having to struggle financially.
But It’s easier to say it than do it. It is not easy to live on a limited budget and avoid buying that beautiful new dress or that new model of phone that the store offers at 0% interest and paying in installments. And why is that?
It’s because of your psychological wallet, a brother term. Bo participated in one of their 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 into their psychological wallet.
Your psychological wallet is the amount of money that you are comfortable receiving, or the amount that fits what it is. A person who receives money that is greater than the amount in his psychological wallet generally does not know what to do with the excess money, so he simply spends it.
A good example of such people are lottery winners.
Most lottery winners end up wasting the wealth they won within a few months. They spend lavishly on luxury items and put their money at stake. They feel that the money they earned is infinite and they will not run out. And this is because most lottery winners are not prepared to handle that amount of money. The money they made does not fit in their psychological wallet. It doesn’t fit their lifestyle, their personality, so they turn to spending and spending and spending, thinking that the money will not run out, only to be surprised one day that they have no more money and have a lot of debt. .
So how do you expand your psychological wallet?
Through financial education.
Having a financial education will help people prepare for what to do if they make large amounts of money, such as winning the lottery, getting promoted, or getting a raise.
Why do you think the rich have no problem when it comes to handling large amounts 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 even if they spend it, some of it still makes them money.
That is why it is important to educate yourself financially, not only to be rich and have a secure future, but also to be prepared in the event that you come to possess large amounts of money.
Earning large amounts of money is not the key to financial wealth, but learning how to keep it and make it grow and work for you is.