Money can buy you happiness
Judson Meinhart, CFP?, BFA?, CTS?
I help you get more life out of your money ??? | Financial planner for high achievers who'd rather be golfing | Author: Golfer's Guide to Money
Are you ready to dominate your financial course?
Then you came to the right place.
I’m super happy you're here.
Over the past few weeks we’ve covered how to grow and protect your income.??
Today we're going to tackle the age old question, "Can money buy you happiness?"
I think it can, but it's probably not how you think.
If you’re feeling loose, let’s tee one up on…
Spending your way to happiness
The American consumer spends more than $15 billion a year, but what are we really getting for our money?
According to the Bureau of Labor Statistics, housing, transportation, and food account for 60% of total expenditures.?
The remainder of those expenditures, roughly $6 billion, goes towards some mix of taxes, entertainment, and things that should be making us happier.
Right?
Research has shown that while a person’s well-being rises with their income and levels off at a certain point, their happiness or satisfaction with their life will continue to grow with their income.?
Having more money can make you happier.
If that’s the case, then we should be able to learn something by studying how people with more money spend theirs.
How the top 20% of Americans spend their money
Earning more than $225,000 would put you in the top quintile of American households. If you earn this much, you're among the top 20% of all earners in the country.
These aren’t the one-percenters on private jets.?
These are your neighbors who sometimes splurge for business class.?
This group:
By looking at their spending patterns, we can see that the top 20% of households spend more of their money on:
Taxes, booze, debt, and fancy cars.?
Is this the secret to happiness or the start of a VH1 Behind the Music on Motley Crue?
The Four Areas of your Financial Course
According to the USGA, there are five areas on the golf course.?Everything is the “general area” except for the teeing area, bunkers, penalty areas, and the putting green.?
This makeup provides a nice framework for how to think about our money.?
Each shot you make on the golf course has a certain value.?
It should move you closer towards your goal, but a poor shot, like one into a bunker or the water, can increase your expected score.?This is Mark Broadie’s shots gained approach.
Each dollar you spend has the same impact.?
You save a certain amount of money for your future goal of eventually buying back your time, but where do the rest of your dollars go on your way from tee to green?
The money you spend lands in one of four places:
If you play enough golf, you’re going to encounter each of these four places with some frequency.?
The key to a better score is to keep your ball in places where your expected score goes up (fairway and rough) as opposed to going down (hazards and bunkers).
Keep your cash flow in the fairway
If you want a better score, you keep your ball in the fairway.?Common sense.
Well, if you want to achieve a greater level of happiness with your spending, you should spend more on the things that make you happy.?Duh.
How do you do that?
1.??Avoid the hazards
Generally, fees, penalties, and interest have little to no value when it comes to happiness and you should either avoid them altogether, or, in the case of interest, be smart about it.
Late fees, minimum balance charges, administrative fees, convenience charges, they may seem small, but it’s death by 1,000 cuts.?
Credit card debt is a killer.?Carrying a balance, even a small one, turns small splurges into expensive propositions.?Strive to pay off your balance every month.?Delay gratification for things you can’t afford today.
When you do have to take on debt, make sure your acquiring an asset (like a home) or improving your earning power (like getting a degree) to counter-balance the transaction.
2.??Be smart around the bunkers
The best golf course architects know the best place for a bunker is the exact spot that tempts us enough to challenge it.?These are your taxes.
Avoidance is not the answer.?
If you avoid paying taxes now by deferring everything you’ll be in for a heck of a tax bill at some point in the future.?
Paying taxes on income is inevitable.?The IRS is going to want their share of all that money you've got in your 401(k) eventually.?It's a matter of when and at what rate will you pay them.?
Seek to pay taxes at the lowest effective rate.
This means paying taxes in years when your income is low, like early in your career or during retirement.
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And deferring taxes in years when your income is high, like mid-career during your peak earning years.
3.??Manage the rough
Things we need to spend on, like food, housing and transportation will always be there.?That’s the rough.?
