If It Makes You Happy
Spending, Happiness, and Financial Health
Sheryl Crow, Grateful Dead, Flash and the Pan, and spending (using Captain Beyond for my own inspiration). What could be better (a migraine, perhaps)?
If if makes you happy, can it be bad? It depends.
I have seen the spending habits of hundreds of families. The lowest monthly amounts we tend to see are in the $3,500 - $6,000 range on a monthly basis. The highest amounts tend to run in the $30,000 - $50,000 territory. Have I had folks say they just cannot spend less than $20,000 or $30,000 per month right now? I have. Have I heard people say they just cannot understand how someone can spend more than $10,000 per month? Yup. Were these families living in the same city? Yes. I can attest to learning that many people avoid seeing us, at times, because they do not want their spending, and therefore their financial condition, to be judged. Reviewing, talking about, and assessing spending, for most, is an amazingly intense emotional experience.
I spent some time reading and studying Happy Money: The New Science of Smarter Spending, earlier this year. The basic conclusion of this research and book is that spending on others (charity, in particular) is what makes you the happiest. This could be your friends, family, favorite charity, or the homeless. What seems to matter the most is that your dollars are going to your passion.
This feels right. Then, complexity sets in. There ain’t nothin’ simple about spending.
The Good, The Bad, and The Ugly
At least within the US, spending is all of this:
Are there consequences to our spending actions? Absolutely. As to whether those consequences are positive or negative, that all depends on your vision for your future in comparison to your present. If your vision is you want to experience the now, being that the future is uncertain, I can understand that. Certainly, our brains are oriented far more towards the present than the future.
Present feelings are often so powerful that considerations of future events are neglected. Individuals differ in their emphasis on present and future dimensions. A stronger future orientation and a mindful present orientation are positive predictors of sustainable behavior; hedonistic and impulsive present orientations are negative predictors.
This does not say that the outcomes or consequences are negative. What it says is these are predictors of sustainable behavior. The consequences in the future might be: if you make it there then you have to keep earning income, spend less, hope to live a shorter life, are supported by your family, or live on welfare. Are those bad? It depends.
The other side of this coin is spending less now and saving for your future. What if you do not make it there? What if you “over-accumulate”? The consequences might be future estate taxation, finding some way to give it away, letting your State sort it out if you die intestate (and do your survivors a favor, do not do this. Get yourself an estate plan), letting your survivors decide, and/or sacrificing things that, in hindsight, you wish you had done and now cannot do. Lots of us would say these are all “good trouble”. That does not make it good trouble, however, for you.
Advertising is designed to do what? To influence you to buy something. A huge amount of advertising is focused on having you buy a product or a brand or to spend on campaign donations or make charitable contributions (a form of spending, nonetheless). In my particular business, we have CNBC, for example. How does CNBC earn revenue? From advertising. Can you reasonably conclude CNBC is financial news and information presented for your benefit? Of course not. To garner advertiser dollars, that is, revenue for CNBC, they have to prove you buy stuff resulting from ads on their platform. They have a huge conflict of interest between you, the consumer of their product looking for useful information and them, the for-profit business who has to get eyeballs to get advertising dollars to be profitable.
This is true of nearly every TV program and publication (many books being excepted) unless it is 100% user-supported (of which books are, for the most part, although there are many books that are selling something). To think that anyone or any entity is unaffected by their source of income is to violate this wonderful insight from Richard Feynman:
“The first principle is that you must not fool yourself and you are the easiest person to fool.”
Whether it is on your phone, on the TV, or in print, there are sophisticated and well-proven behavioral techniques at work, every single minute and day, designed to entice you to spend. All of these emotional and behavioral triggers are anything but focused on spending being non-judgmental, analytical, optimized, and/or unemotional.
Is all of this bad? It depends. It certainly can be if you are unaware, uninformed, and un-mindful with respect to the intentional influence.
If It Was Easy, Everyone Would Do It
If your current spending has a high probability of limiting your ability to do something in a reasonable future time period that is emotionally important to you, then you are arguably spending too much. But only if that future thing is equally or more important than the current expenditure. This poses a few questions. What is a reasonable future time period (depends on many factors, with an interesting study here)? How do you know something that may or may not occur in the future will be emotionally important, even though it feels important now? What might you want in the future that you have no idea of today? How do you assess the cost of something in the future and therefore how much to save now? How do you assess the emotional value of the future thing versus the current thing? There are few, if any, concrete answers as relates to spending.
