Investing Money In Happiness

It turns out money can buy happiness, after all—sometimes.

Having a good income and the security of money invested for the future don’t insure happiness, of course. They do, however, give us a foundation that can make it easier to find happiness. Part of the secret to using money to foster happiness is knowing what to spend it on.

First, spending money to lift your mood—the whole “retail therapy” idea—does not lead to happiness. It provides only a momentary sense of pleasure, which often in the long run fosters unhappiness.

There are ways to spend money that do create happiness. Here, based in part on several posts about money and happiness by Dr. Jeremy Dean on his site Psyblog, are a few of them:

1. Experiences. Research says you will find greater happiness spending your money on experiences rather than on stuff. Experiences live in our memories much longer and give us more emotional enjoyment than things, which can quickly lose their importance. In fact, just the anticipation of planning an experience often creates happiness. And if you want to take the happiness level up a notch, take a friend along with you.

2. Exercise. The number-one strategy people can use to feel better, increase energy levels, and reduce tension is exercise. Exercising can mean spending money on a gym membership, a personal trainer, and equipment. However, exercising can also be inexpensive. Walking, for example, requires little more than a pair of good walking shoes and—at least here in South Dakota—a warm winter coat.

3. Stuff that will provide you experiences. Buying things that create or are necessary for experiences count as happiness spending. Music is an experience that research says is a mood enhancer; even sad music can bring pleasure. Spending money on music might mean buying concert tickets, but it could also mean buying recordings, an iPod, smartphone, speakers, and similar equipment.

4. Stuff that supports doing what you’re good at. What are you good at and really enjoy? PsyBlog says spending money for things you excel at typically creates happiness. A set of golf clubs and a budget for green fees could be a great purchase if you’re good at golf—or even if you aren’t so good at the game but you enjoy it for the exercise and time with friends. The same goes for buying things to support hobbies, such as art supplies, garden plants, or quilting fabrics. Maybe you enjoy helping others, so charitable giving or spending money on volunteer opportunities would increase your happiness. I love researching almost anything, so spending money on research data can be a mood lifter for me.

5. Coaching/Therapy. Few things are more valuable for long-term happiness than hiring a good coach or therapist. Research shows talk therapy to be as effective as or better than antidepressants. In my co-authored book, Conscious Finance, I describe how spending $80,000 on therapy was the best investment I ever made in my own happiness and well-being.

6. Meditation. The biggest happiness bang for your buck might come from meditation. It isn’t free, but it’s very inexpensive. You will need to attend a class or buy an instructional video or book. I recommend Open Heart, Open Mind by Thomas Keating, but there are many others.

While we know that money by itself isn’t a source of happiness, we also know that having enough money to comfortably meet our basic needs does make us happier. In addition, we can consciously choose to spend in ways that buy happiness. Such investments may not provide financial returns, but they can provide significant happiness returns.

Do Overspending and Overeating Go Together?

Over the years, I’ve noticed a commonality among people with money problems. Many of them are also overweight. Is there a relationship between overspending and overeating?

Until now, I couldn’t be sure my experience was anything more than circumstantial. But I recently read about a 2009 study done by Dr. Eva Munster at the University of Mainz in Germany. It found that people who were in deep consumer debt were 2.5 times more likely to be overweight than those who were debt free. This confirms what I’ve observed over the past 15 years.

It isn’t possible to pinpoint one simple reason for this link. Among the causes I’ve seen suggested are overeating because of the stress of being in debt, difficulty buying healthful food with limited income, or an inability to delay gratification in both spending and eating.

Based on my work with people in financial trouble, however, I suspect a deeper root cause. Just as chronic money problems aren’t about the money, chronic weight problems probably aren’t about the food.

For supporting evidence, I went to an expert: my daughter. London recently took a graduate level course in previewing medicine. I asked her what the medical link between overspending and overeating might be. She explained that sugar is addictive and lights up the same part of the brain that narcotics do. It produces a euphoric response within the brain that calls for more of the substance when the euphoria subsides.

