Personal finance is a term that has been relegated to second-class status. It’s almost as though it wasn’tquite marketable enough, so the financial industry has repackaged its offerings with terms like wealth management, consulting, planning and private client services—whatever it takes to lure big bucks. But regardless of the stylized moniker, all of those products and services fall under the broader heading of humble personal finance (as delineated from corporate finance).
It is true that several aspects of personal finance are quite complex—sophisticated investment techniques, the actuarial composition of insurance products, the never-ending depth of the tax code and estate law are prime examples, and attempts to over-simplify these disciplines often fall short. But the real meat of personal finance isn’t in the clouds of high finance, but in the grounded and simple.
For example, whether you make $50,000 per year or $5,000,000, the heart of every healthy financial plan is the cash flow mechanism—the management of the dollars coming in as income and those going out as expenses. Your budget. It is in the proper balance of this simple mathematic equation that bankruptcy is separated from solvency and solvency from the creation of vast estates.
But is the success of a financial plan based solely on the bottom line—the number that is your networth? It can’t be, because while there are many with millions whose lives are truly enriched by their assets, there are many more whose lives are destroyed, in part because of their riches. If money was the ultimate end, millionaires wouldn’t divorce and Donald Trump would have a thick head of hair.
A successful financial plan, then, is not necessarily the one resulting in the most money, but instead that which leads to the greatest degree of fulfillment and contentment. This is a process, not a product; and its complexity lies more in the science of behavior management than in the structure of an optimized portfolio. It certainly is financial, but it is far more personal.