The foundation of personal finance

The Foundation of Personal Finance and Why I Had It All Wrong


Ask anyone in the financial world what the first foundation of personal finance is, and they will say pay yourself first. This phrase came from the best book on financial literacy, the bible of personal finance, The Richest Man in Babylon. That lesson has been preached over and over again since the 1920s. I have even said it several times. 

But I’m here to tell you I was wrong…

How Our Stories Can Impact Our Lives


Let’s say a person grows up in a family where money is tight. Let’s call this person Susie. One day Susie’s parents sit her down and tell her that they have lost their job. She can see the stress and anxiety on her parent’s faces as they tell her things will be changing. They tell her the family will need to tighten their budget to get through the next little while. 

Since Susie is still young, she doesn’t get the whole story. However, she knows that before this moment, she has never worried about money, but now it is all she can think about.

Susie has equated “tight budgets” as “we don’t have enough money.” But, she also knows that before a money problem existed, she and her family were happy. So she keeps telling herself the same money story as she grows up. “Not enough money leads to unhappiness.” 

As an adult, Susie feels like she must keep every penny she earns. She refuses to invest since that’s too risky, and she needs to keep her money accessible if she loses her job. A general feeling of scarcity has set in; that is how she manages her finances, believing there will never be enough. 

Susie misses out on investment opportunities, which delays reaching her home ownership and retirement goals. She works extra hard but never feels like she will have enough, making her feel dissatisfied at work.

She refuses to leave a toxic job environment because she values the security of her paycheck more than her happiness.

Her relationships also suffer since her partner lives out a very different money story—one of an abundance mindset. So Susie sees her partner as a frivolous spender, and her partner sees her as stingy and overly cautious.

How we interpret and act on our stories has enormous consequences on our lives. 

A couple in an argument

Before We Can Start to Say Pay Ourselves First


Before we can start to say pay ourselves first, we should say, what happened when I first got paid?

When I was younger, I was a saver. Seeing my bank account shoot up and up was a joy. To this day, I still tend to want to hold on to every cent I make. My experiences with debt in my twenties, and the shame I felt because of it, are why I can feel my anxiety rising when I have budgeting conversations. However, being aware of these feelings helps me to manage them. I won’t pretend I’ve mastered them, but I’m working on it.  

Paying “attention to” yourself first.

Some real talk for a minute. If it were as easy as most experts make it out to be to “pay yourself first” or “just spend less than you make,” then we wouldn’t need experts at all.

Paying yourself first is not wrong. In fact, it is sound advice that you should heed. If you follow that advice, you will spend less than you earn, save a substantial amount, take advantage of compound interest and hopefully be able to invest for a long-term goal. But let’s be honest, changing our habits or patterns isn’t easy. And since many of us are not living on less than we make, we must first figure out why we are not before we figure out how we can.

So, while paying yourself first is in no way the first foundation of personal finance. But it may be a very close runner-up.

A man with a five dollar bill

What Is the First Foundation of Personal Finance?


There is a reason “personal” comes before “finance.” Before we can pay ourselves, we must get a handle on how we feel about our money. What are the money stories you are telling yourself? And how are they affecting what you do with your money?

The foundation of personal finance is to understand your money stories. 

Understanding your financial stories and believing you have enough and you are enough will help you manage your desire to spend, much more than saying “pay yourself first.” It will help you understand what is motivating you or holding you back. 

Only with a clear understanding of how you feel, will you be able to move forward and grow.

There are so many things we tell ourselves about our money, but until we come to terms with our money stories, we will never be able to get a healthy handle on our money. That is a critical step in achieving financial wellness. It is the only way we can not only hear what we should be doing with our money but actually do it.