COVID19 circuit breaker in SG has made everyone think about what is essential and non essential. Bubble tea, desserts and cakes for example, are deemed non essential. And if you reflect upon what are your own personal essentials and non essentials, it might yield valuable insights on your own personal discovery.

Needs versus wants, must-haves (or requirements) versus good-to-haves, these are different ways to mean the same thing. Why is this concept even important to personal finance? Answer: Most of us are not born with a silver spoon in our mouths. Neither do we strike lottery regularly.

But even the well-heeled control their budgets (even for those who have achieved FIRE), albeit for different intents, purposes and objectives (capital preservation and legacy for example). Maslow’s hierarchy of needs apply.

Budgeting is the bedrock of financial planning.

• If you cannot manage budgeting well, the risks of defeating your financial plans down the road gets higher.
• If you cannot manage budgeting now, you are not likely to manage it when retirement arrives.
• If you do not understand how important budgeting is, you are not going to make an effort to seize control of it.

Brutal facts about budgeting.

• More often than not, resources are not infinite.

  • We are each given 24 hours a day, 7 days a week, 12 months and 52 weeks a year. It is a cruel world out there when the gains of productivity are not equitably shared in society. Banks set aside priority queues in blatant proof that equality is merely an ideal and society can tolerate that to a certain degree. Revenue generators are allocated more resources over cost centres. Optimising resource allocation is simply a pragmatic thing to do.

• Budget cannibalism is real.

  • Confronting the realities of limited finite resources, it is apparent that priorities determine the allocation of resources.
  • Who determines your priorities then?
  • Do you agree with those priorities?
  • Are you aligned with those priorities?
  • How do you feel about other people’s priorities which are different from yours?

• Competing priorities.

  • You cannot have your cake and eat it too. You want butterflies for their beauty but not caterpillars nibbling off leaves. There are plenty of other examples.
  • You want the highest return on investment for the lowest risk.
  • There is no future without the present. Yet you reap what you sow.
  • Immediate needs of putting food on the table trumps Contingent needs of insurance coverage.
  • What are immediate needs and contingent needs?
  • What are essential and non-essential?
  • Delay gratification or YOLO?

• Trade offs are a part of life.

  • In the boxing ring of life, throwing a punch exposes you to getting hit as well. The boxer who does not throw a single punch will never win a match.
  • You need to be bold, not reckless.
  • Own the decision whether to transfer the personal risk to an insurance company or not. Forgoing contingent needs for the immediate is not without consequences.
  • Awareness brings about better control.

• Balance as a way of life.

  • Being a total scrooge is not a life well lived.
  • Hedonistic pursuit of life’s pleasures is also a recipe for financial ruin.
  • Even fitness fanatics allow themselves a cheat day.
  • All work no play makes Jack a dull boy.
  • Perhaps instead of a planning for one budget regiment, multiple balanced budgets rotated over determined periodic shifts can add colour and variety.

It is easier to adjust lifestyles upwards than to downgrade lifestyles. That is a simple truth. Another infallible truth is that you have to live BELOW your means to generate savings for further financial planning. Those whose personal finances are affected by COVID19, let the Stockdale Paradox ignite a light within you. And for those in the heat of facing voids created by lifestyle downgrades, Fulton Sheen provides insights.

Stockdale Paradox

“You must retain faith that you can prevail to greatness in the end, while retaining the discipline to confront the brutal facts of your current reality.”

This is the critical difference which guards against the endless disappointments that optimism’s carrots’ evasiveness create, until maybe, the reward in the end. On the other hand, it is the ability to continue making realistic assessments of one’s current life situation measures and apportions one’s energies and reserves to better face each challenge as it comes, thus positioning one with a stronger chance to prevail.

Optimism is not enough. The prisoners who were optimistic deluded themselves into thinking that they will be out before Christmas. When Christmas came and went, they deluded themselves that they will be out by Easter, then Thanksgiving, and Christmas again. Time and time again they were disappointed and they eventually lost hope. Nobody stays here (Vietnamese Prisoner of War) by faking reality in any manner whatever.

So many people avoid confronting reality, especially in difficult situations. The more difficult the situation is, the more important it is to confront reality. It is especially dangerous for an entrepreneur or a leader to avoid confronting reality. Whenever there are tough spots or facing impending doom, confront reality and then work to figure out what you want to accomplish in the context of the current reality.

While failure is occasionally inevitable, or when you simply can’t overcome the barrier of whatever reality you are faced, confront reality and evaporate the fear and uncertainty. Self delusion and optimism will not change reality unless you step up to confront the brutal facts of reality and challenge them. Self delusion and optimism alone leads to false hope that achieves little or nothing at all.

Retaining that discipline to confront the harsh reality is the key. Preserve the hope and hold the belief until the reward in the end.

Spending time and energy to “motivate” people is a waste of effort. The real question is not,”How do we motivate people?” If you have the right people, they will be self motivated. The key is not to “demotivate” them. And one of the primary ways to demotivate people is to ignore the brutal facts of reality.

Quit living in sophisticated self delusion and denial. Faith and self belief in success is not enough, it is in acknowledging and confronting the reality coupled with undying self belief that will enable you to retain that discipline to consistently challenge your reality and make success an eventuality.

Fulton Sheen from the Angel’s Blackboard

How do we break bad habits and cultivate good habits? There must be a new ideal or else a revival of an ideal that has been forgotten. Without motivation or reason, there is no impetus or challenge to change our habits. It is never enough to tell people that they must give up something, because the giving up can create an emptiness and a void. Unless the house is filled with goodness, evil will come to it. Rather, there must be an exchange of one thing for another. An exchange based upon what we are willing to surrender for another. An exchange is based upon what we are willing to surrender for another thing.

Awareness brings about better control.

COVID19 will be a thing of the past.