In typical financial planning an individual will seek to maximize wealth, perhaps adjusted a bit to smooth income over the course of their life or due to risk considerations. Economic planning, in contrast, favors optimizing on happiness or utility instead of material wealth alone. This article presents 10 questions to help you determine your degree of preference for short term happiness relative to longer term material wealth.
Disclaimer: I’m not a registered investment advisor (yet) so this is all for info only. Add 1 point for each question you answer with “yes” and we will deal with your score at the end.
- Do you own a pet?
- Do you go out to eat more than 3 times per week?
- Count getting Starbucks as eating out.
- If you work a full time job, don’t count a lunch under $8 as eating out.
- Do you work a full time job and bring lunch from home 2 or more times each week?
- In this case only, subtract 1 point if “yes.”
- Do you consume tobacco or illegal drugs?
- Have you voted in either of the last two Presidential elections?
- Do you have more than one child?
- Thinking about the 3 most recent car purchases you have made: Were any of the cars new?
- Do you have a gym membership?
- Do you own any musical instruments which were not purchased as part of a school program?
- Do you regularly attend religious services?
- If you do so because else makes you and you actually hate going, don’t add a point.
- If you also tithe, add another point.
While there are 10 questions, you can technically get a score between -1 and 10. If got a score between 8 and 10, congratulations! I have no idea. This is not actually tied to any statistical research.
Feel free to post a comment with your score and whether you tend to value your happiness today equal to, more than, or less than you care about being in the best financial shape possible.
While I don’t have that survey data right now, logically speaking if you got a high score you value happiness more than being in the best financial shape possible. That’s not to say you don’t care about your finances – unless you actually got a 10 in which case maybe you totally don’t care about money.
What I hope I’ve demonstrated is that for most of us we need to consider the impact to our level of happiness in our daily lives when it comes to planning how we are going to use our resources. A realistic budget will target an ideal level of “fun spending” which will guard us against two traps:
- A budget which is ignored in practice.
- Perhaps because it is so austere it is hard to comply with (eg no budget for fun)
- Perhaps because it was so naively formed that we didn’t realize how much money we like to spend on non-essentials
- A budget which obfuscates true costs and benefits by lumping in recreational spending with other line items
- Food and groceries doesn’t include twice daily Starbucks breaks. That’s recreational spending and it’s more precise to split it out.
- If we aren’t precise about what is budgeted where then our actual spending becomes harder to track and control. For example, what if the budget just had one line item which said “Everything.” Our recreational spending might get carried away before we get close to the budgeted amount and catch ourselves. But then we would still need to pay for necessities and we would go over budget.