One recent study suggests that beyond a certain point, people with more money are less happy.
What really matters is how you save.
You don’t have to earn a lot to become wealthy. I’ll show you how to get much more mileage out of what money you have.
WHY DO YOU WANT TO BE RICHER?
Books about money and investing are full of info on how to boost your wealth. But I’ve never seen one that also asks ‘why?’.
At first that might seem a silly question. More money buys us more things and more experiences, and that adds up to more happiness, right?
Not necessarily. Lots of research shows that once we have a certain amount of money enough to easily cover the basics and have some fun, having more doesn’t necessarily make us happier. In fact, one recent study suggests that beyond a certain point, people with more money are less happy. More on this later in the book.
For five years I taught a course on financial literacy to non-Business School students at the University of Auckland. Worried that students might think my main message was ‘the more money, the better’, I asked every student to attend a discussion group where we looked into what made people happy, and the role of wealth in that.
Before coming to the class, the students were asked to do the following (which I dreamt up one day on a long drive). You might want to try it.
1. Write a list of eight individuals or couples you know well.
2. Give each one a score of 1 to 5 for wealth, with at least one getting a 1 and one getting a 5.
3. Give each one a score of 1 to 5 for happiness again with at least one 1 and one 5.
4. See if the high scorers for wealth are also the high scorers for happiness.
Some students found the two were correlated that wealthier people tended to be more content. But many saw no clear correlation, and every now and then someone saw the opposite their poorer friends and relations tended to have a better time.
On balance, though, the students did tend to know more happy rich people than happy poor people. So is the research wrong?
Nick Powdthavee, a UK professor of behavioural science who looked at a great deal of research for his book The Happiness Equation, raises an intriguing question: Does wealth make us happier, or do happy people get wealthier?
He found that happy people:
– tend to be more creative and productive
– have better health which tends to lead to more wealth
– are more likely to be financially successful
It seems that happiness is more likely to lead to wealth than the other way around.
As Nobel Peace Prize winner Albert Schweitzer put it: ‘Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.’
If you start out with a happy disposition, there’s a good chance you’ll end up well off. If you start out grumpy, you’re less likely to do well financially. Of course, you might get lucky with money, but it’s unlikely to change your outlook on life.
So where does this leave you, as you’re starting to read a book about investing? Why try to get richer if it probably won’t make you happier?
Check back to what I said above. While wealth and happiness don’t seem to be highly correlated after you’ve got the basics well covered, many of you will feel you haven’t covered all the basics yet.
Nobody would argue that if you’re struggling to cut credit card debt, or to get together a deposit for a modest first home, or to save up enough to do some fun things in retirement, having a few more bucks wouldn’t be welcome.
Even if you’re financially comfortable, more money gives you more choices. These might include supporting others, from family members to charities.
So, while it may not make sense to put lots of time, effort and worry into absolutely maximising your wealth, it does make sense to take a few straightforward steps to make your money work better for you.
Read this book, take the steps that apply to you, and you’ll have the money stuff sorted. You can then spend less time working and more time getting on with things that will really improve your wellbeing.
What might that be? At the end of the book, we’ll look a little further into some of the fascinating research about what makes people happy. But for now, let’s get on with making you financially strong enough to make the most of your life.
START NOW, IT’S EASY
In which we . ..
– Observe that laid-back investing is good
– Compare savvy Sally and slow Suzy
– Also compare the apprentice and the graduate
– See that you’ll have a lot more than twice as much if you save for 40 years instead of 20
– Learn that compounding is a friend for savers, a foe for those in debt
– Discard those ‘You need a million dollars’ messages
People often ask me if I’ve read the latest book about the share market or investing. ‘No’, I reply. ‘There are too many good novels to read. Besides, a lot of what’s written about investing isn’t much and sometimes it’s actually a big worry. It can persuade readers to take steps that will do them more harm than good. When it comes to investing, laziness is good.
That might sound crazy. In pretty much everything else we do, from running marathons to getting promoted fast at work to mastering the piano to creating a magical garden, the more work we put into it the better we’ll do.
But investing is different.
We all know people who put hours into their investments. They read the financial pages, and listen to the economists who tell them, more like guess actually, what’s likely to happen in the next year. Then they read about which investments have done well lately. On the strength of that they choose which shares or bonds to buy or sell, and when to buy or sell them.
And guess what? Most of them end up with less than you will after you’ve read this book, set up your investments and got on with other things. It’s sometimes called ‘Set and forget’.
Let’s not be misleading here. I’m not saying you should never do anything after the initial set-up. Every few years it’s a good idea to do a quick review of your investments. But the changes you might make are easy half-hour sort of stuff. There’ll be more about this in Step 6: ‘Stay cool’, but for now, let’s look at the basics.
Three ways to get more savings
It’s quite simple, really. The three ways to get more savings are:
1. Earn more.
2. Save more.
3. Be smarter with what you do with your savings.
Of course, it’s also great to get a pay rise either in your current job or by starting a new job.
During my extended OE in the United States, I still recall the excitement of moving from a smalltown Michigan newspaper, the wonderfully named Jackson Citizen Patriot, to the Chicago Daily News. The pay rise meant less than the thrill of knowing I would work with some great journalists. But still, my pay went from something like $US14,000 to $US21,000 a year, not to be sneezed at back then when a dollar was worth a dollar.
Chances are you will get at least one huge pay jump in your life. Fantastic! But that’s not what this book is about. It’s not what you earn, but how much you save that matters. And, perhaps more importantly, what really matters is how you save.
Key message: You don’t have to earn a lot to become wealthy. I’ll show you how to get much more mileage out of what money you have.
I know the feeling. Practical friends tell me I should get the runners on the sliding door to my deck fixed. I don’t understand much about things like that, and I don’t know who to ask, and it all gets too hard and doesn’t happen.
Maybe you feel that way about your finances. The ‘Don’t Know and Don’t Know Who to Trust’ syndrome finds us doing nothing, week after week, year after year. With my house, it might matter if it all starts falling apart. With your money, there are no ‘ifs’. It will matter. Muck around for a year or two and you can end up retiring with much, much less.
But don’t panic! This book will teach you how to invest your money. It’s not hard I promise. . .