LOUISE FAIRSAVE: Spending the right way
Financial planning hopefully will help to keep our lives more in line with our long-term objectives and goals. Ultimately, we aim to be happy and contented throughout our lifetime. Planning our personal finances particularly helps us to provide for our retirement and old age. The biggest challenge is that we do not know how long we will live.
In addition, what is the merit of being more in control of our finances if we are not happier along the way? So today, we look at the aspect of advancing positive feelings, (our happiness), by how we spend – by spending right.
The typical assumption is that more money means more funds to do as we please, and so, greater happiness.
Empirical psychological testing has shown that there is a positive relationship between having more money and being happier, yet that relationship is much weaker than we expect.
Wealthy people can afford more and better toys; better nutrition; better medical care; and more leisure to spend enjoying friends and/or family. Yet tests have demonstrated that they are not that much happier that the average person. In fact, the tabloids often reflect the gross unhappiness of some of the world’s most famous and rich people.
Money can provide the opportunity for us to increase our happiness. However, we more often than not tend to pursue the things that we think will make us happy to later find out that those things do not build our happiness. Here, then are five tips on spending right:
1. Spend more on enjoyable experiences rather than on acquiring toys. The memory of an enjoyable experience can boost your mood over and over again whenever you think of it, plus enjoyable experiences are likely to be shared with dear family members or friends. Imagining and remembering a pleasant experience can be a wonderful therapy that can be accessed virtually anywhere, any time. On the other hand, the joy of the toy is more in its use. This use tends not to provide as profound positive feelings and it is often limited, more so to the time of use.
2. Be charitable by helping others or donating time or money to a good cause. We humans are essentially quite social beings and our psyche gets a boost when we engage with others positively. People who give nice gifts to others and/or donate to charity have demonstrated a higher happiness rating.
3. Indulge in many small pleasing experiences rather than saving up for that big one. Simply put, your happiness will be built up and sustained more by two personal treats spread over a two-month period rather than one big treat at the end of the same period. There is just more anticipation and more to remember.
4. Avoid holding on to guarantees like the extra cost of warranties and insurance. Life is not all happy, yet we need not fear life; we are all more resilient than we think. Furthermore, we learn and grow from those experiences, too.
5. Avoid the credit card syndrome – consume now and pay later. The merchants will come at you with “no down payment”; “one cent down”; “don’t pay for six months” and so on. To succumb is to move into the impulse-buying realm. It is much better to plan and to anticipate the purchase by saving up and consuming as you can afford (which may include some debt).
I encourage you to spend right and be happy.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.