Life Has to Be Balanced With Fame Money and Family.

Chapter i. It's More Important to Be Happy Than to Be Rich

" Happiness, not gold or prestige, is the ultimate currency ."

—

Y'all don't desire to be rich—you want to be happy. Although the mass media has convinced many Americans that wealth leads to happiness, that's not ever the example. Money can certainly help you accomplish your goals, provide for your future, and make life more than enjoyable, just merely having the stuff doesn't guarantee fulfillment.

This book volition show you how to brand the almost of your money, but before nosotros swoop into the details, information technology's important to explore why y'all should care. Information technology doesn't do much good to acquire about chemical compound interest or high-yield savings accounts if you don't know how money affects your well-being.

If personal finance were every bit unproblematic equally understanding math, this book wouldn't be necessary; people would never overspend, go into debt, or make foolish fiscal decisions. But enquiry shows that our choices are based on more than simply arithmetics—they're likewise influenced by a complex web of psychological and emotional factors.

This chapter gives you a quick overview of the relationship betwixt money and happiness. You'll also learn techniques for escaping the mental traps that brand it difficult to be content with what you accept. Every bit yous'll see, you don't need a meg bucks to be happy.

How Money Affects Happiness

The large question is, "Can money buy happiness?" There'due south no elementary answer.

"It seems natural to assume that rich people will be happier than others," write psychologists Ed Diener and Robert Biswas-Diener in Happiness (Blackwell Publishing, 2008). "Only money is only i role of psychological wealth, and then the picture is complicated."

There is a strong correlation between wealth and happiness, the authors say: "Rich people and nations are happier than their poor counterparts; don't permit anyone tell y'all differently." But they note that coin's touch on happiness isn't as big as you might think. If y'all have apparel to wear, nutrient to eat, and a roof over your head, increased disposable income has simply a minor influence on your sense of well-being.

To put information technology another way, if you're living below the poverty line ($22,050 annual income for a family of four in 2009), an extra $5,000 a year can make a huge divergence in your happiness. On the other hand, if your family earns $70,000 a yr, $5,000 may exist a welcome bonus, but it won't radically change your life.

So, yeah, money can buy some happiness, merely as you lot'll see, it's simply one piece of the puzzle. And in that location's a real danger that increased income can actually brand y'all miserable—if your want to spend grows with it. Only that's not to say you accept to live similar a monk. The fundamental is finding a balance between having besides little and having also much—and that's no easy task.

Note

A recent article in the Journal of Consumer Inquiry showed that, in general, our feelings for textile purchases fade more quickly than they do for experiential purchases. Material appurtenances depreciate: The twenty-four hours after you buy something, it's commonly worth less than you paid for information technology. Experiences, on the other manus, capeesh: Your memories of the things yous do—vacations you take, concerts you go to—become fonder with time because y'all tend to recall the positives and forget the negatives.

The Fulfillment Curve

American civilisation is consumption-driven. The media teaches you lot to want the clothes and cars you see on TV and the watches and jewelry you come across in magazine ads. Yet studies show that people who are materialistic tend to be less happy than those who aren't. In other words, if you desire to exist content, you should ain—and want—less Stuff.

Note

Because Stuff has such an important role in your happiness (and unhappiness), it deserves a uppercase S. You'll read more than about Stuff throughout this book, especially in Affiliate five.

In their personal-finance classic Your Money or Your Life (Penguin, 2008), Joe Dominguez and Vicki Robin argue that the relationship betwixt spending and happiness is non-linear, meaning every dollar y'all spend brings you a little less happiness than the 1 before it.

More than spending does lead to more than fulfillment—upwards to a bespeak. Simply spending as well much tin can really have a negative impact on your quality of life. The authors suggest that personal fulfillment—that is, being content with your life—tin can exist graphed on a curve that looks similar this:

Figure one-1. The Fulfillment Curve

This Fulfillment Curve has four sections:

• Survival . In this role of the bend, a little money brings a large gain in happiness. If you lot accept nothing, buying things really does contribute to your well-being. You lot're much happier when your basic needs—nutrient, clothing, and shelter—are provided for than when they're non.

