We started with claiming that success is achieving what we want and happiness is wanting what we have achieved. While this might be an oversimplified concept of happiness it helps us understand that we can plan for the values which are important to us which we measure in terms of life goals. Happiness is probably the most important value that every person aims to achieve but this is not the only value. Health, mental well-being, feeling good, having self-esteem, getting the most out of life, inner harmony and balance are all important values to different people. It is said that “money can buy happiness”. While people argue whether this is true, I would say the intention behind this saying from my point of view is to make people understand that “money” or financial well-being rather provides us with higher level of self-accomplishment and self-esteem, it allows us to buy more of things such as a house, car, etc. (the attributes) which bring certain (psychological and physical) consequences (e.g. feeling good, having a place to rest) and this allows us to express those values which are important to us. In this way, money does not buy happiness per se, but it does allow to express us the values which are important to us.
The idea is we can look at this model in two ways. We buy things or services (as attributes) to experience certain psychological consequences (e.g. comfort) or physical consequences (space) in order to achieve a certain value (buying a home provides higher self-esteem). Alternatively, if we cannot do this today, we can “plan” on how to achieve this based on the values we would like to express such as happiness. By thinking about our “core values” we can learn about ourselves and the things which truly matter for us in our lives. Another value could be “being a good person” and “feeling good as a consequence” of donating money to certain charity (attribute).
Where does saving come in?
There are several different ways or (intentions) which can be used to accomplish happiness or other life goals (which allow us to express those values which are important to us.) If for instance, we want to buy a house, we can 1) borrow to buy a house, you can save to buy a house or we can invest to buy a house, and 4) we can save to invest to buy a house. In the past, people often used to save money as prior to 1970s the value of money used to be more stable and increase. By saving money, people were usually able to buy a home after working for 5-10 years on average. Now, it takes about twice as long (about 15-20 years, at least for the Netherlands). As a result, nowadays, most people prefer to start their home ownership process with incurring debt (e.g. buying a house with a 30-year mortgage). While by definition this is not the worst option, having increased level of debt and no savings or investments could mean that if due to any negative circumstance people (e.g. getting fired due to Corona virus and shut-downs) are unable to make payments on their home, they can lose it. Therefore, having some amount of savings say to cover mortgage expenses for up to 6 months if both partners in a relationship or one gets laid off, could mean the difference between losing one’s home and not (and having a lot of mental stress or not). If there are other consumer debts (e.g. phones, laptops, TVs or anything else), savings could also be very important in unexpected times of trouble. It may even be good to “go out of debt” as a step 0, before even starting to save up or borrowing for the house. In that sense “borrowing to buy a house” via a mortgage could be a good idea, provided that the proper saving and investing program complement those to make sure 1) the house will be bought and 2) buying the house will not prevent us from accomplishing other life goals (by getting the wrong terms on the mortgage which we can’t afford for instance).
In 2013, I was an exchange student at Nanyang Technological University, Singapore where I was enrolled for subjects such as investing and wealth management. I chose to study finance in that country because people do not have a pension system (unlike in the Netherlands). As a result, they often save and invest (option 4) or directly invest inheritances/part of salaries (option 2) as a mean to buy the same things. This is somewhat interesting because it brings “the essence of what people want” and how they “plan to achieve it” in their own control. For instance, instead of having an “unclear amount of pension”, having a clear amount of money on which to retire. Instead of buying a house with a mortgage, renting an apartment and investing until they can buy the house. From finance and life standpoints, achieving more on our own with return rather than accumulating debt would for sure enhance our image of self-success, our self-esteem and help us express other values.
I think viewing our life goals and values as things which can be planned based on what consequences we want to experience, based on what attributes we buy is a very responsible view of life, which can help us “draw a roadmap” to accomplish many of those life goals, values and desires in life. Given that, one my life goals “is to improve the life of at least 1,000,000 people” by the time I die, providing people with the “tools to take charge of their own life goals” seems like a superb way to start accomplishing this goal. I had the privilege of learning at top Universities such as the University of Amsterdam and Nanyang technological University. Therefore, education has been very important attribute to have knowledge (consequence) so I can express this social value. As a person, who thinks education has a lot of value but needs to be supplemented by “life goals and happiness education”, I have committed my life to helping people start thinking about life in this way. This allows us to take charge of our happiness and other important life goals and gives us confidence that those can be accomplished, and we can feel good about ourselves if we are willing to put in the right efforts (actions) based on our intentions.
