Money Obedience

Donald Cole, an historian, talks about his life experiences in an interview entitled “The Power of Adaptation.” At the end of this interview it says, "Money makes a difference to a point, and after that there are very diminishing returns. People in abject poverty are less happy than people who are modestly well-off, but people who are modestly well-off are not less happy than very rich people."

What conclusions can we draw for our own personal finance from his statement? I think it is pretty clear that we need to focus on, first, avoiding dire poverty, and second, our meeting our basic needs. But the conclusion is that as long as we can keep ourselves and our loved ones warm and fed, it should not be so far a stretch from there to be able to lead a fairly happy life. So, for example, when we employ a retirement planning calculator or a net worth calculator, we should really make sure that we are setting ourselves up in a position that allows us to cover our basic needs. This in turn allows us to lead a happy life, if that is what we really want to pursue. The point is not to seek out a lot of money for luxuries, for having it in our retirement account or in our net worth will not add a great deal to our happiness.

Did you hear the one about the two boys who received gifts in their Christmas stockings? One got an expensive gold watch, and the other, horsecrap. On Christmas morning, the one with the watch was anxious - how could he be responsible for such a valuable and delicate thing? He vowed never to touch it just in case he'd break it. The other boy was ecstatic, and shouted "Santa gave me a pony! Now, all I have to do is find it!" In a way, this joke expresses what I'm driving at here. First, riches do not bring happiness, and second, gaining access to life's joys can be a matter of perspective.

Which brings me to another thought: Sometimes we may be too focused on money issues which can actually become the source of unhappiness. This can happen even if our economic well-being is not necessarily in jeopardy. Money and the luxuries money can buy can become another excuse to feel unhappy about yet another thing.

Don't get me wrong: money can also be the excuse to feel good, as long as you have sufficient amounts of it. I have known many happy people who were not that well off economically, and I have known at least as many people who have a bunch of money but who don't appear that happy to me. I know from my own life during which my income has fluctuated a bit that these fluctuations in income have never had a severe impact on my happiness. Sure, I did not feel so good when I made a bit less money after having made a lot the year before, but I never got to the point that my economic well-being was in danger. Besides, whenever I had a good year, I knew that it might not last and that I should not base my life style on such a higher income. When a worse year rolled around, I was not caught off guard. I still felt blessed that I had a great income the year before. This attitude has allowed me to adapt easily to new circumstances, especially a lower income. And the ability to adapt seems to contribute to my happiness much more so than a few thousand dollars extra in my bank account.

Let me ask you now. How well do you think you can adapt to new circumstances? And more importantly, what actually contributes to your well-being? What is important to you?

Today, I’m highlight once again the whole idea behind this blog – the connection between our personal finances and our overall wellbeing. The main idea is that we’re ultimately only seeking a good quality of life, not more money, a higher income, or better success with our investments. These last things: they’re a means to an end, but not the end. The end all be all is being happy.

Money itself is only the means that allows us to enjoy life. Of course, we need enough to keep a roof over our heads, keep us clothed and fed. But we seek to have neither a very large and expensive roof over our heads, nor designer clothes, nor twenty pairs of jeans, nor any other things that are pretty meaningless in the final analysis. We know that life is not more enjoyable if we have fancy cars, a bunch of shirts in our closet, or great jewelry to show off our spending power. You know that saying that no one, on their death beds, says “I wish I’d spent more hours at work”? Well, no one says “I wish I spent more money on my cars” or “I wish I had bought more mugs.”

We think life is more enjoyable if we don’t have to worry every day about money, if we get to spend time with our family and friends, and if we know that our families will be okay even under worst circumstances (life insurance anyone?).

Spending time with loved ones, well, that does not cost any money at all! Sure, we sometimes go out to dinner with friends or take the kids to the zoo. But generally speaking, spending time with family and friends is a pretty cheap but very rewarding activity. We know that the time we spend with people whom we like and/or love adds to our quality of life. We also know that the nice pair of designer jeans does not add much to our quality of life. It definitely does not add so much that I would want to worry about damage to my savings or credit card bills as a result of buying designer jeans and other such superfluous things.

The bottom line is that things do not make us happy. People we like and/or love and the time we spend with them is what makes us happy. It is as simple as that.

Even though the average cost of a wedding in the United States fell $6,000 in the last year, thanks to the recession, the average US couple still spends $21,814 on its wedding (according to CNN Money). The latest report on median individual income is $26,625! (People living in the suburbs of major cities make slightly more, and those with a four-year college degree or higher making on average just below double the median amount, according to the Current Population Survey). Given those numbers, it’s clear that a couple intending to marry has to either save a great deal beforehand or agree to pay down a large debt afterward just to have an average wedding ceremony. Granted, you could argue that some of the wedding expenses are recouped by the couple via gifts. Nonetheless we are still talking about some serious money here – a whole year’s income for most people, and half for those who have invested a great deal already in their education (and might have the student loans to show for it!).

