Isaac Newton’s Guide to Personal Finance

• Tweet

• Tweet

Lately I’ve found myself watching less and less television.  Sure there are some shows that I enjoy and I like to catch a Mets game now and then, but there are just so many better things to do with my nights.  I have big goals, and if I’m going to achieve them I need to spend my free time working towards them instead of watching American Idol or old Golden Girls re-runs.

When I do watch TV it is usually something educational.  The Science Channel in particular has lots of documentaries that fascinate me (it’s ok, you can call me a nerd…I can take it), and it was one of those documentaries that gave me the idea for this post.

17th century physicist or 1980s hair band fan?

The documentary was about gravity and it discussed the ideas formulated by the great English physicist Sir Isaac Newton (you probably remember him as the guy who got knocked upside the head with an apple).

Click the link below to see a neat interactive video explaining Newton’s Three Laws of Motion in plain English…but don’t forget to come back here!

http://science.discovery.com/interactives/literacy/newton/newton.html

There…now that you have a basic understanding of the Laws of Motion, let’s see if we can find a way to apply to them to personal finance.

Newton’s First Law of Motion states that every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.  Also known as the Law of Inertia, this law basically means that things tend to stay exactly the way they are unless something comes along to change them.

From a personal finance standpoint, one could interpret this to mean that once you form money habits, you will continue to follow them.  That goes for bad habits, like spending more than you earn, but it applies to good habits as well.  In other words, form good money habits such as paying yourself first, spending less than you earn, and using automatic withdrawals to help make your saving easier.

Newton’s Second Law of Motion can be summarized as F= ma.  It describes the relationship between an object’s mass, its acceleration, and applied force.  In English, it defines how much force is needed to move an object of a certain size at a certain speed.  For example, if there is a giant rock in your garden that weighs 100 pounds Newton’s law will tell you how hard you’ll have to push it to move it out of your way.

Kind of like an online calculator that tells you how much money you need to save to reach your goals.  In this case Newton’s Second Law would describe the relationship between your age, your savings rate, and the amount you will need to save in order to retire.  The older you are when you start saving, the harder you’ll have to work to reach your goals.

Newton’s Third Law of Motion is perhaps his most famous and can be summed up pretty simply as for every action there is an equal and opposite reaction. 

Remember in that little video how the rocket ship fired its engines toward the Earth and that caused the rocket to take off?  Now instead of rockets let’s think about your savings account.  Each time you spend money on one thing, your account decreases and you have less money to spend on other things.  Every purchase is a trade-off.

It sounds like common sense but how often do we actually stop and think about it before whipping out our credit cards?  If you remind yourself that every purchase you make will only delay your goals (retirement, a home, a wedding) then you’ll find yourself considering each purchase more carefully.  Suddenly, a lot of that “stuff” that you can’t live without won’t seem quite so important.