Economics is about allocation of scarce resources. But what does that have to do with personal development? Why do I write about it in a personal development blog? Isn’t economics about the finances of countries, big banks, and corporations?
If you read the economy sections of newspapers, you might think so. But economics, or allocation of scarce resources, is every bit relevant to individuals and small businesses as it’s relevant to countries and big corporations.
We all have infinite wants, but finite resources.
On the surface, it seems easy to allocate the resources of a person, a family, or a small business. In reality, most of us don’t pay attention to how we allocate our resources. Most of us don’t have a budget or plan. As a result, we don’t make the most of our resources.
An excellent resource in this topic is the audio program Thinking like an Economist: A Guide to Rational Decision Making by Prof. Randall Bartlett.
What comes to your mind when you read about economics and resources?
You’re probably thinking about money. However, I’m not only talking about money. I’m talking about time, attention, and energy as well.
They are all scarce resources. They are all at least as important as money and critical to your success. I recommend managing your finances, time, energy, as well as your attention.
When you spend money, you can always earn it later. When you spend time, it’s gone forever. That makes time even more valuable than money. The same is true for attention and energy.
Managing Your Energy
We all have 24 hours in a day, but our levels of attention and energy vary throughout the day. Therefore, it’s critical how we spend our time when our attention and energy is at its peak on a given day.
We can also increase our energy with proper diet, exercise, and rest. If you think that you don’t have time for any of that, consider your lack of energy as a result of improper diet, and insufficient exercise and rest.
How do your low levels of energy affect your performance even if you spend most of your time working?
To learn more about managing your energy, I recommend the Harvard Business Review article Manage Your Energy, Not Your Time. That article is also in their book HBR’s 10 Must Reads on Managing Yourself.
Setting Up a Personal Budget Isn’t Rocket Science
I like the budget explained in the book Secrets of the Millionaire Mind by T. Harv Eker. You divide your income after taxes into following accounts.
- 10% financial freedom account
- 10% play account
- 10% long-term savings for spending account
- 10% education account
- 50% necessities account
- 10% give account
The money in your financial freedom account is only used for investing and creating passive income streams. The principal of the funds in this account is never spent. You only spend its interest when you’re retired.
You need to spend 10% of your income to enjoy yourself to avoid burnout. Long-term savings for spending account can be spent on unexpected expenses like medical bills or car repair.
Don’t forget to invest 10% of your income into education. That’s not only the education of your children but also your own education. Participating in seminars and workshops, hiring a mentor or coach, buying books, audio programs, and online courses count toward your education.
50% of your income is allocated to your basic necessities such as mortgage, rent, electricity, groceries, and other bills. 10% of your income is allocated to charitable donations.
These percentages might be different for you, but the idea is to have a structure for your spending and to follow that structure. Also, don’t forget to allocate money to each account no matter how low your income is.
Time Management
The idea behind time management is to have a vision, priorities, and a daily and weekly routine to work toward the realization of that vision. You can also increase your productivity by keeping your schedule simple.
Managing Your Attention, a.k.a. Mindfulness
As a personal development topic, managing your attention isn’t as popular as time management. Nevertheless, it’s as important as time management, if not more.
There’s a term for managing your attention. It’s called mindfulness. Just like our time, money, and energy, we can also waste our attention or make the most of it.
We can focus our attention on thoughts and input that benefit or harm our lives. It’s up to us to make a conscious choice about how we use our attention.
Willpower
It’s one thing to know what the ideal allocation of resources is. It’s another thing to apply that ideal allocation in reality. The difference between both is your willpower to follow up on your plans, budget, and decisions.
You have to invest time in coming up with plans, budgets, and decisions, as well as developing the self-control to follow up on those plans, budgets, and decisions.
Conclusion
We, humans, have infinite wants but finite resources. That makes resource allocation a critical skill in life. Resource allocation isn’t only relevant to countries and corporations. It’s equally applicable to our lives as well as to our work.
When we think about economics, the first thing that comes to mind is money. However, there are other, irreplaceable, invaluable resources that we have to manage well. They are our time, energy, and attention.
For a successful life, we need to learn to manage our finances, time, energy, and attention well. Willpower is an essential variable of this equation because we need it to follow up on our plans, budgets, and decisions.
Mastery of resource allocation doesn’t come overnight, but it’s a critical skill that’s worth investing your time and effort in.