I’ve heard a few people make an analogy between health and personal finance over the years. I think it makes perfect sense and is a good way to explain basic personal finance concepts in a relatable way.
I used to be overweight. I tried a few different things, however, the only way I ultimately succeeded in losing weight was to start tracking my calories in and out meticulously. If you don’t believe me, ask my wife. I think she is probably sick of me weighing my food at every meal and asking her for a detailed list of every single ingredient that make up her recipes when she cooks. I have a strong belief that the same principles hold true for personal finance, that meticulous tracking of money sets the foundation for long term financial success.
To set the stage, let’s say that:
Calories = Dollars
Exercise = Earning
Eating = Spending
In health, if you exercise you can either eat more or lose weight (by running a calorie deficit). In personal finance, if you earn more you can either spend more or save money (by earning more than you spend).
In health, Resting Metabolism is defined as the total amount of calories that you burn when your body is at complete rest. This means that even if you stayed in bed all day, you would still burn a base amount of calories. Now let’s say that:
Resting metabolism = Employment income (salary)
Now I’m certainly not saying that work is restful or that working is boring and makes you want to sleep (some may argue otherwise), but stay with me here. Just as your resting metabolism burns a base amount of calories each and every day regardless of your activity level, employment income (assuming you are a salaried employee) allows you to accumulate a base amount of dollars each day/week/month/year.
Exercise beyond resting metabolism = Extra income (side hustle income, investment income)
Some people find it hard to lose weight by controlling diet alone or consuming less calories than their resting metabolism each day. This is where exercise comes in. Exercise allows somebody to burn additional calories. In personal finance, some people find it hard to save money with their employment income alone. This is where extra income comes in. Extra income from side hustles or investments allow people to earn more. The beauty with extra income is that the upside potential is unlimited whereas there is a physical limit to how much you can exercise.
Now we certainly all know that in health, not all calories are treated equally. It is more complex than that, breaking down in to fat, carbohydrates, protein, etc. In personal finance, not all spending is treated equally.
Healthy calories consumed = Conscious, value-based spending
Unhealthy calories consumed = Unconscious spending
In health, there are tradeoffs. For example, the short term gratification you get from eating that whole box of timbits (I hope I’m not the only one who has done this) vs. thinking longer term about how that type of behaviour will ultimately impact your long term health goals. Same goes for spending, the short term gratification you get from that Louis V bag may seem great at first, but over the long term, it may put stress on your financial situation and ultimately impact your long term financial goals and happiness.
In health, there are limits to the amount that you can reduce your calorie consumption and if you take calorie consumption too low, it can lead to eating disorders and starvation. Same goes for personal finance, if you cut your spending too low, you will get to a point where you feel deprived. That is not the objective here! In health, you want to consume the right amount of healthy foods, with the occasional treat so not to feel deprived. In personal finance, you want to target a level of spending that aligns with your values so that you do not feel deprived. Don’t forget, you can always exercise if you need more calories just like you can always earn additional income if you need more money to spend / save.
Habits are important here as well. The choice to choose salad over a burger and fries one day may not make a big difference, however, the compounding impact of this choice made daily can make a massive difference in one’s health and progress towards health goals. In personal finance, the choice to buy that $15 burger and fries is harmless every now and then, but if practiced daily, can really add up and negatively impact your long term financial situation.
When calories consumed > calories burned = weight gain
When spending > earnings = savings decreases or debt increases
When calories consumed < calories burned = weight loss
When spending < earnings = savings increase or debt decreases
Lastly, in health, people often utilize personal trainers to set long term fitness goals, and design a meal plan and exercise plan to achieve those goals. Importantly, a personal trainer also acts as an accountability partner. Same goes for personal finance – a financial coach helps set long term financial goals and works with you to design a budget to make sure that your spending is within your means and aligned with your values. A financial coach also keeps you accountable, with regular check-ins to see how you are doing along the way. To learn more about financial coaching, check out this page.