Another Installment from Wellbeing by Tom Rath

Stating the obvious, having enough money to meet your basis needs and provide good health care is directly correlated to your wellbeing.  Also, money can increase our short-term happiness by giving us more control over how we spend our time.

•  Spending money on yourself does not significantly boost wellbeing.
• Spending money on others is as important to people’s happiness as the total amount of money they make.
• Buying experiences increases our wellbeing and that of others.
  • Enjoyment of experiences lasts longer than things: looking forward to it, doing it, remembering it indefinitely.
  • If income is less than $25K, material things and experiences are about of same value
  • If income is greater than $25K, then experiences bring about 2-3 times the level of wellbeing compared to material purchases.

•  There is a component of financial satisfaction that involves our comparative economic wellbeing to others.
• This is a trap, because the Jones next door will always have something that we don’t.
• If we have a satisfying life from the other areas of wellbeing—in our careers, our social network, our health and our community involvement—then there is less need to play the comparative game.

•  Do cash flow planning with positive defaults

  • Credit cards act as a “decoupling device” because they separate the joy of the immediate purchase from the pain of the payment, which is off in the distant future.

• People that are thriving in their finances tend to set up a system and use technology to pay bills, pay down debt and save for experiences on a regular basis.

• People that live below their means alleviate stress and guilt from overspending.

Wealth Accumulation vs. Financial Security

• People with thriving wellbeing put more focus on financial security (and lack of worry) than increasing their net worth.
• Financial security—the perception that you have more than enough money to do what you want to do—has three times the impact of your income alone on overall wellbeing.
• A lack of worry about money has more than double the impact of income on overall wellbeing.
• Financial security is both possible and practical for people across a range of income levels
• People with thriving wellbeing:
  • Are satisfied with their standard of living
  • Don’t worry about money in their everyday lives
  • Have confidence in their financial future
  • Things that detract for financial wellbeing:
    • Pursing a wealth accumulation strategy that contains risk which causes daily stress
    • Taking on debt to buy a larger house or nicer car or something else that produces an uncomfortable burden
    • Managing your finances well allows you to do what you want to do when you want to do it.

Summary

People with thriving Financial Wellbeing are satisfied with their overall standard of living.  They manage their personal finances well to create financial security.  This eliminates day-to-day stress caused by debt and helps build financial reserves.  People with high Financial Wellbeing spend their money wisely.  They buy experiences that provide them with lasting memories.  They give to others and don’t just spend on themselves.  As a result of managing their money wisely, they have the financial freedom to spend even more time with the people whose company they enjoy the most.

 Three Recommendations for Boosting Financial Wellbeing

1.  Buy experiences—such as vacations and outings with friends or loved ones.
2. Spend on others instead of solely on material possessions.
3. Establish default systems (Automated payments and savings) that lessen daily worry about money.