Friday, March 7, 2014

How To Find Financial Happiness

Baby Step to Financial Freedom #5: How To Find Financial Happiness
Everyone needs food, shelter and clothing. But beyond our basic survival needs, there is an endless array of money-hungry possibilities that can consume our disposable income. For instance, one person may value a beautiful home so they spend more on their home purchase, decorating and remodeling than someone who values travel and adventure. Another may feel it's important to protect the environment so they pay more to purchase a vehicle that operates on alternative fuel, while their neighbor's priority is safety so they drive a large, gas-guzzling (albeit safe) SUV.

Why is it important to take this Baby Step?

It could be that you are investing in things that are not as important to you as others. Financial happiness is figuring out what is important to you and spending accordingly. This step provides a beginning structure for your spending plan-- a budget that you'll be enthusiastically motivated and happy to adhere to.

1. Take your list of prioritized values from Baby Step to Financial Freedom #2, Identify Your Spending Values, and copy the highlights onto a new piece of paper. Leave a few spaces between each of your listed values.
2. Refer to your subtotals from Baby Step to Financial Freedom #4, Where Does Your Money Go? Tips and Tricks for Tracking the Flow. Take each expense category amount and assign it to the value that feels most appropriate (see my example below). If an expense fits under more than one value, divide it proportionally into those that apply. If you have an expenditure that doesn't fit with any of your listed values, record it at the bottom of your page.
3. Add the expenses listed under each of your personal values.
To serve as an example, here's how this Baby Step looks using my own list of priorities and values and our annual family expenditures for 2005:

Family Relationships:
$213,754 = Savings Contributions (for our early retirement, allowing us both to be stay-at-home parents)
$3229 = 25% of Travel
$2735 = 50% of Dining Out
$543 = 50% of Telephone
$641 = 50% of Gifts
TOTAL = $220,902

$3229 = 25% of Travel
$2735 = 50% of Dining Out
$1294 = 50% of Recreation
$986 = Liquor
$543 = 50% of Telephone
$641 = 50% of Gifts
TOTAL = $9,428

$2864 = 50% of Organic Food
$4522 = Medical (not including insurance)
TOTAL = $7,386

$3229 = 25% of Travel
$1294 = 50% of Recreation
$2025 = Pets
$1808 = Toys
$689 = TV Programming
TOTAL = $9,045

$5640 = Health Insurance
$395 = Disability Insurance
$264 = Life Insurance
$125 = Renter's Insurance
$108 = Personal Liability Insurance
TOTAL = $6,532

Curiosity-Led Learning:
$3329 = 25% of Travel
$268 = Internet Service
$148 = Books, Subscriptions
TOTAL = $3,745

Environment and Sustainability:
$2864 = 50% of Organic Food
TOTAL = $2,864

Community and Compassion:
$419 = 10% Auto (transportation for community and volunteer activities)
TOTAL = $419

Other Expenditures (that don't fit with my list of values above):
$9531 = Rent
$3771 = 90% Auto
$1235 = Storage Unit
$959 = Beauty
$871 = Misc
$568 = Utilities: Gas
$477 = Utilities: Electric
$318 = Clothes
$240 = Tax Prep Fees
$127 = Bank Acct Fees
$43 = Furnishings
TOTAL = $18,140
4. Now look at the correlation between your priorities and values and the money you spend on each of them. Is your spending in alignment with what is truly important to you? What can you do to align your spending better with your personal value system?

Referring again to my example above, I felt 90% satisfied with how I spent my money. What expenditures bothered me? What can I do to better align my spending with my personal value system?
  • Storage Unit ($1235): I hate paying for STUFF that we no longer use or want. What can I do? Give items to a charitable organization. Keep the receipt and use the tax deduction.
  • Auto: I drive a 10 year old SUV. I feel badly about how much gasoline it consumes. What can I do? Since one of my priorities is the environment and sustainability, consider replacing it with a used hybrid vehicle. Since safety is also important to me, select the hybrid vehicle with the highest safety rating.
5. Finally, schedule a family finance meeting to discuss your results and gather feedback from each member of your family. Brainstorm ways in which your family can spend less on the items listed on the bottom of your page- the things you spend money on that have nothing to do with your personal values. Check this blog's Fun and Frugal archive for money-saving ideas.

The more money you free up on the items that don't mean much to you, the more you'll have for the things that thrill you. And this, folks, is a main ingredient in my recipe for financial happiness!

Question for my readers: How closely related is your spending to your personal values and priorities? Please share your thoughts on how you intend to get the two in better alignment.

Relevant and Recommended Reading:
Here's a classic containing terrific values and money content: Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence (paperback)
The Simple Living Guide (paperback) is a great resource about choosing to spend less money than you earn.
Money Can Buy Happiness: How to Spend to Get the Life You Want (paperback)

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