Money can't buy happiness. The true power of money is that it can buy you the next best thing: non-unhappiness. Learn how to use this power in 2007.
At The Fool we talk a lot about money. (We are, if you hadn't noticed, a personal finance website.)
However, we rarely talk about happiness. Overall I say 'Quite right!' We're not all experts on happiness here, despite our jesterful image. Yet, at the start of a new year, I feel it's important to mention this topic, as it's so often linked with money: rightly or wrongly. And, frankly, it's so much more important.
It is said that money can't buy you happiness. I think that some of us twist this expression to mean that debt doesn't matter. After all, if money can't make us happy, then debt can't make us sad. But this is not correct.
We can spend more than we earn and get temporary relief or pleasure, whether we spend on vanity, fun or gifts. The problem is, this positive effect is more than matched by our negative feelings when we confront our increased debts. That is what we really mean when we say money can't buy happiness. We might expand this to say that money can only buy an emotional rollercoaster followed by unhappiness and nausea.
What does this actually mean and what can we do about it? OK, it's too late to take back last year's overspending, but if you rein in your spending now, you can reduce your debts and start 2007 on the much less bumpy, and hopefully happier, road of living within your means.
Get enlightened, stupid!
The first, and very important, step is to stop your bad habits. You have to see the light and ditch your plans for spending in the sales, forget that new gym membership (which you'll use for just six weeks anyway) and don't splash out now on flights for your summer holiday.
May I also recommend 'extreme budgeting'? Don't spend any money on yourself for two months to see what happens. This takes discipline and the willpower to say 'No' to friends, as Cliff D'Arcy will testify (see How I Lived On 10p A Day).
Oh, this is so boring!
Boring, boring budgeting. But we have to do it. What you do is you write down all your monthly incomings and outgoings. Then think about your big spends for the year and break them down into monthly outgoings.
You might, for example, want to go on holiday in summer and buy lots of Christmas presents in December. It may be Foolish, then, to save equal amounts for your plane tickets every month up to March, then save for holiday expenses and accommodation from April to June, then save for Christmas presents from September to November. Any excess savings can be used for reducing debts, emergencies or other things.
We all have different plans for the year and therefore different expenses. The important thing is to make sure you stick to your budget, possibly by carrying around a pen and small notepad to count down the amount of money you have available to spend each week. That's what I do.
Even if you don't consider yourself to be in debt, our Statement of Affairs calculator should make sure you don't forget about any expenses and will help you to work out what you can afford.
Simple, but effective, debt restructuring
We can easily reduce the amount of interest we pay on our debts, which means we should clear them off more quickly. We can either move them somewhere cheaper or we can save a lot of money on interest repayments by snowballing. You can learn more in Snowball Your Debts.
Get the good habit
Finally, we can get into the habit of saving for the long-term. If we're earning interest on our savings, rather than paying interest on debts, we'll be able to buy a lot more in the long run. The earlier we change our habits, the more we'll be able to buy. No one really needs to constantly acquire new clothes or the latest gadgets.
If you're no good at budgeting, get in the habit of checking your bank balance regularly. Set your standing orders and direct debits to go out just a few days after pay day.
Buying non-unhappiness
Money can't buy you happiness; enlightened Fools know this isn't possible. Yet money is still powerful. The power of money is that it helps you to not be unhappy. Paying off your debts, saving money and living within your means won't make you happy, but it will give you a very reasonable feeling of security, which is, perhaps, the only base from which happiness can grow.
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