A key problem when it comes to personal finance and saving for retirement is that people don't necessarily associate money with happiness. Sure, they might think that when they have more money, they'll be happier, or when they're basking in their retirement dream scenario, they'll be happy. But when it comes to managing money, saving and investing, happy isn't the first word that comes to mind. It's more of a chore. But creating a happy, healthy relationship with money is essential. Not only are happy people healthier (that's a money-saver right there), but having a positive mindset can make it easier to stick to good habits like saving and investing for future retirement goals. A positive mindset and distinct focus on those goals can also give people the determination willpower to break bad habits, like overspending or relying on credit cards. Researcher Shawn Achor calls this the "happiness advantage," and says:
"Happiness is perhaps the most misunderstood driver of performance. For one, most people believe that success precedes happiness. But because success is a moving target - as soon as you hit your target, you raise it again - the happiness that results from success is fleeting. In fact, it works the other way around: People who cultivate a positive mind-set perform better in the face of challenge."
This chain of thought is so common, especially when it comes to money: "When I stick to my budget and save $250 a month, then I'll be happy." Or, "When I finally pay off that last student loan, then I can start savings and investing." Flip this thinking on its head, and focus instead on creating spending habits that maximize your happiness and bring you closer to achieving your long-term goals.
Here's a strategy for managing your money that focuses on Achor's "happiness advantage" and is easier to stick to than traditional attitudes toward budgeting, saving and investing.
Take a look at your income streams on a monthly basis, and create a spending allowance. List out the top ten things you tend to spend money on in a given month. Now rank the ten in order of what makes you the happiest, to what makes you the least happiest. Cut those bottom three items out entirely.
Top-line items are easy targets, and so are things like lattes and clothing, but cutting certain items without regard for the happiness they deliver can quickly sabotage your relationship with money. Carefully consider the happiness advantage of what you anticipate spending money on. Also, focus not only what makes you happy now, but what will make you happy in the future. Automate contributions (no matter how small) to an investment or retirement account to make sure you're trying to stay on track and moving toward those long-term goals. You'll be less likely to spend that money elsewhere. If your end goal seems daunting, break it down into smaller goals or milestones and celebrate along the way. Use these small happy moments to motivate you toward your big money goals.
By maximizing happiness, you'll be focusing on your hard-earned money now and later—whether that involves retiring, traveling, starting a business, or purchasing a home and starting a family. Happiness looks different for every individual. That's why it's so important to create a relationship with money that will make you happy and help you pursue your long-term goals. It's not a chore; it's your future.
Whether you’re nearing retirement or starting your first job, there’s no better time to start saving. We make it easy with resources to help you plan your retirement.
This article was originally published on The Street.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Shawn Achor is separate from and not affiliated with TD Ameritrade, which is not responsible for his comments.
Commentary is provided for educational purposes only.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.