What Makes Personal Finance So Personal

The Debt Free Guys dive into what makes personal finances so personal; how understanding this may help your financial well-being

Written by The Debt Free Guys

Different people, different money

Money management is the same for everyone, right? Not entirely. Some financial principles work the same for all of us but not all them do. See how finances can be different for different folks and how knowing what makes money different for you can improve your financial well-being. 

What makes money different for different people?

Oftentimes we see articles on finance websites, blogs and podcasts catering to certain demographics, like women, Black, Indigenous, People of Color, people of different faiths, the LGBTQ community, and more.

You also may have wondered, “Isn’t money the same for everyone?” Well, yes and no.

The Pareto Principle says that we get 80% of our results from 20% of our effort. Italian scientist and philosopher Vilfredo Pareto first saw this in the 19th century when he noticed that 20% of Italy’s population owned 80% of its land. Pareto’s research further highlighted this unequal relationship between inputs and outputs.

This principle means typically 20% of a business’s products generate 80% of its income. Applied to other aspects of life, you probably wear about 20% of the clothing in your closet about 80% of the time. Twenty percent of your possessions may yield about 80% of your happiness. And, yes, it means that 20% of your effort at work likely drives 80% of your results.

As entrepreneurs who mostly work from home, we manage our input/output every day so we don’t end up working 24/7/365. No, we don’t need to answer all our emails first thing in the morning. Social media isn’t always the best use of our time. If we focus on the most important things, ideally the singular most important thing, our results are better and everything else is easier.

The Pareto Principle also applies to our money. Yes, money works the same for all of us but only about 80% of it. A dollar for you buys the same pack of gum as a dollar for me. Interest rates work the same for everyone. Our credit scores are all calculated the same way.

All of that makes up the “finance” in personal finance. About 20% of money, however, is influenced by our backgrounds, race, creed, history, lineage, gender, sexual orientation, gender identity, and more. It’s the “personal” in personal finance, and that 20% has a big effect on the overall 100%.

How does the 20% affect your finances?

To understand how this 20% affects your finances you need to understand your money story. A money story is a narrative you tell yourself that creates your beliefs about how money either works for you or against you.

If you were raised to think that success was possible for you, you likely adopted the beliefs and traits of successful people versus someone who grew up in a household that believed only other people can be successful. If you grew up in a household that believed that money flowed to you easily and that money is a tool for good, you likely have a healthier relationship with money and a better cash flow.

Your money story is rooted in a combination of everything that makes you unique, everything that makes you you. They don’t each affect everyone equally and the makeup of these influences is different for everyone. For example, some women are self-made millionaires and leaders of major companies, but all women deal with the gender pay gap. While Black CEOs are leading Fortune 500 companies, as of 2020 there were only five and only one of them was a Black woman.

These variables aren’t all systemic and they aren’t all the result of the economy and financial sector not necessarily being designed for us. Some are because part of what makes us fall into different cohorts is how we think. For example, in a recent Capital One survey, a majority of female respondents (45%) said they’d like to start an emergency savings account in the next 12 months, whereas a majority of male respondents (35%) said they'd rather pay off their credit card. Neither answer is right or wrong, but they’re different and will generate different results. 

How knowing the difference can help your financial wellbeing

The reason for knowing how personal finance is different for different folks is two-fold. On one hand, understanding these differences makes us more empathetic to people with different circumstances than us. On the other hand, it helps us identify both the systemic and innate challenges we, as individuals, face.

If you know the financial opportunities/challenges that you face are because of your money story, you can create strategies to navigate that journey. If you know that you come from a family with negative beliefs about money, you can do practical exercises to change those beliefs. Listen and be aware so that when these negative beliefs creep up you can address them. If you know it’s possible you may be offered less because of your sexual orientation or gender identity, be ruthless and chart your career path where there will be support. Be vocal about the inequities in your industry and give those with similar challenges a hand as you move up.

When you understand your financial challenges, you can use that knowledge as motivation to be proactive about every part of your financial life rather than letting those challenges weigh you down. You can read books, listen to podcasts, watch videos and read articles created with you in mind about how the economy and money work and how they apply to your personal finances.

Get to know yourself. Knowing who you are personally will help you win the difficult side of personal finance. Then the easier side, the finance side that’s the same for everyone, will become easier for the most important person in your life – you.

Related Content