The upside: the “big day” normally leads straight up to the honeymoon, when the couple spends lots of quality time together as married folk for the first time in their lives. That is the way it ought to be. Start out happily and then we all hope to enjoy the rest of our lives together.

Alas, divorces are the reality for many. About 20% of all marriages end within 5 years of the “big day” and 33% are over by the 10th anniversary. (The data you hear quoted as “50% of all marriages end in divorce” means that in all lifetimes of all married people taken together, half of those couples’ marriages will likely end in divorce. Presumably, the other half ends in the death of a spouse.) Remarriages have a worse prognosis. While the marriage itself might have been worth a try, the wedding day expense might hardly seem worth the investment – especially if it ends before the ceremony’s all paid for!

(Before you jump to the conclusion that living together might be better – these relationships are even more unstable: 49% of these are over by year 5, 62% by year 10. You’d save yourself the wedding expense by shacking up, but you don’t necessarily save the relationship. But I digress… let’s stick to discussing the married folk for the moment.)

Married couples start out spending lots of money on the wedding and then spending lots of quality time together on the honeymoon. But what happens afterwards? How much time do we spend on each other once we are settled in our marriages? How much do we “invest” in our marriages?

I haven’t even discussed the negative financial impact a divorce has on each partner of a failed marriage. (Please go to the post “Better Finances for Married Couples” for more on this topic.) To avoid financial ruin as a result of a crisis in the love department, it makes sense to keep investing time and money in the relationship to preserve a relatively higher net worth. Never mind the personal and emotional aspect of having a good marriage… the financial part of the marriage should be motivation enough to keep investing in the relationship!

The smart thing to do, then, if you’re going to marry or live in a marriage-like relationship, is to approach your joint financial future the same way you would other big investments, like retirement. Every month you put money into the retirement account (right?), so you move closer to accumulating a good chunk of money over a very long time. You should do the same with your marriage. Invest a little bit regularly to get tremendous pay-offs later. How about a weekly date night? How about surprising your spouses with their favorite things every now and then, just for the heck of it? (My spouse loves a clean house – you can see the stress just melt off him when it’s spotless. Me? I go for the gooey stuff: hot baths, foot rubs, or just let me fall asleep with my head on your lap while we’re watching TV.)

Invest a little in your partnership over time, and watch your investment grow into a long-term love that pays big financial and emotional dividends. You get to that point by, as vilkri-he says “by pulling on the same end of the rope” instead of pulling against each other. Imagine spending a comfortable retirement with your life partner at the end of all that! What could be better?

These great aunts are enjoying a comfortable retirement as the world economy is falling apart. They deserve it. They had their share of hardship in their early lives. Most of us have experienced very little of such hardships in our lives. Is it our turn to experience hardship?

Regular readers of this blog may know that I have the privilege to have some elderly relatives who enjoy sharing with me their outlook on life. I love talking to these relatives who happen to be in their 80s and 90s. (The drawback to knowing I have the genes for longevity genes is that I have to save a bunch of money for retirement. Chances are that I will also live for a very long time!)

A couple days ago I talked to two Great Aunts of mine who live very close to each other in Europe. They are both wonderful people who have kept up with the times. They are also fortunate enough that they do not need to worry about their financial well-being for at least another 90 years.

Naturally, as we were chatting, our conversation turned to the current economic crisis. My Great Aunts related the current crisis to their own lives. They witnessed some serious hardship, since their childhoods were lived right as World War I ended. Soon afterward, they experienced the bonanza of the 1920, which in turn ended with the Great Depression. As if that was not enough, World War II followed which lead to tremendous destructions all over Europe. It took until the 1950s for their lives to become what we think now as “normal.” By that time my Great Aunts had seen it all – except for the really good times. And they were well into their adult lives then.

What Americans call “The Baby Boom Generation,” and all following generations, have not as a whole experienced the hardship that the generations before us have. Most of us alive in the U.S. and now working are the lucky ones who have enjoyed a more or less peaceful existence in material abundance. But for many of us, that abundance has come to an end, with the turmoil in local and global economies. (Let’s hope even as the economies suffer, a relatively peaceful global existence will be maintained.) As a whole, we will have to tighten our belts for the foreseeable future. But we will hopefully come out of the current crisis with renewed vigor so that we can once again enjoy our (material) lives – even if we must act in ways that are more measured and more responsible than in the recent past.

What did my Great Aunts have to say about my part in all that? They are, of course, very personal with me: they wished me well. They know I need their good wishes because I am young enough that I will have to adjust my expectations a bit, and maybe even for the rest of my life. They know very well that it is a lot harder to face difficult times if you have only experienced easy times. They told me that life now was not so difficult for them because by now they could go from difficult times to easy times and back without a lot of trouble. I hope my Aunt’s wishes for me are realized, and I wish the same ease of transition for you.