Wednesday, April 14, 2010

MONEY OR HAPPINESS: WHICH IS MORE IMPORTANT?

By J.D. Roth, Bloomberg

When we focus on monetary goals, we run the risk of becoming trapped on the 'hedonic treadmill'

Here's the opening paragraph from my forthcoming book, Your Money: The Missing Manual. It's the sum of everything I've learned during my five year journey to get rich slowly:


"You don't want to be rich and  you want to be happy. Many people mistakenly believe that the former leads to the latter. While it's certainly true that money can help you achieve your goals, provide for your future, and make life more enjoyable, merely having money doesn't guarantee happiness."

Many of us (including me) get wrapped up in the belief that having more money is the key to a better life. But it's not. The key to a better life is increased happiness. For some people, that does mean more money. But according to the research Tal Ben-Shahar shares in his book Happier, most of us would be better served by:

Creating rituals around the things we love to do.
Expressing gratitude for the good things in our lives.
Setting meaningful goals that reflect our values and interests.
Playing to our strengths instead of dwelling on weaknesses.
Simplifying our lives  and  not just the Stuff, but the time.

We're more likely to lead happy lives by putting these principles into practice than by getting another raise at work and  especially if the increased income would only lead to increased spending. When we focus on monetary goals, we run the risk of becoming trapped on the "hedonic treadmill" (also known as lifestyle inflation), working harder and harder to make more and more money. This does not lead to happiness.

SOMETIMES MONEY CAN BUY HAPPINESS

Wealth and happiness aren't mutually exclusive, of course. According to financial writer Jonathan Clements, financial stability improves well-being in three ways:

If you have money, you don't have to worry about it. By living below your means, you can obtain a degree of financial control even if you aren't rich. Avoiding debt gives you options.

Money can give you the freedom to pursue your passions. What is it you want out of life? What gives you a sense of purpose? These are the sorts of things you want to pursue in retirement. Better yet, try to structure your career around something you love to do.

Money can buy you time with friends and family. In fact, Clements says, true wealth comes from relationships, not from dollars and cents. Social capital is worth more than financial capital.

Money is a tool. As with any tool, a skilled craftsman can use it to build something amazing: A meaningful life filled with family and friends. But if you're not careful, if you don't have a plan, the life you construct with your money can be a tenuous thing and  even dangerous.

LESSONS LEARNED

Studies show that the pursuit of money is less likely to bring personal fulfillment than focusing on self-improvement and, especially, close relationships with others. Here are a handful of lessons I've learned during my research into the connection between money and wealth. I didn't come up with any of these ideas; they're products of actual research into what makes us happy:

People who are materialistic tend to be less happy than those who aren't. If your aim is to have more money and more Stuff, you'll be less content than others whose goals are built around relationships or mental/spiritual fulfillment. (Because I'm a perma-geek, I'm always reminded of what Princess Leia says to Han Solo in Star Wars: "IF MONEY IS ALL THAT YOU LOVE, THEN THAT'S WHAT YOU'LL RECEIVE.")

Oversaving does not lead to happiness. While it's important to save for the future (and to cope with current emergencies), research shows that oversaving can actually have a negative impact on your quality of life. If you're meeting your goals for saving, it's okay to spend some on the things that make you happy.

Experiences tend to make us happier than material things. We have different reactions to the money we spend on experiences and the money we spend on Stuff: When we spend on experiences, our perceptions are magnified (meaning we feel happier or sadder than when we spend on Stuff), and the feelings tend to linger longer. And since most of our experiences are positive, spending on activities instead of material goods generally makes us happier.

When we lower our expectations, our happiness increases. High expectations come when we compare ourselves to others or when we're bombarded by advertising.

We come to accept the things we see on TV as "normal", and because we don't have these things, we feel inadequate. Our expectations rise, and before long we're caught up in lifestyle inflation. But if we can consciously manage our expectations and  both financial and otherwise and  we can increase our sense of well-being.

Really, there's only one way to ever be satisfied with how much money you have: You must define how much is Enough. True happiness comes when you learn to be content with what you have. If you don't take the time to figure out what Enough means to you, you'll always be unhappy with your financial situation.

HOW MUCH IS ENOUGH?

Enough looks different to each of us. It's not just different amounts of money, but different types of wealth. For me, Enough is having my home paid off and cash set aside to let me buy books and go out to dinner with my wife once in a while. For you, Enough may mean living in a small apartment but owning a boat and having the freedom to sail for months at a time.

To find Enough, you have to set goals. You have to look inside to find your values. It can take months or years to get clear on what makes a meaningful life for you, but after you've done this, you can make choices that reflect your priorities.

After all, that's why you're doing this. You're not building wealth just so you can bathe in buckets of cash. You're building wealth so you don't have to worry about money, so you can pursue your passions, and so you can spend time with your family and friends.

Remember, my friends: True wealth isn't about money. True wealth is about relationships, about good health, and about continued self-improvement. True wealth is about happiness. Ultimately, it's more important to be happy than it is to be rich.




Lovely Thoughts for Lovely People Just Like You

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