She wondered whether people addicted to sugar might overspend on junk food to feed their addiction. They might also spend money they really don’t have on diets, fitness centers, and the higher medical costs associated with being overweight.

I pointed out that I spend a lot on healthy food that costs more than junk food. I also spend money on a fitness center and medical costs to pay for the damage I do to my body compulsively working out. “Well, I guess my argument doesn’t hold much weight,” she quipped.

She pondered for a moment. “Oh, I think I got it. I’ll bet for some people spending money lights up the same part of the brain as sugar and narcotics?”

Bingo.

That is why the key to changing any addictive behavior—eating, drinking, using drugs, or overspending—is not simply about eliminating the substance or the activity. Something else just pops up to take its place. That’s why many people who successfully stop drinking gain weight or get into serious money problems. The brain just substitutes one dopamine producer for another.

The ultimate answer is a sort of “rewiring” of the brain to create new neuropathways that do not require the harmful substance or activity to produce the same euphoric event. The latest research on the brain tells us this rewiring is completely doable.

I’ve seen that permanently changing the most entrenched damaging money behaviors takes more than knowledge about money or budgeting. Experts on obesity tell us the solution to permanently losing weight rarely lies with learning more about nutrition or finding the right diet. Making deep life changes such as these requires looking into the past. This recovery process takes time, effort, and money. It’s a path that many people are just not willing to follow.

But there may be some good news. If the underlying causes for overeating and overspending are the same, then doing the work to recover from one is likely to help someone recover from the other, as well. It’s a sort of “two for the price of one” sale. In terms of long-term financial, physical, and emotional well-being, it seems like a bargain.

Passive Investing: Lower Costs, Lower Risk, Better Returns

“Buy low and sell high.” That was my simple approach when I was a smart young investment advisor. I poured over a company’s balance sheet, earnings statements, and forecasted returns. Then I bought those companies that were bargains and waited for my gains to roll in. More times than not, they did—eventually.

The problem came with the “not” and “eventually.” A majority of my picks did go up in value, but the minority that were “nots” still lost enough to have a negative impact on my bottom line. Even more frustrating, some of my “nots” turned into gains “eventually” after I sold them.

My investment returns were similar to findings from Dalbar, Inc., a financial services research firm. Dalbar’s studies have shown that average active investors barely beat inflation over the long term. They significantly underperform investors who put their money in an index fund of stocks and leave it alone.

So much for my early investment brilliance. Continue reading

The Risks of Being in Business with Family

Every now and then I get a call from a client wanting my opinion about starting a business with a friend, investing money in a business owned by a family member, or co-signing a loan to help a family member buy a business. Being in business with family is something I know a little bit about, having been in partnership with my father and brother for 40 years. Going into business with family members or close friends can carry a high degree of risk, both financially and emotionally.

In part this is because it is uncomfortable or difficult to ask the necessary dollars-and-cents questions. We don’t want to seem uncaring, unsupportive, or untrusting. We are concerned about damaging the relationship. Yet the relationship is far more likely to suffer if we don’t ask those questions and the venture fails.

The following are some things to consider before you invest or go into business with someone close to you:

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Collecting Treasures–Or Not

Almost everyone has a story about a cousin or an aunt who bought a box of junk at an auction and found in it a diamond ring worth several hundred dollars. Every once in a while a valuable painting by a famous artist turns up in someone’s attic. “Antiques Roadshow” sometimes features odd items that have been sitting around in someone’s house for years and that are appraised for thousands of dollars.

This doesn’t mean buying and selling art or collectibles is a good way to make money.

Buying art, antiques, or collectibles is extremely speculative, in part because values are so subjective. What a given item is worth depends entirely on what a collector might be willing to pay at any given time. A piece of pottery or jewelry might fluctuate considerably in value as trends come and go. Yesterday’s hot collectible (think Beanie Babies or Jim Beam bottles) might be tomorrow’s overpriced embarrassment.

