Today we have a guest post from my friend Aaron! Or A-A-Ron as our group of friends like to call him. Aaron is another one of my friends who is so passionate and knowledgeable about personal finance that he could easily pass as an expert! For his first post, he decided to share less about the tips, tricks and hacks that he uses and instead, shares about how he views money in relation to happiness.
I love putting things in a different frame of reference.
It’s Thanksgiving week so before I get into how to view/save/earn money, let’s take a minute to see what riches we already have.
- Every time I take out the trash I think to myself “This is awesome. I have an ‘inside’ where I live. Many people live on the streets or in makeshift housing. I have trash, which in many places people might be scavenging through to find useful bits.”
- When my past roommates were messy and I found myself cleaning after them, I would tell myself “Man, I’m lucky to have this opportunity to practice perseverance, patience, and humility. My future wife will be happier and if that means a few less arguments, great!”
- Traffic irks me, but when it happens, I remind myself “Many people probably don’t get to experience traffic, let alone drive their own car. I’m chillaxing and listening to music or an audiobook.” If it’s the summer and I’m really feeling mentally ambitious I’ll push it and realize that some crazy people PAY to sit in this free sauna I’m getting right now! (Ok that’s maybe a bit of a stretch)
Basically, think positive. Think different. Count the blessings you already have. Reframe your current situation. After all, Happiness = Reality divided by Expectations, but more on that in a sec.
Today I’m actually not even going to talk about saving or earning money. If Annie invites me to write a follow-up post(s) I’ll touch on those, but for now, I’d like to simply start with how we should view money; how it should play into our happiness, and how much we’re actually earning/spending.
Are we working for money, or are we working for happiness? I won’t go so far as to explore what the purpose of life is, but I’m pretty sure we can all agree happiness is more of an end goal for us than to simply accumulate wealth. Some studies have shown that higher income does bring happiness, but only up to a salary of about $75,000. Additionally, experiences bring more happiness than possessions. Here’s even a story of a guy who realized he worked half his life away for money, finally realizing he really screwed up. Ultimately, money is not the goal. It’s a tool for us to reach the goal in our proverbial pursuit of happiness.
Money should be seen as a security blanket, a way for us to not need to worry if we’ll have a roof over our heads or food on the table. Money can’t buy things like time, relationships, health, generosity, youth, and character. How much is peace of mind worth to you? I envision having and raising a family to be one of the best experiences life can bring. Is it more important to provide in excess for your family, or to be part of your family? No one on their deathbeds ever muttered “I wish I made more money.”
These notes are all very quintessential, but when talking about money we can’t ignore the numbers. One good equation I’ve come across is the following:
There are two ways to increase happiness. Either lower your expectations, or enhance your reality. Or do both! Enhancing reality in a fiscal sense can be working towards that next raise, beginning a healthier lifestyle, or finding ways to improve your character. When I say “lower your expectations” I don’t mean in a lowly downtrodden sense. (Tie-in to intro here!) I mean to reframe your outlook on the way you expect things to be in life. Instead of being happy when the trashcan is finally emptied, only to be disappointed when reality reveals a full trashcan, lower expectations until happiness happens even when the trash can is full. If every day you rush out the door and hope for less traffic during your commute to work, you only leave room for disappointment when there is traffic as usual. If however, you leave for work five minutes earlier, expecting there to be traffic, on the off chance you arrive at work early, all is good.
Let’s tie this into some hard numbers. Here’s how I like to see how much I’m really spending/earning. This isn’t a rule of thumb or anything, just a point of view I find useful when putting earnings and expenses into perspective, and being more realistic about finances. Assuming one has a salary of $50,000 a year. After taxes, it’s looking closer to about $40,000 a year. If you tithe, it’s probably closer to $35,000. That’s 30% of your income right off the top. In effect, every $10 meal at a restaurant, including tax and tip, is actually closer to $15 of pre-tax income. (A multiplier of 1.5 of what you’re actually spending!) When you signed on to that $50,000 job, you expected to have $50,000 to spend. Right off the bat, you can see how very quickly the reality is that it’s actually closer to $33,000 ($50,000/1.5). Isn’t that so disappointing?! With our earnings getting taxed and our spending also getting taxed, the reality of our spending power quickly diminishes.
If we reframe how we see our level of income and calibrate it to be lower (lowering our expected spending power), our reality stays the same, resulting in a higher level of happiness. “For some reason, even making $50,000 I can only afford this much?!” sounds very different from “$33,000 of effective income totally makes sense for where I am right now!”
I hope you found this insightful and an impetus to your happiness. Next time I’ll talk about some fun stuff like making at minimum $7,500 from spending money like you normally do, what credit cards I keep in my wallet, and why I withdraw money from an ATM only once a year.
Aaron has agreed to write more so expect to see another post from him in December!