The Secret to Financial Happiness

In her new book, All the Money in the World: What the Happiest People Know About Getting and Spending, Laura Vanderkam says that many of us are unhappy about our finances because we’re not thinking about money in the right ways. Next Avenue asked Vanderkam to reveal the secret to financial happiness.

Money, we're told from an early age, cannot buy happiness. Think Ebenezer Scrooge, who was rolling in dough yet miserable. And we've all heard stories about lottery winners whose windfalls seem to bring misfortune, not to mention celebrities for whom affluence enables self-destruction.

There's just one problem with these anecdotes: They are, well, anecdotal.

In a world of 7 billion people (and that doesn't include the fictional ones), you can find stories to support any theory imaginable. The fact is, stripped of drama and moralizing, money is essentially a means of exchange. It can lead to trouble, sure, but it can also pay for heat in the winter, tuition at good schools for your children or airfare to visit grandchildren.

In short, you can buy misery or you can buy happiness. What makes the difference is spending your money right.

The Key to Using Money Well
 

I’ve spent the past few years interviewing financially satisfied people in an effort to discover what they know that other people don't. Along the way, I’ve learned that the key to using money well is simply to change the way you think about it.

Stop viewing money as evil or soulless, or interesting only in terms of how your pile measures up against your neighbor's. Instead, you need to think of money as a tool. As a means to acquiring, doing, and taking care of things that bring you joy.

All of that sounds easy enough. But how do you adopt this mindset?

Through my research, I’ve learned that the happiest people operate under what I call the Three Premises of Wealth (and here “wealth” refers not so much to your net worth as it does to your outlook):

• The First Premise of Wealth: I have enough. There are people who have more, but also plenty who have less.
• The Second Premise of Wealth: If I want more money than I have now in order to achieve big goals, I can figure out a way to get it.
• The Third Premise of Wealth: Every dollar is a choice. How I earn it and spend it is up to me.

These are simple notions, but they provide a vantage point that's markedly different from the way many of us approach money.

Researchers have found that human happiness is — like it or not — partly based on how we stack up against a certain reference group. We feel rich if we have a bigger house or nicer car than our neighbors. But nothing forces us to think along those lines: We can choose any reference group we want.

Consider the 7 billion people on this planet. It’s probably safe to say that anyone reading this article lives in more comfort than at least 90 percent of our fellow human beings. And that 90 percent can serve as a reference group as well.

Personal finance articles often adopt a defeatist tone, suggesting that people can’t change their incomes, that their only recourse is to clip coupons or stop eating out to wring a few more dollars from their budgets.

There’s nothing wrong with reducing your overhead, but it’s hard to build real wealth — the kind that gives you the power to create a world you want to live in — by saving 50 cents on a can of tuna.

Financially happy people take a bolder approach. They identify the kind of work they enjoy then seek out new opportunities to do it, and some even create multiple income streams to support their big goals.

Setting Your Own Goals
 

What should those goals be? Financial planners tout the obvious — home ownership, a secure retirement, the children's college funds — and these are fine goals if they're truly what you want. But this brings me to that third Premise of Wealth: Your goals should be whatever you want them to be.

You don’t have to buy a house that consumes 25 to 35 percent of your income. You might be happier living in a far more modest home and traveling the world with the money you save on housing.

Maybe you want to build financial security not with an eye toward retiring at 65, but so you can do any kind of work you choose.

For some, this is the biggest goal of all. In fact, the happiest people I know have found work they love so much they’d do it for free — then figured out a way to get paid for their avocation. Rather than maintaining a conventional fixation on retirement, why not put that same mental energy into finding the kind of work you’ll never want to retire from?

The point is this: Happy people know that how we spend our money, just as how we spend our time, is a choice. Money can buy happiness when we tell it what to do.

Truly wealthy people think of money as a tool — and, fortunately, you can learn to think the same way, even if you don't have all the money in the world.