Does money bring happiness?
Someone I know told me the other day that her $12k a month take-home income (net of tax) is not enough.
“At the end of the month it’s all gone!” she said.
I wondered what this looked like. This colleague is living in a neighboring country (France/Germany) and commuting into town. She lives in a large apartment that she owns. She is a single mom with a 3-year old; has a full-time nanny, and works full time. She does not have to support her parents or any other dependents, nor pay spousal support.
I am not convinced that this woman is any happier than I am because of her expenses. In fact, I think she is less happy because she is worried every month about whether she’s going to break even or go into debt. I bet she is also more worried than me because she is completely dependent on her job to pay her expenses, and the atmosphere where she is working is terrible, and she can’t leave. She also has to work full time to pay for all of these expenses.
Welcome to the hamster wheel.
I know I’m not fully aware of the things behind everyone’s financial situation but I do know that one of the core principles of money management is to spend less than you earn.
I always remember the Charles Dickens quote (from David Copperfield) about spending less: “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
The next principle is that you can very likely cut down on your expenses with no change to your quality of life, irrespective of what level of spending you currently have.
Here’s a sample of what her expenses might look like:
Mortgage for 4.5 room apartment in France/Germany plus home expenses: 2000/month
Groceries: 1000/month
Nanny: 4000/month
Transportation (car): 500/month
Phone/internet: 100/month
(Note: Pension and health insurance are deducted prior to take-home pay.)
Leftover discretionary income: 5400/month!
What is happening to this extra money?
- Gifts
- Travel
- Restaurants
- Extracurriculars for kids
It would be very difficult to understand if she was not able to save at least a bit of this. I am being very generous with cost estimates in this example.
Gifts – you can find creative ways to express your love for your friends and family, without spending lavishly on them.
Travel – I am certain there’s a 5-star all-inclusive resort thrown in here and there; this is not necessary and a camping trip here and there, or creative vacation house-shares with friends, make all of this possible at a fraction of the price.
Restaurants – Eat more at home.
Extracurriculars – I am fully on board with getting kids the best education that money can buy. But the marginal utility of paying 80 francs for a half day pony camp for a 3 year old, is different from spending 250 a year for hockey and your child learning to skate. There has to be some middle ground.
It is clear here that more money will not solve any problems. The fact that over five thousand of discretionary income per month is already not being saved for later, is heartbreaking. (In fact there are probably another few thousand thrown in due to work travel). This money could be used to fund a comfortable cushion for themselves, either if they want to stop working, or to take a risk, or to travel, or to do whatever else they want to do.
I fully advocate for setting aside 20% of your monthly take home for savings. That money should automatically leave your account every month and go into an investment vehicle. On a day to day basis, you should not even know that that money exists.
More money coming in does not solve your problems. But having a safety net brings a great deal of peace.
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