Life before money was sometimes unbearable. Let’s say you had two goats, some homegrown tomatoes, and a sack of salt, and you needed eggs. You would try to find someone who had eggs, but is in dire need of one of the things you have. If it turned out that the guy with the eggs actually needed lettuce, you would try to facilitate a three-way deal, trading some of your salt, goat-milk, or tomatoes for lettuce, so you can trade it back for eggs. If the eggs-guy was still around by the time you got the lettuce, you would be in luck. If not, you would make yourself a lettuce and tomato salad.
Bartering was highly inefficient, and the introduction of a uniform currency made life a whole lot easier. You could now sell some salt to get just the right number of coins to get you the eggs you needed, and the eggs-guy could buy some fresh lettuce with the coins you gave him. On the surface, money created a uniform, objective standard. Yet while the purchasing power of money is indeed objective, its value remains subjective. Money is a means to an end, and the end varies wildly between people.
People are motivated to have access to money for one of the following general reasons:
- To Feel secure and risk-free by accumulating financial assets (a million dollars in the bank)
- To be able to experience new things (three week trip to rural Japan)
- To be able to realize dreams and aspirations (write my first novel)
- To buy material things that have some utility (60 inch LCF TV)
- To feel more important than other people (using observable status symbols like luxury brands)
To buy happiness, you have to use money for a purpose that resonates with you the most and that is known to be effective. If you are not doing that, you are basically paying with your happiness to obtain money – a pretty sour deal.
Here are few things to consider about the five motivations mentioned above, to help you form your money strategy:
If money means security to you, your goal is to have a nest-egg of assets, so that you are ready for whatever risks and challenges may come in the future: retirement, sickness, and the future needs of your children, parents, or other close relatives. Money you spend is therefore subtracted from the accumulation of that nest-egg, along with the interest it could have accumulated over the course of years. If you own a home, you probably view it as a financial asset – an investment that yields a return and grows its value over time. People who use money to buy security are typically more future-oriented – but sometimes future-negative, because security is associated with worry. Keep in mind that this is again subjective: some people may have a great sense of security with no savings, while others feel the lack of security with millions of dollars in the bank.
Recent research in positive psychology has shown that for most people, money is best spent on positive experiences. From the perspective or time-orientation, positive experiences are related to being oriented towards the present moment, and therefore promote mindfulness a developed sense of appreciation. Because positive experience have a dramatic and lasting effect on one’s well-being, it’s good to try to extend them as much as possible. For example, when you plan a family vacation, spend time in advance preparing and imagining what it would be like, and when you get back allocate time to go over your photos and videos, arrange them, and create an album that will help you relive the experience in the future.
When it comes to stuff you own, distinguish between the actual material possessions and the experiences they provide. A big house with a backyard pool can host parties and family gatherings, but could also be a pain to clean and maintain. A motorcycle can bring you inner peace and the experiences of a lifetime, or take up space in your garage and require maintenance even when it’s not in use during winter. The considerations of ownership of things vs. renting or other ways to obtain the same experience have to do with the frequency of use weighed against the cost of ownership, but at the end of the day it’s the experiences that count. Buying stuff for the sake of owning it only gets you the downside without the fun.
Making Dreams Come True
Money can help make dreams come true. Whether you dream about traveling to exotic locations, starting a new business endeavor, or changing the world, you will most likely need some funds to turn your dreams into reality. Similarly to security-seekers, people who look at money as a dream-making instrument, are future-oriented and will often defer the joys of the moment in favor of living their future dream. The big difference is the positive focus: while security is all about avoiding the bad things that could come in the future, dreamers focus on the good things they will do. The two strategies represent two fundamentally different evolutionary strategies and to one’s perception of survival. There’s a world of a difference between planning for the dreams you will accomplish when you retire, to securing a sum of money that should never be touched, unless something really bad happens. Planning for the good things is both good for your well-being, and could also be a self-fulfilling prophecy.
Feeding the Ego
If you spend your money on things for the sake of the utility they provide, you are actually buying experiences, things that you intrinsically value or enjoy, that matter personally to you. Yet the motivation for spending could be extrinsic: to show off, or to put on a display of wealth for others. Luxury brands often focus on such external appeal more than on the functions that products provide: the luxury car parked in your driveway, or the large-sized logo on the front of your shirt. The thing to watch for here is motivation: if you got your new Tesla because you care for the environment but would still like to enjoy your driving experience, you may enjoy countless hours of fun. If you got it only to impress your neighbors, you may find yourself regretting your purchase very quickly.
Whether you need to make decisions about your finances, form a strategy for future-savings, or build a budget for your ongoing spending, always remember what money means for you. Use your money to create great experiences in the present and in the future, avoid buying stuff you are not excited about or things that you want to show off. Remember that like money, happiness is also a currency, and at the end of the day the goal is to buy some happiness instead of exchanging it for cash.