Money, like motion, has its own sets of laws.
In science we have heard about Sir Isaac Newton, an English physicist and mathematician, who became famous for figuring up the law of gravity. He is also one of the pillars of calculus, and certain quarters say he is one of the major players in the world’s scientific revolution.
Newton’s laws of motion became the basic foundation of physics. Even in engineering, this topic is divided into two subjects—mechanics and strength of materials. The laws describe the relationship between a body and the forces acting upon it, and the result is motion (as a response to the forces applied). Any violation of these laws will lead to a disastrous result, the same way we violate the laws of nature and even traffic laws.
Newton’s laws need not be complicated, and these can be summarized as follows:
The first law states that an object at rest will remain at rest unless acted on by an unbalanced force. The same holds true for an object that is in motion, which will continue in motion with the same speed and in the same direction unless acted upon by an unbalanced force. This law if often called the law of inertia.
With regards to money and human behavior, this law is applicable. Majority of people rely on banks to grow their money. They do not know that money in the bank is only for safe-keeping and not for growth. As long as they do not try to learn more about investment instruments, their money would remain stagnant and its value will be eroded by inflation.
People should know that, by investing their money, they are applying an unbalanced force that can make their money move faster to make more money. However, there are people with poor behavior when it comes to money management. A lot of people prefer to spend their money to get what they want, like new gadgets. Unless a stronger unbalanced force is applied to their mind, they will continue to do what they are doing. Changing their financial direction, therefore, will require a huge effort on their part. There must be a compelling reason for them to change their wrong behavior.
The second law states that the velocity of an object changes when it is subjected to an external force. The law defines a force to be equal to change in momentum (mass times velocity) per change in time. From this law came the formula F=ma, where F is the force, m is the mass and a is the resulting acceleration.
With regard to personal finance, the same law applies. If we invest our money in a low- yield instrument, we are effectively applying a minimal force to move our money from one point to another. By learning about different investment instruments, like real estate, foreign exhange, stock market, mutual funds, business, franchising and legal multilevel marketing, we can apply a bigger force to make our money accelerate faster to reach our financial goal.
The third law states that for every action (force) in nature there is an equal and opposite reaction. In other words, if object A exerts a force on object B, then object B also exerts an equal force on object A. Obviously, the forces are exerted on different objects. Newton’s third law is evident when a person walks, he pushes against the floor and the floor pushes against him. In swimming, a person interacts with the water, pushing the water backward, while the water simultaneously pushes the person forward—both the person and the water push against each other. The reaction forces account for the motion in these examples.
Applying this to personal finance, a good analogy would be to “divorce” your money. The more force you apply to push your money away from you, the more your money will stay away from your mind. When I say divorce, I mean part ways with your money by investing it and forgetting about it.
As our income grows through the years, we have to add to our investments, as well. The more we separate with our money temporarily, the better for our financial growth. In the future, when our income is at a maximum, our investments will also compensate for the length time they have been allowed to grow. If I may compare this to an airplane, the person making the investment is the “lift of the wing” and the money is the “thrust of the jet.” An airplane can fly because of the opposing forces of the lift and the thrust.
Money, like motion, has its own sets of laws. Following these laws will guide you to financial freedom, and disregarding them could lead to poverty. Always make informed decisions when it comes to invesments. Make it a point to study first what you are getting into before deciding to invest your hard-earned money in any profitable venture.
Edmund Lao is a Registered Financial Planner of RFP Philippines. A sales engineer by profession, he is an advocate of financial planning.
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