The Pillars of Personal Finance

by TTMK on August 6, 2012 · 11 comments

When it comes to our money, most people hope to get more of it, right?  I haven’t met too many people who would prefer less money.  Yet, many people struggle with finances, instead of getting things together and ultimately charging forward and getting ahead.  On the contrary, some people do just fine.

It seems as though many of us may be very strong in certain aspects of our financial lives, but have some weaknesses in others. Wouldn’t it be great to put it all together, and get rolling toward exceeding our goals?  It seems like if we want to do that, we should first be able to recognize the personal finance pillars, and then see where we are strong and where we are weak.

Here is my take on 4 pillars of personal finance:

1st Pillar of Personal Finance: Earning Income

We can talk all we want about savings, pinching pennies, and so on. But before we can save – let alone spend – we need to actually have money in the first place! This is why I think the first pillar of personal finance is earning income.

Along those lines, I think it’s vital that we make sure we develop marketable skills, by which we can earn money.  This means making sure that we invest in education, and then our careers. Of course, career management is an ongoing process that requires that we continually make sure that we are adapting to changing circumstances, and stay dialed in to what is going on in our place of employment, our field, industry, and even the larger macro environment.

If we think of making money as just as a matter of getting a job, it’s short-term thinking that has value, but isn’t allowing us to make the most of our potential.  Going beyond thinking of a job, and thinking of a career, can help us have longer-term, more sustainable earnings.  I see a career as the engine that drives the money-making vehicle that we want to be.  Better to drive a superpowered car than a rinky dink clunker!

2nd Pillar of Personal Finance: Saving Money

One could look at this second pillar as being about managing expenses instead.  To me, that’s an other equally good way to view it, and term it.  I’ll go with saving money, because I that’s the goal with expense management as it is. We want to make sure that we handle our expenses in such a way that we aren’t spending too much.

The more we spend, the less we have to show for all of our efforts in the first pillar (earning income).  By structuring our expenses in such a way that we maximize the gap between income and expenses, we can build our savings. The more we accumulate, the closer we are to financial security.

3rd Pillar of Personal Finance: Investing

So, with the first two pillars, we have concentrated on making money and saving it.  Of course, if money that is saved is just sitting around, it isn’t working for us. We want it to help us by making more money. Maybe we can think of it as money creating offspring 🙂

Anyway, investing will allow us to take a set amount of money that has been saved, and grow it to a larger sum of money in the future.  Or, they can allow us to store the value of money saved. We can also look at this as the assets of our portfolio.  This could mean stocks, bonds, real estate, and so on.

4th Pillar of Personal Finance: Risk Management

I thought about having debt as the 4th pillar, as it’s something that needs to be very carefully handled. Far too many folks are casual with debt, and can get buried as a result. Exhibit A is the recent housing crash, with people stretching for homes then finding themselves underwater.

This got me thinking that the 4th pillar could be broadly defined as risk management.  It’s not only debt, but it’s managing the other risks in our life.  What could those be? Well, that can include keeping healthy, for one thing.  If we don’t manage our health properly, we run the risk of not being able to earn income. It could be managing our relationships as well, as the costs of divorce can be financially crippling. Or, it could be taking measures to avoid scams.

So whether it’s debt or other risks, it’s important to be able to manage them.

My Questions for You

What are your thoughts about this framework of looking at the complete personal finance picture?

Which of these pillars do you feel is your strongest?

Which of these pillars do you feel is your weakest?

Do you have any tips for readers as they manage their way through their finances?

{ 11 comments… read them below or add one }

Kathleen @ Frugal Portland August 6, 2012 at 11:39 am

For me, it’s not pillars — it’s more like a pyramid where basic needs are at the bottom — and once they are met, then I can move up the pyramid.


TTMK August 9, 2012 at 11:49 pm

Kathleen – I’ve posted on this elsewhere, looking at it as a hierarchy. Another paradigm that fits, I agree.


Edward Antrobus August 6, 2012 at 6:13 pm

Saving is probably my strongest point. More likely, it’s my ONLY strong point.


TTMK August 9, 2012 at 11:48 pm

Edward – well, at least you have a strong point!


Emily @ evolvingPF August 6, 2012 at 7:08 pm

My weakest point is earning income. We’re not allowed to have second jobs and my husband and I are (apparently) not at all entrepreneurial!

I would think of risk management as including insurance. I don’t have much but I don’t have any dependents so I guess I don’t need much. I’m doing very well getting enough sleep, keeping stress down, staying in good physical condition, and the like.


TTMK August 9, 2012 at 11:48 pm

Emily – I agree on insurance. That’s great that you’re doing well with sleep and fitness!


SB @One Cent at a Time August 8, 2012 at 6:52 am

I’d love to see a pillar for insurance, insurance is defense, you must have it


TTMK August 9, 2012 at 11:47 pm

SB – I’d add that to the risk management pillar, and I do agree that we need insurance


Paul @ The Frugal Toad August 8, 2012 at 8:53 am

My weakest is income since I am a Teacher in Arizona, I’m working on that though.


TTMK August 9, 2012 at 11:46 pm

Paul – good to read that you’re working on it!


Andrea @SoOverThis August 10, 2012 at 9:30 pm

I’m definitely back to working on the first pillar since I became self-employed. I allowed myself this year to see if I can make enough money to stay at home; next year will be about bringing back regular saving and investing. I do feel that your pillars mimic the way things usually progress! But it’s a little depressing to know that I’m back at step one. 🙂


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