Financial LiteracyPersonal Finance

The Critical Role of Emotional Intelligence in Achieving Your Finance Independence

6 Mins read

I have touched on or highlighted many aspects of economics, finance, investments, portfolio building etc. in my previous articles to help young people in their 20s and 30s eventually (50s) achieve financial independence/freedom. Without a doubt some level of financial literacy is essential in achieving ones financial goals in life. In this article I will highlight a different but another essential aspect personal in nature in achieving your financial freedom or independence. It has nothing to do with Finance or Economics or Investments. It has everything to do with EQ (Emotional Intelligence) specifically your ability to delay gratification.

The Marsh mellow Test: Scientists/Psychologists/Child behavior Experts etc. have conducted this famous experiment on 5 to 7 year old kids from various backgrounds etc. The test goes like this. A child is put into a small room by himself and given 2 Marshmallows by a lady. She then tells the child she has to go out of the room for 15 minutes for an urgent matter. The Child may eat the 2 Marshmallows already given and lying in from of him/her. If the Child can wait without eating until the Lady returns in 15 minutes, the Child gets 2 more Marshmallows.

Then the Lady leaves the room leaving the Child alone with the two Marshmallows. The room and the Child is monitored via CCTV cameras to see how each child behaves/acts. Some Children consume the 2 Marshmallows immediately after the lady leaves. Others consume 1 and wait a few minutes before consuming the the second one. Some wait 5 or 10 minutes before succumbing to temptation. Some eat half of a Marshmallow and leave the rest. Other children do or perform various methods of distraction like singing etc. to get their minds away from the Marshmallows. Few of the Children succeed in waiting out the full 15 minutes until the Lady returns and get rewarded by two more Marshmallows.

Then they monitor these Children over 20 to 30 years to see who will do better or succeed in life. It is  always the Child who could wait(will power/discipline) or delay instant gratification or resist temptation/consumption who will succeed in life. These are children known to have superior EQ or emotional intelligence. These are the ones who possess the ability to save the best for last. Now the above simple Test reveal much about the inborn emotional aspects or skills one needs to achieve any goal and specially financial goals. One can also train oneself to master the same skill and discipline.

Budget (Income/Expenses): As a starting point I urge everyone to write down all their recurrent expenses in detail for a month in a log under broad categories such as household expenditure (F&B), Vehicle expenditure, loans/credit card interest and fees, utilities (water, electricity, phone, data etc), Rent/Lease, Transportation (Taxis, Buses, Trains etc.), Entertainment, Capital Purchases (Mobile Phone, Stereo,) Beauty Care etc.etc. At the end of the month you may see more clearly what percentage is spent on each category/area. This may help identify where you tend to spend more or where you can cut down on or make some savings. You may also identify your habits which consume an unnecessary or unjustifiable amount of your earnings or allowance. I call these leakages that can be stopped/plugged and diverted to savings column.

Purchases of Capital Items like Laptops, Phones, Furniture, Electronic/Electrical Items etc. should be separately listed and limited to very essential items or delayed until your income improves

One can do only 3 broad things with ones earnings or funds;     


  • Consumption or Live a little (gratification or enjoyment –  require EQ discipline/self control
  • Save and Invest – For a better tomorrow (require financial literacy to make it grow bigger/quicker) This in turn will always work 24/7 and eventually be good enough to give the owner of the funds a solid stream of passive income
  • Charity – Give away a little for those who are less fortunate or whatever cause (optional)

How an individual gives careful thought and wisely (in balance) distribute his or her earnings among the above three categories changing the proportions or percentages (change gears if you will) from time to time or as one progresses through life will ensure a comfortable and independent retirement years without dependence and worry.  Wouldn’t it be nice to walk out of a job you don’t like without having to worry about lost income? Many make the mistake of over consumption and pay little attention to investing for a better future. Yet some others who are usually rich focus too much on investment and growth and forget to live life or give generously. I would avoid both extremes. Intelligence is achieving the right balance in how one apportion their hard earned funds.

Live within or below your means: When you earn Rs.1000  live as if you are getting only Rs. 800. The balance must go into investments. Pay careful attention to prices, discounts etc when buying any consumer item specially high priced items. If the investment component can be higher (say 30% or more) even better as that will get you to your goal of financial independence and freedom faster. This must be repeated every month starting in your 20s with your first job and your first pay cheque.

Training Kids to give them a head start: If you have kids get them a Piggy Bank and make them deposit coins into it. As a kid I had a clay piggy bank (from near Kelaniya Temple) which my father got each one of us siblings to make mandatory saving of coins. When full the clay piggy bank was broken opened, counted together and the total (sometimes only Rs. 7.50 those days) taken to the nearest post office where it was deposited in the Pass Book. That inculcated a habit in us and it was quite an exciting process (specially the counting part) for us Kids as I remember. The main message was – keep something aside for a rainy day.

In those days the investment options for Kids (and others) were limited to the Post office savings account but in today’s context many new options are available. One could also expand the one Piggy Bank into three – one for each of the above three categories – Consumption, Saving and Charity. This will force them to think in terms of how much of their allowance or pocket money should they spend/consume,  how much to save for a rainy day and how much to give away for a charitable cause of their choice. Kids trained this way will guaranteed to have a head start in achieving financial freedom later on in life.

Control or Moderate your consumption/spending (in the early years)

One must be able to resist instant gratification of the senses or the Ego in terms of delaying a purchase of consumption category or show off item (better or bigger Phone, Vehicle etc). Many people can not reach their financial independence/freedom because they can not resist/delay immediate consumption. Or they can not resist the urge to consume beyond their capacity/earnings/wealth by financing the purchase (usually Vehicles, Electronic and household items etc.) through credit/lease/higher purchase. I have highlighted in my earlier Notes never to borrow (get into debt) in order to Consume or buy/spend on consumption (F&B, Entertainment, Travel, Beauty Care, Vehicles, Electronics, Clothes, Jewellery etc etc).

If you are the kind of person who can not wait to spend your money, generally spend all your salary by the end of each month and looking forward to the next pay cheque, then you need to reassess or rethink your spending habits, expenses and lifestyle. I suggest you write down all your expenses in a log book and analyze it at the end of the month to identify where your funds are being spent. Often it is on F&B, Entertainment, Clothing or a similar area. With others an unsustainable amount is spent on Vehicle related expenses. One must identify these areas and plug the leaks (ie try to change life style, habits) in order to shift more funds into the savings/ investment column. Some may decide to quit a bad habit such as Smoking and shift the amount spent on Smoking entirely or in part to Saving/Investing. This is easier said than done for some people but if your eventual goal is financial freedom/independence ( you don’t have inherited family wealth etc.) you have to discipline yourself and change gears.

Investing in education specially financial education/literacy is the best investment one can make. This investment is bound to pay off many times over throughout ones lifetime. If one sticks to the plan in 20yrs or so one will get into a strong financial position which in turn enables one to walk out of oppressive or unfavourable work situations etc.

The beauty of starting the process early and investing early is over time the passive income (cash flow) one derives from investments become large enough to comfortably live on. One should aim to reach that stage by the time one reaches retirement age at 60yrs or so. That is achieving financial freedom/independence. Getting your Capital (savings/investments) to work for you 24/7 so that you don’t have to work a 9-5 day in and day out to pay bills/expenses any more. One is free in terms of time. One does what one likes doing (travelling, reading, learning something new, spending time with family or whatever) as no need to worry about income. All my Notes on financial literacy and this one have this ultimate goal or status as its ultimate purpose.

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Masters in Business Administration (MBA) with a concentration in International Business and Economics from University of Texas, Arlington, U.S.A., December 1994 | Bachelor of Science Degree in Business Administration with a major in Management from Hawaii Pacific University, Honolulu, Hawaii, 1991 | Certificate in Modern European Languages (German, French, English) from the Swiss School of Tourism, 1981 | Worked in the senior management at the Secretariat of the Securities and Exchange Commission of Sri Lanka (SEC) from September 2005 to February 2013 mainly as Director Surveillance and as an Equity Portfolio Manager at DFCC Bank and in the Seychelles | Currently retired from full time work but engaged in making Investments and Trading in Real Estate and at the Colombo Stock Exchange. Managing Director at Ethena Home Investments Ltd.. Also engaged in advisory work on Business Feasibility, Capital Restructuring, Investment Management etc.
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