There ain’t nothin’ simple, or easy, about spending.
How do I balance this with my financial needs? Is there good spending and bad spending? If I consult a financial advisor, how will I be judged? How can I change my spending habits in the event that my spending behaviors are hurting my financial health?
Spending Is Neither Good Nor Bad. It Is.
This is extraordinarily easy to say when compared to the challenge of getting to a judgment-free mindset. Do we teach our children how to spend effectively and how to think about spending? Do we acknowledge how thoroughly embedded money and spending are in our brains and emotions? Not where I grew up, and in my professional experience it is rare in every neighborhood.
Judging our spending actions, however, is of no value. Evaluating our actions, thinking through the consequences, and using that process to influence future spending decisions? Supremely valuable. This is the truth, the absolute value in math terms, about spending.
Spending is not optional for the majority if us. Could you live totally off the grid, without dollars or their equivalent? Of course. Is that your vision? If not, the first step to spending management, and it is uproariously difficult to do, is turning off your own judgment. The second step is devaluing the judgment of others. We are human. We have, for the most part, limited control of where our brain goes. I do believe that we have control of our responses. Still, ignoring others’ judgment can be excruciatingly difficult.
The next activity is to define your vision. What is is that you value? Do you value experiences now or future optionality? If you value experiences now, have you thought through the limits you may experience in the future? If you are placing emphasis on flexibility in the future, are there things you are missing now that are or might be, when viewed later, important to you? Through this interplay, you formulate what is important now and in the future. This is a complicated process, too, loaded with conflicts, hope, and expectations.
What follows is the application of cost estimation, whereby you estimate current and future costs. The current and future spending model or plan can then drive your behavior rather than have your emotions drive spending. You can compare your total spending to your planned spending. Do we make errors in estimating future costs, usually underestimating them? Why, gee, yes we do. So we have to deal with this, via contingency or “cushion”, for example. My belief is that if the total desired spend is a match to the plan (that is, provides space for the amount you wish to save, as well), exactly what you currently spend on is unimportant. The hard part in this process? Avoiding judgment. We make all kinds of spending judgments that are unhelpful. We feel like we ought to look at the detail of our spending. The value is in looking at macro spending, and its corollary, saving, first. I prefer to dig in to the detail only when necessary. This process is hard enough without the intense focus of looking at the details. It is also bound to have estimating error, so precision, which creates more intense focus, is lacking value, too. And we like precision. It makes us feel good. And it’s wrong.
We are presupposing that you can save sufficiently for your future spending needs. If your spending plan for the now does not leave room for the saving required to enable the future, then that conflict must be resolved. Making choices about the future versus now, with an unpredictable future? Twice as hard, just like the Black Crowes. If you had more savings, that might influence future decisions about what you want to or can accomplish once you get to the future. Therefore, the answer might be: “Well, you are saving enough at the moment. Do you value having additional financial capacity for something you may wish to do in the future?” If so, save more. Another answer, and it is perfectly acceptable: If you are saving sufficiently you can spend the remainder with abandon. There is no right answer. It depends.
To further complicate matters, what constitutes intelligent spending and saving tends to change over time. Our world and lives are dynamic. In my own case, our family income increased by a factor of 20 (!!!!) between 1987 and 1993. We could not, in 1987, conceive of this occurrence, yet there we were. So this intensely emotional evaluation, if you want to be effective, ought to be repeated frequently. Avoidance is a natural reaction to a difficult problem, as the brain wants to conserve energy. It is stupidly easy to exercise avoidance.
Helping people sort out what they spend and why, and then helping them determine what would make the most financial sense to change in their spending is, hands down, the toughest thing I do in this profession. It is the toughest financial thing you have to do as a consumer.
Thanks for reading. Your feedback is welcome.
This post has been, by far, the most formidable for me to compose.
Question for you: where do you spend most of your social media time?
Today’s musical inspiration:
My current reading: