I’m a big fan of Chris Guillebeau and his Unconventional Guides series. I love his unflagging optimism and his appreciation for the weird and wonderful ways people find meaning in their lives. Recently, he teamed up with J.D. Roth of Get Rich Slowly (GRS) fame and put out a GRS Guide for purchase on his website. I had been in a funk lately and was sort of aimlessly surfing the internet one day when I found this guide. The program includes access to interviews from key people in personal finance; budget calculators and goal-setting sheets; and weekly emails for the next year. It was an easy decision to buy it: I wanted to focus on making some positive changes in my life and this seemed like a good place to start.
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I have always been interested in the link between money & happiness. As someone that had some pretty significant stresses on my financial resources from a young age*, I don’t know that I’ve had a lot of opportunities to practice balanced budgeting.
Alexa von Tobel, CEO of Learnvest, speaks passionately about personal finance in her TedXWallstreet Talk. She tells us that money is the number one thing that young people worry about in their lives and that 75% of people feel out of control with their finances. With 61% of Americans living from paycheck to paycheck, Alexa asks: How did we get here? Alexa uses a case study to illustrate her point.
She introduces us to Jessica, an English major graduating from University with $25,000 in student loan debt and $4000 in credit card debt. Jessica doesn’t have a budget because she believes her brand new $35,000 job barely pays her enough to live. Why bother? She doesn’t have any money anyways. She’s excited and rents out her very first apartment in an expensive city. Jessica ends up spending 65% of her income on essential expenses instead of the recommended 50% suggested by experts. We follow Jessica through her life and a series of financial decisions that eventually leave her financially dependent on her children in her old age.
What the point of this crazy depressing case study? Alexa points out that we make decisions about money without looking at the bigger picture. We need to talk about money, learn about money, and teach about money. As part of that, we need to find ways to be happy with the money we have now so we can be secure in our future.
So what does that mean? The GRS Guide talks about how money can buy you happiness – but only to a certain extent.
Money & Happiness: Buy experiences – not Iphones
A recent Wall Street Journal article discusses how certain financial habits bring greater satisfaction than others. The writer quotes a study that showed people tended to spend more on material goods than they do experiences, reasoning that the goods are better value because they last longer than a great concert or an exotic vacation somewhere. As it turns out, paying for experiences gives you longer term happiness than possessions. In other words:
“What we find is that there’s this huge misforecast,” he says. “People think that experiences are only going to provide temporary happiness, but they actually provide both more happiness and more lasting value.” And yet we still keep on buying material things, he says, because they’re tangible and we think we can keep on using them.
You’re more likely to look back on your vacation to Mexico with some girlfriends more fondly than you would a pair of Ferragamo flats from last year.
Money & Happiness: Save the children – not ourselves
The GRS Guide called this prosocial spending. We tend to feel more fulfilled donating money or buying gifts for others than we do if we spend it on ourselves. There is reward in helping others that simply cannot be matched by the self-interest that drives much of our personal spending. Personally, I donate to a charity called Plan Canada. I sponsor two children: a boy in Egypt and a girl in Ecuador. I like this charity because I get to exchange letters with the children and get regular updates on their progress. Another cool options is microphilanthropy which gives you a very personal connection with the cause you’re donating too.
Money & Happiness: Buy smaller indulgences
We’re going to be happier if we indulge more often on small things than if we buy more expensive things only once in awhile. Maybe there is something to the latte factor after all. I’m not talking about mindless purchases we make because we’re bored or restless, I’m talking about a savvy splurge that’s planned for and accounted within our budgets. For me, I’m happy eating peanut butter sandwiches for lunch but nothing gets me out of bed in the morning like a tall, half caf, extra hot, Caramel Macchiato.
Going back to my original points about my own experiences with balanced budgeting, I have always approached money with a feast or famine approach – usually famine. Since I’m more of maker of money than I am a saver, living on a restrictive budget has always been really stressful for me. I knew that I needed to keep a future-oriented mindset for my money but exercising that in my daily life was hard when there never seemed to be enough money ever.
All these little steps I’ve described, and a few more in the GRS Guide, have helped me appreciate the importance of the small ways I can balance my brain and my budget.
*Having a child early in life and hefty student loans will do that, trust me!