As you earn more, these expenses should comprise less and less of your overall budget, provided you manage them appropriately.
The rough only gets us into trouble if we spend too much time there.?
It’s the house that’s too big, or the new car you’re getting before you paid off the last one.?Most times, we’re taking on debt to make these purchases, which also leads to interest expense.?That’s when too much time in the rough starts to cause penalties.?
4.?Keep your swing aligned
Just like golf swings, there are a plethora of methods to help you direct more dollars to the things that bring you the most joy.
Harvard Psychologist Daniel Gilbert and his co-authors came up with a list of suggestions for spending our money to make us happier.?
Among their suggestions are:
For those who are more philosophical, you can develop a financial statement of purpose to guide your day-to-day use of money.?
For the more visually inclined there’s the financial vision board.
Personally, I use something called the alignment model, which is about directing more of the dollars I spend towards the things that support my values.??
?
Aligning your financial swing
This alignment model is a three step process of aligning how you use money with what’s most important to you.?
1 - Identify your values: What is most important to you?
Value, in this sense, is defined as a person's principles or standards of behavior; one's judgment of what is important in life.
If you don’t know what your values are, there’s a number of exercises you employ to help you identity what’s most important to you.?Here's one.
My core values include stability, health, challenges, leadership, and independence.
2 - Set goals: What would you like to achieve?
This is where the magic starts to happen.?
What’s something that you’ve always wanted to do, but have never committed to putting in the time, money, or effort to achieve it??How is this aligned with your values?
You might have a value of “adventure” which is why you should start planning for that African safari, or maybe one of your values is philanthropy and you should engage in some planning to determine how you can make the biggest impact with your money.??
My value of challenges leads me to create some crazy “bucket list” goals, like running a marathon or becoming a New York Times best-selling author.??????
3 - Take actions: How will you achieve your goals?
A goal without a plan is just a wish.?
Identify the concrete steps you will take to achieve your goals.?I’ll never run a marathon if I don’t commit to a race and start a training program.?Achieving this goal will take a significant amount of time and effort, but it’s capital spent given that it’s in alignment with what’s most important to me.?
Positive swing thoughts
“Smash Factor” has to be one of the coolest sounding stats in golf.?For the unanointed, Smash Factor measures the amount of energy transferred from the golf club to the ball.?For example, if your swing speed it 100 mph and your ball speed is 150 mph, you have a smash factor of 1.5.
Smash Factor will vary depending on the player and club.
The average PGA Tour player has a Smash Factor of 1.49 with their driver but a 1.38 with their 6 iron.?
An average golfer, with a 14 handicap, has a smash factor of 1.44 with their driver.
Why is this stat relevant to money and happiness?
Think of dollars as your club speed and happiness as your ball speed.?
What’s your smash factor on the dollars you spend?
Are you getting more enjoyment, more happiness, more positive vibes from the dollars you’re spending or do your expenditures feel hollow?
If you’re feeling the latter, it might be time to realign your swing.
Until next time, smash ‘em!
PS - If you found this information valuable, I'd be honored if you shared it with a fellow golf fanatic (or a spouse who misses them).?I believe financial literacy has the power to change peoples' lives. By sharing this article or tagging a friend in the comments you can be a part of that change with me.
Looking for more??Be sure to subscribe so you don’t miss next weeks edition of Master the Green where we'll tackle another important question - How much should you have saved for retirement? You won't want to miss this one!
In a bit of personal news, I'm super excited to share that earlier this month that my old firm joined Modera Wealth Management. It's been a lot of fun meeting new colleagues who are aligned with the vision of putting clients first and providing fiduciary advice.
If you want to feel more confident about your financial swing? I'd love to help. We'll build you a course map so you can achieve your financial goals and keep your cash flow in the fairway. The best part? It's totally free. Get started by booking your fitting today.
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1 年Brilliant analogy, Judson. Thank you for sharing. I just question what that 75k when the came out equals today?