Therefore, for the remainder of this article we focus on the importance of “saving” and “saving to invest” as ways to accomplish our life goals and expressing our core values. However, we begin with “step 0”, getting out of debt and stopping dissaving.
Getting out of debt and stopping dissaving
Dissaving in the context of this article, refers to spending our money on things which bring “short-term pleasure” but could be preventing us from accomplish our “life goals”. Dissaving, might occur on a micro level, in our day-to-day life, without us even noticing it. Buying a $5 cup of coffee, eating out at more expensive restaurants, going to the cinema or buying alcohol (e.g. beer, wine) or drugs (e.g. weed) on a daily basis might seem little. But, if those are added up, in some cases they end up being up to half people’s salaries. Dissaving could also occur at a more macro level as “we were saving for a house, but our car broke down so we bought a new car”. While, this might seem as a different example, buying the new car might not have been life a goal and buying a new home might have been. In this context, the family might feel short-term satisfaction, but this satisfaction should not be confused with happiness. Rather, the feeling that “buying a home” might be unobtainable, could cause anxiousness and unhappiness despite having the new car (at least in this context).
The purpose of these examples was to show that most people are preventing themselves from reaching happiness and achieving their life goals by spending all their savings/income on things which are not important to our happiness but are important to our daily satisfaction. Or even worse, they borrow money fulfil their daily, monthly satisfaction (e.g. some people borrow to go to clubs and wait for paycheck to pay back, but if they lose their job, they might owe money and suddenly feel very unhappy and lacking self-esteem). While “daily satisfactions” might feel good on the day, with each passing they become unnecessary expenses which are taking us further away from our life life goals. Let us say in 5 years we wanted to buy a new house, we don’t have the money in 5 years, so we decide to “refresh our house” and buy a TV, new fridge, washing machine and other gadgets for our old house. This could lead me to experience regret because those impulsive purchases made me feel good in the moment, but in reality, maybe I really wanted that new house with that different view in that special place. So, trading “daily satisfaction” versus happiness does not seem to be a fair trade-off and many people are often unhappy as a consequence because they do not understand this simple concept.
When we overspend (or disserve), we often say “Oh man, maybe I should have not bought this, then I would have $x dollars or if I didn’t go out with my friends or any other example. When this happens, it makes us feel unhappy because we realize we have traded our purchasing power or ability to improve our life in the long term for short-term satisfaction.
The concept of a dissaving person trying to accomplish life goals can be illustrated by a simpler example with an overweight person who wants to lose some weight (for health or self-esteem reasons) but eats junk food every day. No matter how much had work I put in, if I exceed my daily calorie limit on a daily basis, my weight would end up increasing instead of decreasing. By “dissaving” our “life weight” increases in a similar way without our desire (or even if our goal is to “decrease our “life weight”).
Have you noticed how many people go on diet for 3 days and on the 4th they decide to have a hamburger which then turns into hamburger with fries and a coke. This is the same as saving up for years for a home, but buying a car, TV and other items. As some people do not see the benefits of dieting (e.g. being healthy), they do not see the benefit of saving (having a healthy financial position). This is why defining those life goals and values is so important before we can decide on the intentions and actions to achieve them. Having a clear picture in mind of what we are trying to achieve could give us the courage and discipline to stick with our actions through thick and thin and not “cheat on our diet”. In this way, regardless of whether our goal as overweight person is to be healthy or be sexy or better self-image, having this bigger goal/value in our mind could help us “stick to our diet”. In that same way, every time we are about to make an impulsive purchasing, comparing its value to our life goal and whether it is truly important to us, could help us stop dissaving and actually start saving towards what really matters to us.
In essence, the whole concept boils down to not accumulating extra debt for unnecessary expenses which we define as “daily pleasures”, so that we accomplish our life goals and express our values. “Going on a diet” or “starting to save” can help us in one of 3 primary ways: 1) saving to accomplish our goal, 2) save to invest to achieve our life goal(s) or 3) We can also save to borrow. The suitability of each can be different depending on the person’s needs. For instance, someone could already have the majority of what he/she needs to buy a house (say 300k of 320k) and he/she can choose to save this amount instead of investing for it, which would be the far smarter choice. But if we have 10k and we want to buy a 300k house in 10 years, which could cost 600k by then, then saving alone might not be enough, so we might need to 1) save to borrow (e.g. for the down payment or some monthly payments) or 2) save to invest (for the whole house or part of it);
Instead of focusing on the process steps of saving, or determining the percentages, the point of the article so far was to make it clear that 1) stopping to throw away our financial resources on daily pleasures and 2) saving our financial resources (money) is important because it can help us achieve our life goals or express certain values which we believe define our character. Having a clear understanding of the importance of saving as a means to achieve happiness or other values is much more important than its exact planning steps at this stage. Unclear understanding of the importance of savings and its relationship to life goals, often leads people to “try to save too aggressively” (or diet too aggressively) which ends up with them in debt (or with even more weight). Therefore, the goal of this section was to clarify why stopping the dissaving process and starting to save could help us achieve our life goals and that trading off “short-term pleasures” for our life goals is not a fair trade but many of us accept this trade on a daily basis.
No one sticks to their diet a 100% of the time with 100% accuracy, so if you go astray (or you have 1 impulsive purchase), realize this! Do not let one impulsive purchase (or one piece of cake) become a habit again. Rather, allow yourself a day “for a cheat meal” or in the context of finance, if you have saved enough, consider buying which does not have to do with your life goals but will bring you a lot of pleasure today. In this way, we can also plan for the amount of times we “cheat on our diet” (or dissave intentionally) in order to make sure we stick to our diet in the long-run (or that we actually are losing weight over the years instead of the days).
Until now we discussed that dissaving and wanting to achieve our life goals is like an overweight person wanting to lose weight but only eating junk food. So what exactly is saving? It’s the diet of our “salary”. Just like the diet is a way to make sure we “burn more calories” than we “consume”, saving is a method of making sure that “our expenses” are reduced below our “income”. Some people say that saving is hard, just as some people say dieting is hard. It all comes to the importance of “losing weight” or saving to accomplish our life goals. Just like it is not that hard to consume less calories than we burn, it is not so hard to reduce our expenses below the levels of our income (at least for Western European countries).
We have heard stories about obese friends losing a lot of weight and living a happier and healthier life. Like those stories, there are people who live a modest life, save according to their objectives, have a form of money management in place and thus also life healthier and happier lives. “Dieting” or “saving” has allowed both these people to emerge as “heroes” in stories and wouldn’t we all want to boost our self-esteem by being role models for others?
Saving is very important to us because it can help us to achieve our life goals or express emotional or societal values (e.g. having higher self-esteem by being a role model – emotional value or being a good person and donating (societal value). It can also offer us “piece of mind” which is another important value. More importantly, it “saves us from regret”, which is not a value we mention too often. Preventing or reducing regret in life because we “overspend” and did not invest in something, we did not buy that house we wanted, etc. could be very important to our happiness too. Imagine being old and realizing you have worked for 50 years and have spent all your money on “daily pleasures”, does that give you happiness? If yes, then by no means, do not save. However, if the answer is no, then maybe stopping dissaving and starting the process of saving is an initial step towards that goal.
By having some money saved we have more freedom of choice now and in the near future. Our saving shouldn’t be brought to extreme levels (just like being on a “diet” does not mean “being hungry” all the time). Our goal is not to deprive ourselves, but we are aiming to save our money so we can accomplish a life goal (like losing weight in order to look good and feel good). Just like we can have different diets to do this, we can also have different mixtures of saving, saving to invest, saving to borrow types of financial diets to help us achieve our life goals.
For a general discussion of which method is suitable when (or which diet is suitable for what type of situation) see the graph below:
So, trading “daily satisfaction” versus happiness does not seem to be a fair trade-off and many people are often unhappy as a consequence because they do not understand this simple concept.