The Importance of Self-awareness for Financial Freedom

Self-awareness, understanding your own limitations, motivations and goals, is a trait that is essential to achieving independent financial freedom.

Self-awareness of one’s true financial position in the context of the macro environment takes time to build, but is essential for your long-term financial health and well-being.

According to Fast Company, roughly 70% of wealthy families lose their wealth by the second generation, and 90% do by the following generation. There is also a Chinese saying that goes 富不过三代; Wealth does not pass three generations. It goes to show that it is much easier to build wealth than to it is to keep it.

For some, it is easy to misestimate their own level of wealth and the exposure of that wealth to change.

Generational wealth is often inherited rather than earned, and includes properties and businesses that are highly illiquid.

Retaining this generational wealth is an even bigger challenge when the “asset” is a business in decline, or if the inheriting generation lacks the skill to manage it, and the self-awareness that could prevent failure.

Another group that may struggle with self-awareness are high income corporate earners. When you become accustomed to a certain standard of living, you expect this lifestyle to continue indefinitely and spend accordingly.

For high net worth individuals, it is important not to lose sight of the macro environment around us; when it changes, our lives change too.

What happens when a recession hits? In today’s economic climate, job security is at an all-time low, with companies folding and retrenchment taking place in various industries around the world. That “certain standard of living” is now at risk.

When inflation in Singapore turned the country into one of the most expensive cities to live in, many without appreciating assets found it difficult to catch up, and real wages remained stagnant.

But those who were able to conduct the right financial planning and invested smartly were able to reap the benefits.

Mark Twain once said, ‘It’s not the size of the dog in the fight that matters. It’s the size of the fight in the dog.’ How formidable you are does not lie in how much wealth you accumulate, but in the mental and psychological strength to overcome the macroeconomic changes that threaten it.

As we navigate these uncharted waters over the next few months, let’s remain self-aware and honest in who we are, what we now have and where we want to go. Life, after all, is a marathon.

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