I was able to watch a condensed animated presentation of Bridgewater Associates Founder Raymond Thomas Dalio’s book, “Principles,” narrated by him. The visuals were refreshing and the content was engaging and excellent it got me thinking, “What lessons here can be applied to personal finance?”
He puts utmost importance to reality. He encourages people to think for ourselves about what is true for us. In the field of personal finance, this translates to our own personal goals. We should be true to ourselves what it is that we really need and what makes us fulfilled. All too often, we get sidetracked by what we see in others that we lose sight of what really matters to us. This could mean never-ending expenses on material things without ever feeling contented with what you have. The lockdown period two years ago provided us the opportunity to think about what really matters to us and we could use these important things as our compass when navigating in our financial journey.
Another topic he discussed is his belief that having truths as essential foundation yields good outcomes. This builds on the first idea above wherein we decide what is true or what matters for us. Now, we are dealing with the facts around us. In personal finance, this means knowing objective information about our financial situation. There is no use having to mask our actual financial situations as this will only put our financial plans in vain. Having a firm foundation for your financial situation means having accurate information with regard to cash flow, balance sheet and life risks. Being able to objectively address and manage these three will provide the excellent footing one needs to step on before taking further steps in pursuing their financial goals.
Dalios’s presentation also touched on the idea of time moving forward and that we should approach it in the best way we see fit and his analogy for this is a river that ebbs and flows. In personal finance, we are usually in the paradigm that plans are rigid and that our journey is a rigid straight path to our goal. We need to remember that our financial situations are dynamic through time and that we need to be able to make necessary adjustments in our financial plans when the situation prompts us to do so. This can be done by periodic review of our financial plans to incorporate life and career changes if there is any.
In my opinion, the most important point that he had discussed in the animated video is the formula that pain, when coupled with reflection, translates to progress. He has cited his near bankruptcy as the turning point not only of his career but of his life as well. There will be setbacks in our financial journeys such as excessive debt, gambling issues, loss of income or work, health-related concerns and others. It is perfectly fine to feel bad at first but what we need to remember is that setbacks are temporary and these can be overcome eventually. What is important for us to do is to treat these setbacks as learning experiences for us to move on towards our goals. Learning from our past mistakes will make us more prepared for similar issues in the future, if not prevent the same mistake from happening again.
Having self-awareness, dealing objectively with facts and risks, being flexible and having a contemplative view of past mistakes will help us in making our financial plans more doable. Success in personal finance is not just about having the right numbers but more importantly, having the right mindset.
John Hero Salvador is a registered financial planner of RFP Philippines. To learn more about investment planning, attend the 98th batch of RFP program this October 2022. To register, e-mail info@rfp.ph or text at 0917-6248110.