To make your own financial decisions, you have to understand how you look at money. Although many economists tend to speak predominantly about money and monetary equivalents in their analysis, even economics recognizes that not everything can be reduced to pure monetary terms. While there are ways to put dollar figures on a range of different types of behavior, most people make decisions that are not entirely rational if you look only at their monetary impact. Yet just because people don't focus solely on money issues in making decisions, that doesn't make them irrational. Indeed, it would be irrational not to consider other factors for important choices in your life.
A means, not an end
Reading through financial columns like this one, you're constantly given advice that will help you save money on expenses or earn more money from your career or on your investments. However, the best advisors understand that earning and saving enough money is just the first step toward making your lifelong dreams a reality. Yet until the time comes for you to reap the benefits of all the hard work you've done saving and investing your money, you can't really appreciate the true value of what you've sacrificed to accumulate wealth over the years.
Be careful what you sacrifice
Clearly, many people make decisions that are primarily motivated by money: For example, some people make career decisions that leave them unhappy simply because a certain job pays more than what they'd really like to do. Even if meeting basic necessities of life doesn't take that much money, many people voluntarily choose to add financial stress to their lives by buying luxury items that they don't really need. All of these decisions have implications not just on people's current lifestyle but on the challenges and opportunities that will have a huge impact on their future.
The problem is that it's extremely difficult to judge whether making a sacrifice for the sake of money will be worth it in the long run. If you decide to work at a job you hate to earn a higher salary, will you get enough happiness from that extra money to justify the misery you'll face 40 hours per week, 50 weeks per year, for the rest of your career? Will your children be happier playing with a new Sony PlayStation 3, or would they be better off if you decided to buy a cheaper Microsoft
Giving money too much attention
Money can be addictive. The availability of 24-hour global financial markets and Internet-based trading platforms allows anyone to watch prices of securities bounce up and down anytime. After watching a stock move up or down over a short period of time, it's easy to find yourself thinking that if only you had made the right trade, you could have made a big profit or avoided a big loss. When you watch the markets all the time, it's easy to lose your long-term perspective.
However, looking at the financial markets in this way reduces your investments to a numbers game. The value of the long-term perspective is that it recognizes the fundamental essence of what you're doing when you buy a stock: You're buying a piece of a business. Traders who hold positions for minutes rather than months see stocks only as a potential money machine. By focusing instead on investing in an operating company, you'll not only better understand what you're doing but also will be more likely to participate in your investment's long-term success.
Money is a valuable tool in allowing you to reach your goals. In saving and investing, however, don't forget accumulating money in itself isn't the goal but rather simply the way to get you there.
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Fool contributor Dan Caplinger sometimes thinks he enjoys money a little too much. He doesn't own shares of the companies mentioned in this article. Microsoft is an Inside Value pick. The Fool's disclosure policy is priceless.