Imagine this. Located deep within your brain is a personal finance control room. This doesn’t make you unique. Everyone possesses a control room that’s more or less similar to yours. It’s the central hub from which all adults—including you—calibrate their annual household spending.
The typical control panel consists of 60 to 75 or so separate dials—and each dial is dedicated to a specific line item of spending. There are dials for groceries, gasoline, income taxes, property taxes, electricity, trash removal, cell phones, internet, car loans, and rent (or mortgages). There are dials for more discretionary items such as health clubs, charities, baseball tickets, and restaurants. There’s even a dial for vacations. Some control freaks replace their vacations dial with separate dials for air fares, rental cars, lodging, and road food, but you lump those all together. Since relatively speaking you’re a devout minimalist, let’s say you get by with 60 dials.
Now let’s say that each one of your 60 dials is carefully calibrated into units of 0 to 100—the higher you set a dial, the more you spend on that particular category. (I’m using “units” here instead of dollars or pounds or euros in order to simplify matters.)
So now that you have the layout of your imaginary control room more or less clear in your mind’s eye, here’s my question. And it’s straight out of your eighth grade math class.
How many different possible combinations exist for setting the dials?
So you don’t experience an undesirable blowout of your cerebrum—as I almost did in writing this—let’s start with a small example. If your personal finance control panel had only nine (9) dials with just five (5) settings each, what would be the total number of different possible combinations? The answer is almost 2 million. That’s right. Almost 2 million. Here’s the formula and the precise result: xy = 59 = 1,953,125.
Your cranial control panel has far more options than the small example above—after all, we’ve already stipulated that you have 60 dials and each one is capable of 101 possible different settings. So of course the available variations in your control room will be astronomically larger than a mere 2 million.
So what are the total number of different possible combinations? Here’s the formula and the answer: xy = 10160 = 1.8167 x 10120. This figure is so gargantuan that it literally puts the numb into number. There are 120 places located after the decimal point. As a comparison, there are about 7.046 Billion people on the planet, or as scientifically notated, 7.046 x 109 (with only nine places located after the decimal point). As a closer comparison, the total number of atoms in the observable universe has been estimated at somewhere between 4.0 x 1079 and 4.0 x 1081—both of which numbers pale in significance to your total household spending choices.
So why is personal finance so personal? Because each year you’re picking and choosing from among 1.8167 x 10120 possible combinations. And the answers that work best for you aren’t necessarily the same answers that work best for any of the other 7.046 x 109 people on the planet.
Personal finance is about knowing yourself and trying to maximize your results—hopefully, all within the confines of your available means. So beyond saying that you should spend less than you make, how is it possible for anyone to ever tell you what your precise calibration of dials should be? How many volumes of conjecture and opinion would have to be written to come up with whatever range of combinations works best for you? The fact is no one knows the answer because no one knows you as well as you know yourself. Your spending choices ultimately reflect a unique balancing of your own unique opinions, values, and interests. It’s a complex expression of who you are as a person.
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There may be no “I” in team, but there is in fact an “I” in Personal Finance—and the “I” is you. Spend some time figuring out what seems to deliver you the greatest happiness and don’t worry that others might set their dials differently.
Photo by Michael Spiller