Conventional wisdom suggests that while money can’t buy happiness per se, it stands in the way of a lot of peoples’ ability to be happy.
Is there a way to understand how money plays a role in making us happy or unhappy? Is there a minimum amount we need to be happy? Or is that formula more nebulous and complex?
This is the GoldenRule system of money and happiness…
So many of us are fixated on providing for our material needs. And many do believe that the key to being successful, happy, stress-free, etc., is making a lot of money. Western culture basically gauges a person’s value on their monetary net worth.
But is this fair?
Do you really need x amount of money to be happy?
If money plays a role, how much is “enough?”
I’m going to examine this by breaking down the concept of “financial success” into five basis stages. What’s interesting is, these stages aren’t about a specific amount of money. They are about the role money, or lack-thereof plays in your personal financial success and independence. Where do you fit on the scale?
Level One: True Poverty
People who cannot provide the most basic needs (food & shelter) for themselves or their family without outside assistance are at financial level one.
Level Two: Barely Providing
The next level are those who can afford to provide their basic needs: food, shelter, clothing, and some very basic necessities like transportation. Their income allows them to be slightly stable and take care of themselves. But they do not have any “disposable income” to spend on anything superfluous. And their basic needs and utilities are modest. People at level two have vehicles, but they’re nothing special, just transportation.
Level Three: Living With Comfortable Choices
The third level of financial independence is when you’re making enough to provide for your basic needs, with “disposable income” to some degree whereby you can put money into “non-essential” items like a new car, or pursue various hobbies and interests.
Levels 1-3 are what are called the “debt phases.” These people often have a negative net worth, being more in debt than the value of their assets. (Although ironically, many people at the lowest poverty level may not have enough credit to get in debt and could have a positive net worth). Levels 1-3 are typically the scenarios where the lack of money exerts the most stress, and puts the most limitations on peoples’ happiness.
Level Four: Positive Net Worth
The forth level of financial independence is where people begin to actually become technically “financially independent.” When their assets are greater than their liabilities, and their debt load is relatively marginal. Level Four, however, doesn’t mean people are truly “debt free.” People at this level can have a positive net worth, but still have debts, mortgages, student loans, etc., but lack the liquidity to nullify all their debt without selling off assets such as real estate.
Ironically, even at level 4, people are still vulnerable to unforeseen events, disasters, medical issues, accidents, etc., that can render them in even worse financial shape.
Level Five: True Financial Independence
When you have a positive net worth, and the only reason you’re carrying debt is for tax purposes, and you have the cash/liquidity to eliminate any debt on demand, you are truly financially independent. This also means you have enough of a nest egg or savings to pad you from unforeseen situations.
Financial Independence Is Not About Money – It’s About Debt
You’ll notice that nowhere is there an actual monetary amount listed on these five stages. Because actual financial success and independence has less to do with a certain amount of money, as it does debt. The degree to which a person is in debt is the real source of stress and money problems. Because of this, it’s possible for people at virtually any income level to be at any level from 1 to 5. And because of this, the adage, “Money can’t buy happiness” is actually true. You can be a multi-billionaire and still be miserable and financially strapped. Or you can be a simple wage earner, who has a modest lifestyle, that lives a much more joyful and stress-free life. It all depends on debt and the circumstances you put yourself in.
With this in mind, remember that, at any point in your life, it is possible to achieve Financial Security. LIke other realizations, such as the idea that happiness is more a state of mind than a position, you have the tools at your disposal to begin making your life more secure and rewarding.
Here are some tips for being where you want to be:
- Maintain An Economically Realistic Lifestyle – This is probably the hardest part of achieving financial security. Because no matter how rich you are, the capitalist-based system in which we live, thrives on convincing you that there’s something better, more expensive and “more rewarding” that you should yearn for. This is of course, an illusion, but it’s a principal component of what makes consumer societies function. Be aware that you are surrounded by forces daily that seek to diminish your sense of self-worth and self-confidence if you don’t acquire what they’re selling. This relates to every end of the financial spectrum, from the idea of what you should eat on a daily basis, to which neighborhood in which you must live. Be aware that these influences don’t exist to help you. They exist to sell stuff.
- Avoid Debt Wherever Possible – Look at borrowing money as inviting an unwelcome guest into your home. You do not want this person in your life that much.. only when absolutely necessary. Like toxic people, debt can infect relationships and diminish the quality of your life and reduce the number of choices you have to achieve other goals. Use debt only as a necessary, last resort. Never go into debt to purchase anything that isn’t required to maintain an “economically realistic lifestyle.” Especially avoid credit card debt. If you would feel embarrassed asking friends and family for money for certain things, don’t charge them yourself.
- Embrace Simplicity – Ask yourself how much do you really need? There’s a popular tv show on NetFlix featuring a Japanese woman who helps people rid their lives of clutter, and she often asks people, “Does it spark joy?” Does an item really make you feel good? If not, ask yourself if you really need it? The less you have, the less tethered you may feel.
- Reinforce New Behaviors – I used to love soda, despite knowing that the highly refined sugars were not good for my health. I decided to avoid sugary sodas. At first it was difficult… I grew to crave the taste of sugar. But after awhile my tastes were modified and I began to enjoy unsweetened drinks even more. I changed my behavior pattern and my tastes. This is much easier to do than you think. Like quitting smoking, sometimes a bad behavior is tied to another behavior (like drinking coffee) and you may have to stop both to curb one, before going back to coffee. Be aware that you can do it, and after even a month or two, you won’t miss it at all, and you’ll be living a healthier lifestyle. You can do the same thing with habits that involve unnecessary spending.