My perspective about money

My perspective about money has changed over the years. Surprising, it has not got more complex like what I had thought it would. Rather, it gets simplier the more I know.

Let me explain. There is a difference between knowing how to invest and having a perspective about money. There is a lot to be learnt about how to invest, where to invest and when to invest and I think I will continue to learn more. As for my perspective about money, it is an appreciation over the years and increasing it is forming itself to be the backbone of not just my investment philosophy but also that of my views about finance in general.

To put it in a simple sentence, my perspective about money is about "Maximising the value of my dollar today". Simple as it seems, these 7 words forms the basis of all my financial decisions today.

All decisions boils down to making choices through comparisons. Financial decisions are the same. The dollar that can be used to pay off a loan can alternatively be used for investment. To know if which choice is better in the financial terms, all you need to do is to establish a common ground for comparison. For money, the easiest yardstick and the most unbiased is usually the future value of the dollar as a result of the different choices. For example, if you can choose to payoff your 10 year loan today or alternatively invest the same amount and pay the loan by instalment over 10 years. To know which is better for you, you just need to compute the change in your networth in 10 years based on these two different scenario.

Of course, this is a simple example but the same principle can be applied in many much more complex decisions. All you need is to establish the common ground for comparison.