• Comforts . Afterwards the basics are taken care of, you brainstorm to spend on comforts: a chair to sit in, a pillow to slumber on, a second pair of pants. These purchases, too, bring increased fulfillment. They make you happy, but non as happy equally the items that satisfied your survival needs. This part of the bend is still positive, merely non as steep as the first section.

• Luxuries . Somewhen your spending extends from comforts to outright luxuries. Yous move from a small apartment to a abode in the suburbs, say, and you have an entire wardrobe of clothing. Yous drink hot chocolate on wintertime evenings, sit down on a new sofa, and have a library of DVDs. These things are more comforts—they're luxuries, and they make you happy. They push you to the peak of the Fulfillment Curve.

• Overconsumption . Beyond the height, Stuff starts to take control of your life. Buying a sofa fabricated you happy, so you buy recliners to lucifer. Your DVD collection grows from xx titles to 200, and you drink expensive hot chocolate made from Peruvian cocoa beans. Soon your firm is so full of Stuff that you lot have to buy a bigger dwelling house—and hire a storage unit of measurement. But none of this makes you whatsoever happier. In fact, all of your things become a burden. Rather than adding to your fulfillment, buying new Stuff actually detracts from it.

The sweetness spot on the Fulfillment Bend is in the Luxuries section, where money gives you the most happiness: Y'all've provided for your survival needs, you take some creature comforts, and y'all even have a few luxuries. Life is grand. Your spending and your happiness are perfectly balanced. You have Plenty.

Notation

Yup, Enough gets a capital E, as well. You'll acquire more nearly deciding how much is Enough later in this chapter. (And don't worry: There aren't any more than words with goofy capitals ahead.)

Unfortunately, in real life you don't take handy visual aids to show the relationship between your spending and your happiness; you have to effigy out what Enough is on your ain. But equally yous'll meet in the next section, because we've been conditioned to believe that more money brings more happiness, most people reach the peak of the Fulfillment Curve and and so keep on spending.

Defenseless Up in the Rat Race

Typically, as your income increases, your lifestyle grows with it. When your boss gives you a raise, you want to reward yourself (you deserve it!), so y'all spend more. All that new Stuff costs money to buy, store, and maintain. Gradually, your lifestyle becomes more expensive so you lot have to work harder to earn more. You think that if just yous got some other heighten, then you'd have Enough. But in all likelihood, yous'd but repeat the process by spending even more.

Psychologists call this cruel bike the hedonic treadmill, though you probably know information technology every bit the "rat race." People on the hedonic treadmill recollect they'd be happy if they just had a little more money. Just when they get more money, they observe something else they want. Considering they're never content with what they have, they tin never have Enough.

Virtually Americans are stuck on this treadmill. According to the U.Southward. Census Bureau (http://tinyurl.com/demography-inc), in 1967 the median American household income was $38,771 (adjusted for inflation). Dorsum so, less than ane-5th of U.S. families had colour TVs and just one in 25 had cable. Compare that with 2007, when the median household income was $50,233 and nigh everyone had a widescreen colour Boob tube and cablevision. Americans now own twice as many cars as they did in 1967, and we have computers, iPods, and cellphones. Life is adept, correct? Just despite our increased incomes and cloth wealth, we're no happier than were in the '60s.

Note

In example it'due south been a while since your concluding math class, here's a quick refresher: If you have a set of numbers, half of them will exist greater than the median, and half will be less. The median is usually unlike from the boilerplate. For case, in the grouping of numbers two, 3, 4, 5, and 101, the average is 23, but the median is but four. (If economists talked nearly average incomes instead of median incomes, their numbers would be skewed by billionaires like Warren Buffett.)

Since 1972, the National Opinion Research Center has been polling Americans about their happiness (http://tinyurl.com/norc-gss). As y'all can encounter in the following graph, the numbers oasis't changed much over the past 35 years. Virtually 1-third of Americans consistently say they're "very happy" with their lives (http://tinyurl.com/gss-happy), while a picayune less than i-3rd say they're "pretty well satisfied" with their fiscal situations (http://tinyurl.com/gss-satfin).

