“Financially independent people are happier than those in their same income/age cohort who are not financially secure.”
– The Millionaire Next Door, page 46
If you want to buy happiness, the best thing you can do with that money is to use it to approach financial security, and then do that same thing consistently each time you want to buy happiness.
Why does that make a difference? Building toward financial independence is one of the few things you can do with your money that makes a lasting positive difference in almost every avenue of your life.
Most things that you can buy might provide a burst of happiness, but then it quickly fades. Even if you buy things with the strict goal of improving your life, almost all of them require you to add some additional effort to the mix – think of gym memberships or cooking equipment in this category.
There’s almost nothing you can buy (beyond covering essential needs) that will actually increase your happiness just by simply buying it except buying financial security. It’s not fun or glamorous. It just leads to lasting happiness.
So, how do you “buy” financial independence or financial security? You can’t just go to the store and find something on the shelf that says “financial security” on it, take it home, and bask in the happiness. What can you do?
It’s simple. You buy financial security when you pay off personal debt. When you send money to a credit card issuer to lower your credit card balance, you’re buying financial security and, over time, that will lead to happiness. When you make an extra mortgage payment, you’re buying a bit of financial security.
Similarly, you buy financial security when you save money for the future. When you put money aside for an emergency fund in your savings account at a local bank, you’re buying financial security. When you invest money for retirement, you’re buying financial security.
Those moves, when repeated over and over, lead to happiness. Not only do they cause a lot of the background worries about life to slowly erode, they open up a lot of opportunities that previously didn’t exist. You can retire at a normal age and not have to work a demeaning job just to keep food on the table. You can go back to school and train for a different career.
That’s happiness. That’s life changing. Knowing that things are stable, knowing that you can follow a different route if that’s what you want, that’s incredibly powerful.
Spending your money on a daily “treat” or an occasional big meaningless splurge doesn’t bring anything powerful at all. It just numbs the concerns of life for a bit, and that numbing fades.
So, why doesn’t everyone do this, then? If this is the key to happiness, why doesn’t everyone do it?
First of all, it doesn’t provide an immediate burst of joy (or at least not a strong one). The moment of buying something, and a bit of the anticipation and decision process, feels good in that moment. The decision to save money or to pay off debt often lacks that good feeling, at least in the moment.
The joy that comes from good financial moves is a long tail. Each good financial move you make is like a small increment of lasting happiness.
I like to think of it this way: whenever you use money, it’s kind of like spraying water on a hot summer day. You can spray a little bit of water on someone sprinkler-style for a quick burst of coolness, but that water dries up quickly and everyone’s back to being just as hot. Otherwise, you can put a little bit of water into an empty swimming pool. If you keep making the swimming pool choice, eventually it will fill up and everyone can go swimming in the pool and cool off together, but it takes a long time to fill that pool and meanwhile there is no quick relief.
Quite often, we’ll choose that quick burst of water from the sprinkler rather than putting a little bit in the pool, but that quick burst won’t create lasting joy.
Second, the “glass half empty” perspective is easy to buy into because the distance seems so vast. Often, the goal of being financially independent seems so far away from where you’re at that the little steps you might take are easy to write off as making no difference. When you have $80,000 in student loans and $200,000 in a mortgage and need to save $800,000 for retirement, the thought that choosing not to spend $5 on some splurge seems so small by comparison that it’s not worth it. Even worse, the sheer amount of financial ground that one feels that they have to make up can feel just utterly overwhelming.
However, looking at the glass half empty instead of half full is the wrong approach.
Rather than looking at your huge remaining student debt, remind yourself of how much you’ve paid already – and furthermore how much benefit you’ve already gotten from those loans. It’s likely that they’ve helped you get a job and, if not, they’ve helped you have some powerful experiences and grow as a person. You already have this. All you’re doing when you pay off a student loan is building upon the value that you already have.
Rather than looking at how much you should be saving for retirement, consider what you already have – Social Security benefits and whatever you’ve saved so far – and recognize that every single subsequent dollar you put into that pool will make your life just a little bit better. Skipping little forgotten treats now means something hugely meaningful down the road, like being able to afford the trip to be present at the birth of a grandchild.
Don’t obsess over what you don’t have. Look at what you do have. Don’t fret over how far there is to go. Rejoice in how far you’ve already come.
Finally, the idea of life with fewer “treats” seems unappealing. Many people buy into the perspective that in order to build financial independence, they must give up a bunch of the perks that they have in life and that their life will become barren and empty. “I don’t want to stay home every evening washing Ziploc bags and eating lentils!” they shout.
The truth is that a frugal life isn’t a barren life at all, it’s just a different life.
Rather than going out to an expensive restaurant, I’ll have a bunch of friends over for a potluck.
Rather than going shopping, I’ll go for a hike in the woods.
Rather than doing thing X that I might enjoy that costs money, I’ll instead do thing Y that I might enjoy that doesn’t cost money.
If you carry that forward, you start to ask yourself questions about every spending situation. Is this really the most worthwhile thing I could be doing with this money? What’s something that’s more worthwhile for the buck? That thinking starts to nudge you toward decisions like buying store brands or using the library rather than buying name brands or buying a DVD or a book whenever you’re bored.
If you start applying that thinking to everything, lots of money decisions begin to look different. Lots of life decisions begin to look different.
Eventually, you realize you’re not actually giving up much joy in your day to day life. Instead, you’re just finding new ways to enjoy day to day life that really aren’t any less joyful than the previous ways, but you’re also filling up that proverbial swimming pool I talked about earlier.
That swimming pool, as it fills, becomes a source of truly lasting happiness. It really is the tide that lifts your entire life.
So, the next time you wonder if you can buy happiness, the answer is yes. You buy it by being financially responsible and seeking daily choices that bring you joy without just throwing money at the problem. Over time, those choices grow into lasting contentment and happiness.