We spend large parts of our life working to earn money. What is money good for?
My central thesis is that life is all about “being happy.” Being happy is very very hard and most of us fail miserably at it. One principle reason for failure is not understanding and using our happiness levers well. And money is at the forefront of that – misunderstood, under utilized, and misused.
So, what is money good for? Think Maslow
1. Buying essentials and shelter. Food, water, clothes, and a place to live. These are the bare minimum fixed costs. We need to earn enough to cover these expenses. Ideally, you’re happy with simple investments in fixed costs because we get used to the basics very quickly i.e. your cool new BMW soon just becomes a vehicle you use to get to work every day.
2. Security. Save and invest. Being happy requires a feeling of safety and security else you are stuck with the occasional feeling of happiness.
3. Spend on experiences with framily. Now we get to using what remains after we buy basics, save, and invest – our guilt free spending money. The first best use of money, as a result, is using it to spend on great experiences with our loved ones. While we get used to our BMW real quick, we don’t forget that iconic trek to the Andes or that incredible road trip in Australia. The rule is simple – spend on experiences, not things. So, if you’re ever wondering if you should spend money to treat your loved ones to dinner or buy a watch, you know what to do..
4. Give. Giving builds self esteem. Give to those who are lesser fortunate, give your time to those who need it, and invest in yourself and others. Then repeat.
5. Finally, spend on yourself. Also a self esteem builder – good clothes, good gadgets, etc. Do so with the money that’s left over..
Money can never help with self actualization. We can’t spend our way to happiness. At best, money is a metric that is reflective of the success we have achieved. If we have built rare and valuable skills, the likelihood that we receive money in exchange for it is high. That said, it’s only a metric and the biggest trouble with metrics that are easy to measure is that they can make us forget why we began doing something in the first place.
Money exists to help us be happy. Let it not be the other way around..
PS: Dan Ariely recommends “Happy Money” – a book by behavioral economists who attempt to explain the science of smarter spending. I haven’t gotten to the book yet and am looking forward to it.