Figure 1-2. Info from the National Stance Inquiry Center's General Social Survey

If Americans are earning more, why aren't they happier? We've been led to believe that prosperity brings peace of mind, simply it turns out your grandfather was right: Coin isn't everything.

The bottom line: Money can't brand you happy if your increased wealth brings increased expectations. In other words, if y'all want more than every bit you earn more, you lot'll never be content; there will e'er exist something else you crave, so you'll demand to work even harder to get the money to buy it. Y'all'll be stuck on the hedonic treadmill, running similar a hamster on a wheel.

The hedonic treadmill leads to lifestyle inflation, which is just equally dangerous to your money as economic inflation; both destroy the value of your dollars. Fortunately, you can control lifestyle inflation. You can opt out, step off the treadmill, and escape from the rat race. To do that, yous have to set up priorities and make up one's mind how much is Enough. The next department shows y'all how.

How Much Is Enough?

Kurt Vonnegut used to recount a chat he had with fellow author Joseph Heller (Vonnegut published this anecdote as a poem in the New Yorker). The ii writers were at a party thrown past a billionaire when Vonnegut joked, "How does it feel to know that our host makes more in one day than Catch-22 [Heller's best-known work] has made in its entire history?" Heller responded, "I've got something he can never have. I've got Plenty."

Knowing that you have Enough tin can be better than having billions of dollars. If y'all're obscenely rich but aren't happy, what practiced is your money? Contentment comes from having Enough—not too niggling and not too much. But how much is Enough?

There'southward no simple answer. What's Enough for yous may not be Enough for your best friend. And what you need to remain at the meridian of the Fulfillment Curve (The Fulfillment Curve) will alter with time, so Enough is a chip of a moving target. It's tough to define Enough, just there are some steps you tin can take to figure out what it ways to you.

Understand your goals and values

If y'all don't know why you're earning and spending coin, then you tin can't say when you have Enough. So take fourth dimension to actually call back well-nigh what having Plenty means to yous. Talk over it with your family, and explore the idea with your best friend. Is beingness debt-free Enough? Beingness able to pay cash for a new boat? Having a million dollars saved for retirement? Decide what Enough means to you, and and then write it downward. If yous don't take an end in sight, yous're at greater risk of getting stuck in the rat race.

Note

Personal goals are so critical to fiscal success that you'll spend all of Chapter 2 learning how to fix them.

Practice conscious spending

Because the notion of Enough is so vague, the all-time way to approach it is to be mindful of your financial habits. The act of consciously choosing how y'all spend tin help y'all brand purchases that are in line with your goals and values.

Ramit Sethi popularized the concept of witting spending in his book I Will Teach You to Be Rich (Workman Publishing, 2009). The idea is to spend with intent, deliberately deciding where to direct your money instead of spending impulsively. Sethi argues that it's okay to spend $5,000 a year on shoes—if that spending is aligned with your goals and values and you've made a witting choice to spend this way (as opposed to spending compulsively—encounter Curbing Compulsive Spending).

If y'all're new to conscious spending, try asking yourself the following questions:

• Did I receive value from this equal to the amount I spent ? In other words, did you get your money's worth? You already know that $100 spent on ane matter isn't ever as proficient as $100 spent on another. Conscious spending is about striving to get the virtually blindside for your buck.

• Is this spending aligned with my goals and values ? Conscious spending means prioritizing: putting your coin toward the things you love—and cutting costs mercilessly on the things you don't. If yous're happy with the java at the office, and so don't waste your money at Starbucks. But if your extra-hot nonfat caramel latte is the highlight of your day, then purchase the latte! Spend only on the things that matter to yous.

The box beneath tells the story of Chris Guillebeau, who has fabricated a lot of unorthodox choices to be sure his spending matches his priorities.

Reduce ataxia

If you have so much Stuff that you lot need to rent a storage shed, you have more than than Enough. If the Stuff leads to ataxia that stresses you out, you've passed the peak of the Fulfillment Bend and your added luxuries are bringing y'all less happiness, not more.

