Financial Planning is all about helping you reach the point where you can spend all the money that you want without having to earn it first.
As planners and wealth managers, we tend to concentrate too much on the process. We ask questions such as – Are you saving enough every month, are your investments growing fast enough, are they tax efficient, is there enough in the pot?
What we should also be focusing on is the goal – how best to spend the money that you have, now and in the future.
So how can we spend to achieve the maximum possible positive impact?
In the book “Happy Money – The Science of Smarter Spending,” university professors Elizabeth Dunn and Michael Norton explain how spending money in the right way can lead to greater happiness and overall satisfaction in life. The scientific research that they undertook, led them to single out the best five ways to spend your money :
- Buy experiences, not things: When we buy material possessions, we get used to them quickly and they lose their novelty. Experiences, on the other hand, provide us with memories that we can cherish for a lifetime. Research has shown that people who spend money on experiences rather than material possessions are happier in the long run.
- Invest in others: Spending money on others can also lead to greater happiness. Giving gifts, donating to charity, or simply treating a friend to lunch can all boost our own happiness as well as that of the recipient.
- Prioritize time over money: Time is a precious commodity that we can never get back. Research has shown that people who prioritize time over money are generally happier and more satisfied with their lives. This means that it is often worth paying a little extra for convenience or outsourcing tasks to free up more time.
- Make it a treat: We can increase our enjoyment of things by limiting our exposure to them. By making something a treat, we can savour and appreciate it more. “When there are always biscuits in the tin, where is the fun in biscuits? “
- Buy now, consume later: If we pay for something well in advance, like concert tickets or a holiday we actually increase our enjoyment of it. This is because we are looking forward to it more, and savour the anticipation and eventually enjoy the experience more when we finally consume it.
The above rules clearly apply to discretionary rather than essential spending. In the real world, paying the mortgage and the gas bill is no fun at all.
Perhaps though we should question ourselves next time we buy that fancy watch, car or house. Is this the best use of our money? Is it making us happier?
What do you think? Please leave us a comment below.
