As we close out our month exploring the intersection of money and happiness, we’ve learned quite a bit.
We’ve learned how money and happiness are linked and how a threshold level of income avoids unhappiness. We’ve also learned a few methods for getting more happiness out of the money that we already spend.
Today, we’re going to take a more complicated look at opportunity cost and tackle a very tricky issue that most people struggle with: weighing the short term against the long term when it comes to money and happiness.
As we learned earlier this week, opportunity cost is implicated in every decision that we make.
If I spend $5,000 traveling overseas, I can’t put that money towards a down payment on a house. If I spend an evening working on this blog, I can’t spend it going out with friends.
For our purposes today, we’re going to be looking at how opportunity cost matters when looking at the present versus the future.
On that front, if I spend $5,000 traveling overseas this year, I can’t invest that money for retirement or save up for a more expensive trip in the future. If I choose to quit my side hustle to spend more time with my family, I have less money to provide security or opportunities for my family in the future.
The Easy Cases
There are some decisions that are easier to weigh after considering what we’ve already learned.
If I buy a new couch that I don’t have cash for on a credit card, then I am paying the cost of the couch plus interest for months after the happiness boost has worn off. I will still be paying every month for something that doesn’t even make me happy anymore.
That’s an easy thing to say no to once you understand the science of happiness.
The Harder Cases
Most decisions, however, are much more tricky and nuanced.
Is it better to work 80 hours a week and retire in 15 years or 50 hours a week and retire in 30?
Is it better to spend money on a vacation for a happiness boost now, or invest it for a bigger happiness boost later?
You may have instinctive reactions, but there really is no correct answer to questions like these.
Treat Yo Self
On one end of the spectrum are the YOLO people. You only live once and we never know when our life will end, so get as much happiness as you can as soon as you can and figure the rest out later.
The Treat Yo Self crowd seeks happiness in the present which usually comes at the expense of happiness in the future
(Although to be fair, Treat Yo Self comes from Parks and Recreation, where they have a Treat Yo Self day once a year, which actually is an efficient happiness boost both for its repeating nature and for the anticipation that it would cause.)
The Race to FIRE
On the other end of the spectrum are the race to FIRE people.
These are people that I’ve encountered quite a bit in the personal finance blogosphere. They have decided that the key to happiness is retiring as early as possible and having more control of their time.
This is true as far is it goes (and is why I am pursuing FI myself).
But many people pursue FI at the expense of present happiness.
They cut their spending as low as possible and miss out on the happiness that money can buy, while also working crazy hours and side hustles to build up their income.
These are people that go too far in the opposite direction from the YOLO folks.
The truth is that we can be happy in the present if we use our time and money smartly, and deferring all of that happiness isn’t worth it.
Maybe you will be happy after you hit your number, but its not worth 10-15 years of unhappiness just to get there a little faster.
Instead, we need to approach decisions between present and future with a sense of balance.
We want to be happy now. We want to be happy in the future.
Often we have to defer happiness now to plan for the future. Just as often we should be capturing some of that happiness in the present. We need both.
Each person must decipher a specific balance for themselves, but there are some questions that can help you plan.
First, keep in mind that our instinct is going to be to favor the present more than we should.
Our brains were developed to favor the present, because for well over 99% of our evolutionary history we needed all of our resources to survive day-to-day.
Like many other issues dealing with money, our instincts are not designed for the modern world, so just trusting your gut isn’t a safe strategy.
We also need to think through which of our options will make us happier.
We need to think through what our big, core, important wants are versus the surface level wants of the moment. This sounds obvious, but is actually difficult in practice because surface level wants are easier to follow up on.
Most of us would be happier with a closer family rather than new furniture, but buying new furniture is easy and making a plan to bring your family together is hard and abstract.
Take the time to think it through.
Maybe you could cut your hours and spend less time at work. Maybe you could take more trips with your family or plan a monthly outing. Maybe you could buy board games or video games that you can all play together.
All of these would mean you have less money to spend in the future or on other things in the present, but they would address a core want and an important driver of happiness.
Next, be smart about buying happiness.
With the research we’ve discussed over the last two months, we can spend much more efficiently on happiness. This means that most of us can change some of our habits and be happier in the present while still saving more for the future.
If you’re not sure what to spend on, always fall back on the finding that happiness comes from spending on the three basic human needs:
“(1) competence (i.e., feeling capable or expert), (2) relatedness (i.e., belonging and feeling connected to others), and (3) autonomy (i.e., feeling a sense of mastery and control over one’s life).”
Build and improve relationships. Build and improve your own skills. Try new things. Create new things. Experience new things.
Getting Happiness for Free
If you’re struggling to save enough for the future, look for free or low cost ways to boost your happiness.
Go to the local park with your kids. Take your spouse on a picnic. Have a potluck dinner with your friends.
Work on building a skill set that also saves you money. Learn how to do basic auto maintenance. Try your hand at woodworking or different handyman tasks. Take up gardening and grow your own vegetables.
Spending money can open up more options for improving your happiness, but there are plenty of ways to be happier without breaking the bank.
It’s really difficult to balance our happiness and finances in the present with the future. I wish I could give you a right answer or a short cut, but I can’t.
You need to find the answer for yourself.
You also need to constantly reassess your balance. Our wants and needs change with different phases of our lives.
My preferred balance was very different as a single law student than it was as a married lawyer which was different from what it is now as a young father. I’m sure it will continue to change as I move through life.
So find your balance now, but keep growing and changing.
Join the Conversation!
How do you balance the present and the future? Have you found your preferred balance changing over time? Have you ever been too far to one extreme or the other? Let us know in the comments!