Want another reason to save? Saving will likely make you happier in the long run. Conversely, and just as importantly, spending today isn't likely to make you nearly as happy as you think.
We all have the tendency to place a carrot in front of our nose that promises happiness if only we can reach it. That carrot could be anything from a promotion at work to buying a dream house or luxury car, or taking a lavish vacation. Deep down we all have a need to prove to our friends and family just how successful we are. In reality, however, the promotion brings more stress, the new house came with a huge mortgage and pricey maintenance, the luxury car got dinged several times in the parking lot, and the afterglow of the vacation faded quickly when the credit card bills started rolling in. That carrot of happiness eluded us.
Psychologists call the above dynamic the “hedonic treadmill.” It’s used to describe the insatiable drive some people have to achieve more and more in life, whether professionally, financially or materially, only to die likely unsatisfied. This treadmill is about as irrational as a hamster running feverishly on his exercise wheel expecting to get out of the cage. The good news is that it’s possible for all of us to hop off this treadmill — and out of the cage. A good place to start is remembering that a basic car gets you where you need to go just as fast as the luxury car, and the smaller house actually requires less maintenance. Maybe we shouldn’t care how successful others think we are.
See also: Are you your own worst investing enemy?
It’s also important to keep in mind that money is a means to an end. Our relationship with money can be either constructive or destructive. And it’s possible to go way too far at being frugal. For example, though one of my clients has a net worth of over $10 million, he still sees a primary care physician he despises because it would cost more money to switch. He understands he can’t take his money with him when he dies, yet that hasn’t changed his behavior.
Perhaps no one has written more about the subject of money and happiness than Jonathan Clements, author of Jonathan Clements Money Guide 2016. Clements says carefree days of happily playing golf may fuel our fantasies, but empirical research shows what truly makes us happy:
• A sense of purpose — working toward a cause we believe in
• Friends and family — spending time with others
Clements told me that “happiness comes from engaging in work that we think is important, we feel we’re good at, we find challenging and we’re passionate about — all of which leads to a sense of purpose.”
So ask yourself if your previous big purchases made you as happy as you thought they would, even a couple of months later. If you see a pattern that you quickly got used to the purchases and they no longer made you happy, consider getting off that hedonic treadmill. Redefine financial wealth as time, not money. That’s because money gives you choices about what to do with your time. Look at your savings as stored energy that you can use later to pursue true happiness.
Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren't meant to convey specific investment advice.