Purging clutter tin be a profound feel, just it can be difficult, likewise: Y'all don't want to toss annihilation out because you might demand it someday, or it has sentimental value, or it may be worth something.

Getting rid of Stuff only hurts for a fiddling bit. In one case yous've pared your belongings, it'southward similar a weight has been lifted; you feel costless. Some people find the process so liberating that they get farther and practice voluntary simplicity, fifty-fifty to the point of moving into a smaller home. For example, Dave Bruno is chronicling his fight against materialism at his website (http://tinyurl.com/100thingchallenge); his goal is to ain only 100 personal items.

Tip

Living Green: The Missing Manual suggests lots of slap-up means to de-clutter your life.

Seek balance

A counterbalanced life is a fulfilling life. To detect balance, you accept to figure out how much is Plenty for you—the indicate where you're content with what you have and tin can say "this much, simply no more."

Once you lot define Enough, you gain a sense of freedom. You're no longer caught up in the rat race and accept time to pursue your passions. You tin can environment yourself with family unit and friends, and rediscover the importance of social capital—the value yous get from making personal connections with people in your community (see Social Capital). And because y'all no longer experience compelled to buy more Stuff, yous can use your money to save for things that truly matter.

It'southward Not Most the Coin

If vast riches won't bring you peace of mind, what will?

In a 2005 effect of the Review of General Psychology, Sonja Lyubomirsky, Kennon Sheldon, and David Schkade looked at years of research to figure out what contributes to "chronic happiness" (as opposed to temporary happiness). Based on their survey, they came up with a three-part model:

• About half of your happiness is biological . Each person seems to have a happiness "set point," which accounts for roughly 50% of your sense of well-being. Because this set point is genetic, information technology'south difficult to change.

• Some other ten% of happiness is based on circumstances—external factors across your control . These include biological traits like age, race, nationality, and gender, besides as things like marital status, occupational status, job security, and income. Your fiscal situation is part of this 10%—but only a part—which means information technology accounts for just a fraction of your full happiness.

• The final 40% of happiness comes from intentional activity —the things you choose to do . Whereas circumstances happen to you, intentional activeness happens when you act by doing things like exercising, pursuing meaningful goals, or keeping a gratitude journal.

Co-ordinate to the authors, because circumstances—including your financial situation—play such a small role in your general contentment, it makes more sense to boost your bliss through intentional activity, by decision-making the things yous can and ignoring those you tin can't. (You tin read the unabridged article at http://tinyurl.com/hmodel.)

Although your fiscal situation plays just a small role in your overall happiness, most people believe information technology's more than important than that. Because of this, many Americans spend their lives striving for more than money and possessions—just observe that this materialism makes them less happy.

If you're caught up in the rat race, you may be dealing with things like credit card debt, living paycheck to paycheck, fighting with your spouse over money, and working a chore you hate. These problems all stem from one issue: lack of control. When you feel like you lot have no control over money, you lot're worried and stressed. By taking charge of your finances, you can get rid of many of these stressors and be happier. Wealth gives yous options and makes it easier to focus on things that can make you content.

This book volition teach you specific ways to gain control of your finances. The start pace to leading a rich life is learning how to set priorities.

Living a Rich Life

Living richly means figuring out what to spend your time, money, and energy on—and what to ignore. Since you can't accept everything, you have to prioritize. This ways spending money on things that thing to you—and skimping on things that don't.

Psychologists mostly hold that a life well-lived is rich in:

• Security . Information technology'south hard to exist happy when you're constantly worrying about how to pay the bills. If you have money, you don't have to worry about those things. (But, as you now know, y'all don't have to be rich to be happy.) Past living below your ways and avoiding debt, you tin gain some financial command over your life.

• Relationships . True wealth comes from relationships, non from dollars and cents. Wealthy or poor, people with five or more close friends are more apt to describe themselves as happy than those with fewer. A long-term, loving partnership goes hand in mitt with this. And as you lot'll acquire later on (Social Capital letter), social upper-case letter tin be worth as much as financial capital letter.

• Experiences . Every bit explained in the Note on How Money Affects Happiness, memories tend to grow more positive with time, but Stuff usually drops in value—both actual value and perceived value. As Gregory Karp writes in The i-ii-iii Coin Plan (FT Printing, 2009), "Experiences appreciate, assets depreciate." And in Your Money and Your Brain (Simon & Schuster, 2008), Jason Zweig notes, "Doing and being are better than having."

Remember these three pillars of happiness and you tin can build a rich life even on a limited income.

To further meliorate your human relationship with money, keep these guidelines in mind:

• Prioritize . Spend on the things that make you lot happiest. In that location's cipher wrong with ownership things you'll apply and enjoy—that's the purpose of coin. If y'all're spending less than yous earn, meeting your needs, and saving for the time to come, you can afford things that make life easier and more than enjoyable. (For another way to prioritize, run into the box on Living a Rich Life.)

• Stay good for you . There's a stiff tie between health and happiness. Anyone who's experienced a prolonged injury or illness knows just how emotionally—and financially—devastating it can be. Eat right, exercise, and go enough sleep (Your Body: The Missing Manual has loads of tips on how to do all those things).

• Don't compare yourself to others . Financially, psychologically, and socially, keeping upwards with the Joneses is a trap. You lot'll always accept friends who are wealthier and more than successful in their careers than you. Focus on your own life and goals.

• Limit media exposure . Mass media—specially TV—tries to persuade y'all that happiness depends on things you don't really need and can't afford. Studies have found that watching lots of Tv can influence your levels of materialism—how much yous recall you need to exist happy.

• Simplify . The boilerplate Joe believes that materialism is the path to happiness—only the boilerplate Joe is wrong. Research shows that materialism really leads to unhappiness and dissatisfaction. By simplifying your life and reducing the amount of Stuff yous ain (or want to ain), you'll salvage money and be happier.

• Help others . Altruism is i of the all-time ways to boost your happiness. Information technology may seem counter-intuitive (and maybe even a piddling self-serving), but donating to your church or favorite charity is a proven method for brightening your day.

• Embrace routine . Emerson wrote, "A foolish consistency is the hobgoblin of little minds," but at that place'south evidence that some consistency is conducive to contentment. In Happier (McGraw-Hill, 2007), Tal Ben-Shahar recommends building routines effectually the things y'all dearest: reading, walking, gaming, knitting, whatever. Because it can be hard to make the time for these activities, he argues that we should make rituals out of them. If y'all savor biking, brand a ritual out of riding to the park every evening, for instance. (See the box below for tips on finding time for what you love.)

• Pursue meaningful goals . As you'll acquire in the next chapter, the road to wealth is paved with goals, and the aforementioned is truthful of the road to happiness. Only for a goal to be worthwhile, it has to be related to your values and interests—it has to add together something to your life. Chapter 2 will help you make up one's mind what goals to set.

The lesser line is that if you tin can't be content, y'all'll never lead a rich life, no affair how much coin you accept. The central to money management—and happiness—is being satisfied. It's not how much you have that makes y'all happy or unhappy, but how much you desire. If you desire less, you'll be happy with less. This isn't a psychological game or New Age mumbo-jumbo, information technology's fact: The lower your expectations, the easier they are to fulfill—and the happier y'all'll be.

That'south non to say you should lead an aimless life of poverty; quite the opposite, in fact. Merely virtually people confuse the means with the ends. They chase after coin and Stuff in an try to experience fulfilled, but their choices are impulsive and random. Their "retail therapy" doesn't accost the root cause of their unhappiness: They lack goals and an underlying value system to assistance guide their decisions.

In the next chapter, you'll learn how to create meaningful financial goals that are aligned with your passions. And so you'll be able to use these goals to make amend decisions about money. These choices will, in turn, help you live a happier life.

Note

For an excellent look at how to be happy, option up a copy of Gretchen Rubin'southward The Happiness Project (Harper, 2009).

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Source: https://www.oreilly.com/library/view/your-money-the/9780596809430/ch01.html

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