Creating a financial plan that maximises wellbeing is really very simple.
Step one: Work out what you want from life
Step two: Spend your money on that
Of course, working out what you want from life is easier said than done. it is also a circular argument – how do you know what you can afford? And how can we be sure that things we spend money on now that make us happy?
The Pleasure Principle
Spending money on things that give pleasure is one way to create happiness. However, understanding what gives you pleasure, and in particular how long that pleasure lasts, can increase overall wellbeing.
For example, retail therapy suggests that buying stuff gives us pleasure. While this is certainly true, the well-being from owning something tends to last a finite amount of time.
Spending that money on experiences instead, however, creates memories which are much longer lasting. So instead of buying something you don’t actually need and spending that money on a weekend away visiting friends you haven’t seen for a long time will give a greater increase in wellbeing.
A third way of spending that money could be by bringing your future close. If you can envisage a life that you would like to have, setting money aside to make it achievable will become more attractive.
A Sense Of Purpose
Studies have shown that happiness is derived from have a balance between a sense of purpose and pleasure. That balance will be different for everyone, however too much of one and not enough of the other is a barrier to wellbeing.
Here’s an exercise to try. List the numbers 1 to 10. Now write down four things that you actively do that you enjoy.
Next, write down three things you do sometimes that you’d like to do more.
Finally, write three things you don’t do that you would like to.
(You are not looking for ‘bucket list’ type one-off events, but things in your life that give you ongoing well-being.)
Now, let’s analyse that list.
Firstly, is there a balance of pleasure and a sense of purpose? They don’t necessarily have to be equal – everyone will be different. However, it is almost certainly true that you will need to have at least some of each in order to maximise happiness.
You might consider reviewing some of the entries on your list in order to create a balance of pleasure and sense of purpose which is appropriate to you.
Next, mark each out of 10 as to how much time they currently get. Your next challenge could then be to create a more even balance across these different areas.
What action will you take to create a balanced list? And how will this impact on your finances, both now and in the future?
How Much Is Enough
Once you have finalised your list and can recognise which areas you need to focus on, you have the beginnings of a financial plan.
The question your financial plan is attempting to answer is ‘How much is enough?’. How much do you need for achieve the your ideal balance of pleasure and a sense of purpose.
Whether it is spending income or understanding how much you need to have saved. Whether it be on pleasure from stuff, memories from experiences, or by bringing that ideal future a little bit closer.