4 Components to Manage Money Better

Do you think you can buy happiness? Is there an object in this world that is a reason, both for happiness and for unhappiness?

On this article we will talk about money and try and understand the role money can play in our happiness. The world can be divided into two category of people. The first who believe that money is a source of happiness and the other who think money is the root of all evil and is actually the root of all the unhappiness that we experience in our life. No matter which camp you belong, it is without doubt that money has an influence on our happiness. It is important to understand how we can use money to find our happiness. You can listen to the entire episode by searching for “Catching Happiness with Vibhor” on any major podcast application, or click here.
The first thing that we need to do is understand what exactly is money. For most people, currency notes is equivalent to money. This is a very misleading understanding of the concept of money. And maybe this is the reason why a lot of people do not understand how money can be used to find happiness. Money is a much wider concept.
I think money is made up of four components. The first being “income”, the second “consumption”, the third “savings” and the fourth being “investment”. It is only when you put all these four components together, do you arrive at the concept of money. Money is not simply cashflow, money is not simply spending.
It is a much deeper concept and it is important that you understand money so that you can derive the happiness that can be found through money.

INCOME
So what is income? It is the first component of money. It is something that represents cash flows. It is something that represents the money that is coming into your system. Income is nothing but a form of compensation that you receive when you incur an opportunity cost. What this means is that everyone has a choice, how to spend their time, how to spend their talent, how to pursue their aspirations. When we choose the route, we would like to take, we get compensated for our efforts and this compensation is your income. The more value addition you bring to the table, the higher your income will be. Therefore, if you want to increase your income, you need to understand what value addition you are bringing and where your efforts will be valued higher. The higher your valuation , the higher the income.

CONSUMPTION
The second component of money is consumption. Now this is the glorified form of money. This is the form of money that everyone sees. How much you spend, how much you consume, this literally defines us. We are taught to think that consumption is the only form of money that matters. But you will realize that if you look at money from a wider concept, consumption is only one of the four components.

SAVINGS
The third component of money is savings. If you do not put aside a component of your income for the rainy days, you will have none when you need it. Now, this is a concept that most people do not like about money, because they have been taught to think about money only from the income and consumption perspective. However, savings are an essential component of money. And before you spend , you need to save. Once you start doing this, you will realize that this reserve of money can actually become our source of both confidence and a source of happiness.

INVESTMENT
The last component of money is investment. Now this is that portion of money that works for you, just like you earn income as a compensation for the work you do. When you put your savings to work, they earn you more money. This is called investments.

Now, if we come back to the definition of money and its four components, you will realize that so far, you are only looking at money from two components. You are only understanding money partially. And this was one reason why it was easy for you to say that money cannot buy happiness. As soon as you realize that there are two other crucial components of money, you will also realize that these are the two tools that can be used to find happiness via the route of money.
Ultimately, we must realize that money is just a route that we can take to find our happiness. If you are concentrating only on the income aspect, there is a possibility that you will chase money and move away from your happiness. Similarly, if you are only looking at the consumption component of money, you will probably land up in a stressful life, and this will take you away from your happiness. But when you manage to balance all the four components of money and calibrate them in a manner that suits your life’s present situation, and also supports your financial goals in the future, you will realize that money can actually be a reliable source of happiness. Money gives you a freedom that is essential for happiness. Money gives you confidence to be able to pursue all of those activities that help you find happiness.
My idea is to simply make you understand that money is not only income. Money is not only expenditure. Money is a bigger concept. Money is a simple concept, if you understand the various moving parts within the definition of money. I hope through this article, I have been able to convey to you that money is a wider concept with very valuable moving parts, which need to be balanced so that there is harmony, and you can find your happiness through money.

I talk in-depth, giving you a roadmap to a happier and free life on my podcast – Catching Happiness with Vibhor. You can listen to it on any major podcast application or just click here.

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