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Stability and Utility

As far as I can tell, money has two valid uses: stability and utility. It has a lot of other uses as well, like signaling and scorekeeping, but these are poor uses of money and focusing on them will reduce your ability to use money for better uses. Most people do a fairly poor job maximizing for either of these things.

Using money for stability enables you to decouple your lifestyle from your income and expenses. If you make $1000 per month and require exactly $1000 per month to live, you probably have very little stability. Even one unpaid day off would throw your month into chaos, as would a small unexpected expense. Building up a buffer of savings allows you to be unaffected by such things, as does having an income that is several times greater than your expenses.

Utility is simply converting your money into something that provides a benefit. Buying food counts as utility as does giving a gift or renting a car.

If someone derives a lot of stability and utility from their money, they are set! These two elements alone create a good personal finance ecosystem. Focus on them when allocating your money.

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