Very rarely do I find a personal finance article that resonates me as much as one I recently read called “How to Live a Happier Financial Life.” First, I love the title. When it comes to finances, sometimes we get so caught up in the numbers that we forgot the whole point is is about maximizing happiness not money. Sometimes that means spending more money on certain things but often it actually means spending less. The article’s following points do a good job of differentiating which is which:
Biggest Time Waster: Commuting
I remember hearing that the length of their commute is the biggest indicator of how unhappy someone is. I don’t know how accurate that is but there has to be some truth in it. After all, time spent commuting is less time doing whatever else would make you happier, whether that be a hobby, spending time with family or friends, sleeping, or even working. That’s why they say time is money.
Yet, when people are choosing where to live, the length of their commute tends to play second fiddle to sexier topics like how nice the home is or how cool the neighborhood is. When I was in law school, I chose to live across the street from campus rather than a more fun area and it was one of the best decisions I made. Now I work from home most of the time so it’s not an issue for me. Instead, I chose to live within walking distance of the places I tend to go to the most and I find that it’s worth paying a premium for.
Best Investment Attribute: Humility
I can’t tell you how many people love to tell me what they think the market is going to do or how overpriced it is. The reality is that no one has consistently outperformed a simple buy and hold strategy by timing the market. Many people have lost a lot of money trying though.
The same goes for investing in individual stocks. If the vast majority of mutual fund companies run full-time by some of the smartest people on Wall St with all the resources of the major investing firms can’t beat the market over the long term, what makes you think you can? (If you can, you ought to be a running a mutual fund since you’ll probably have more fun and make more money than you are now.) If not, understand that it’s not much easier to pick a fund that will beat the market either since very few do and those that do tend to actually do worse than the average fund going forward.
So what should you do? Be humble by buying simple, low cost index funds and holding them for the long term. You’ll outperform the vast majority of people who think they can do better.
Key to Financial Success: Cheap Housing
I’m a big believer in how small savings can add up to big savings over time, but big savings can add up to even bigger savings over time. For most people, the biggest expense is their home. But this is a particularly dangerous expense because it’s also typically the hardest to get out of if you need to.
If you pay extra for a shorter commute, you can save money by buying or renting a smaller place. It may feel a little uncomfortable at first, but I’ve lived in both large and small homes and found myself adjusting to both to the point where it didn’t really matter. Having a bigger place just meant having to walk farther to get to the bathroom.
Best Way to Spend Money: Experiences
So what should you spend money on if not housing? One is experiences. My girlfriend and I love to dine out and travel. While I can certainly cut back a little here too with more meals cooked at home, I definitely feel like I’m getting more of my money’s worth in both time and enjoyment than if I spent it on the latest gadget.
There are always exceptions but if you think about it, you’ve probably enjoyed the experiences you paid for more than the gadgets you bought. When you consider that a lot of experiences also cost little to no money, you’re getting even more bang for your buck. So if you’re going to treat yourself, do so with experiences that you’ll remember fondly rather than another toy that you’ll quickly tire of.
Top Financial Goal: Not Working For Money
This is the other main thing I like to “spend” money on: financial freedom. The more you have in savings, the less financial stress and anxiety you’ll feel. When you have enough savings, you can even decide to walk away from your job and do something else, whether that’s travel, a more enjoyable but maybe less lucrative career, or fulfilling your entrepreneurial dreams.
You don’t have to hate your job to appreciate not having to do it. I love mine but I would also love having those kinds of options. In fact, we recently had a couple of former employees who took what they learned at Financial Finesse to leave and start their own companies.
So what’s the bottom line? Spend less on housing and trying to beat the market and more on a shorter commute, experiences, and financial freedom. While there’s no guarantee, your odds for a happier financial life will likely be greater.