Does this mean you should never buy art or antiques in hopes that they’ll increase in value? Not necessarily. I am suggesting, though, that investment shouldn’t be the primary reason for your purchase.

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Spenders, Savers, and Successful Savers

Are you a spender or a saver?

According to Scarborough, a market research firm, only 9% of adults in the U.S. label themselves as spenders. This is the percentage who “mostly agree” with the statement, “I am a spender rather than a saver.” On the opposite side, 29% “mostly disagree” with the statement and are considered savers. Presumably, the 62% in between consider themselves to have well-balanced financial habits that include both spending and saving.

Given these numbers, it would seem that most of the adults in this country ought to have healthy savings accounts. Unfortunately, that’s not the case.

According to a report released in March 2013 by the Employee Benefit Research Institute, 57% of U.S. workers have less than $25,000 in total household investments and savings, not including the value of their homes. The Social Security Administration’s current figures show 34% of American workers have no savings set aside specifically for retirement.

Something doesn’t quite add up. Either a lot of Americans aren’t willing to admit that they are spenders, a lot of Americans are so poor that they can’t afford to save, or a lot of Americans are delusional.

Or maybe a lot of us just have different definitions of “saving.” Here are a few money habits that might encourage people to think of themselves as savers, but that don’t necessarily add up to being successful savers:

1. Buying things on sale. Waiting for discounts on items you need and want is a wise and standard practice for frugal shoppers. But you aren’t a saver if you buy bargains that you don’t need, might not even really want, or can’t afford. Maybe that $150 pair of shoes is half price. Yet if they will just sit in your closet, you haven’t saved $75. You’ve spent $75.

2. Having money in the bank. Yes, putting money into a savings account is the first place to start saving and a great habit to teach your kids. But once you have accumulated an emergency fund, keeping your money in the bank isn’t a good savings habit. Over time, savings accounts and CD’s don’t pay enough to keep pace with inflation. Money in the bank may be safe, but it isn’t really an investment because it isn’t growing. Mutual funds that include a well-diversified range of investments are far better places for your long-term retirement savings.

3. Not spending anything. There are times when choosing not to spend money now will only cost you more money later. Failing to maintain your car or do home repairs are two common non-spending habits that may seem like saving but actually turn into spending.

4. Saving for someone else. The time-tested advice to “pay yourself first” usually means taking money off the top for savings before you spend anything. Yet this has another application, as well. Make saving and investing for your own retirement your first priority. It needs to come ahead of saving for your kids’ college educations, weddings, or first homes. This may seem selfish or greedy, but in fact it’s the opposite. When you provide for your own financial well-being in retirement, your kids won’t end up having to help pay your bills.

When we’re asked to label ourselves, it’s normal to tend to choose answers that fit the way we would like to think of ourselves. I’m sure most of us would prefer to think of ourselves as savers rather than spenders. But if we really want to become successful savers, we can’t settle for the money habits we wish we had. We need to look at the money habits we actually practice.

Trusts–No Panacea To Retaining Family Wealth

When passing wealth to your kids, consider creating a trust to limit the later generation’s ability to tap into the principal. Several astute readers suggested this strategy after my recent column citing research that shows 90% of inherited wealth is gone by the third generation.

There is no question that a trust, done correctly, can go a long way to preserve wealth after the death of the wealth accumulator. Let’s explore what “done correctly” means.

1. Trust law is complex. Engage an accountant and attorney with strong skills and expertise in trusts.

2. Be sure the assets you intend to go into the trust will actually transfer.

Retirement plans like IRA’s, 401(k)’s, and profit sharing plans will pass to whomever you listed as the beneficiary. This must be the trust. In addition, the trust must include a number of special provisions in order for a retirement plan to be distributed according to your wishes and not as a fully taxable lump sum.

Annuities, insurance policies, and accounts with a TOD (transfer on death) clause will also pass to the named beneficiary.

Assets held in joint tenancy will not pass to the trust. Many married couples jointly own most of their major assets, such as the family home, investment real estate, brokerage accounts, or bank accounts.

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