Spend Your Money on Growth Not Comfort

Your money is a tool to maximize your happiness

Money management is a frequent source of disagreement amongst partners, families, and friends.

Maybe one partner is obsessed with saving money and the other is tired of worrying about it. Perhaps there’s one friend who insists on sharing food and splitting the bill evenly, much to the disgust of the friend who orders a Margherita pizza with tap water every time.

We all have neuroses and quirks that limit the way we manage our finances.

According to the Financial Times, there are six different ‘money personality types’:

1. Anxious investors — love risk but panic during downturns.
2. Hoarders — dislike risk so stockpile money.
3. Social value spenders — spend lots of money on loved ones.
4. Cash splashers — spend money to gain social approval.
5. Fitbit financiers — obsess over tracking their money and savings.
6. Ostriches — avoid making any decisions about their finances.

You can probably figure out for yourself which of the six you most align with.

Me? I’m a bit of a Fitbit financier. It’s hardly surprising for somebody who chose to write an article about personal finance. I derive a kind of sick enjoyment from switching my bank account to secure the best interest rate, but when it comes to the more serious stuff — like investing in the stock market — I get scared.

Over time, I’ve realized that this tendency is limiting me. Whichever of the six personality types you most identify with, your tendencies are probably limiting you too.

Use your money to make you happy

As a Fitbit financier, I don’t like to spend vast quantities of money. I love tracking my bank accounts and working out how much I’m saving, so it feels disappointing to see a huge outflow of cash. If you’re a hoarder, you can probably relate to this too.

Yet I know that, ultimately, having more money sitting in an account isn’t going to make me happier. Spending it wisely just might.

Cash splashers, social value spenders, and ostriches have the opposite issue: they spend money recklessly, without considering whether their purchases are truly going to make them happier.

Ultimately, the outcome is the same. Most people are using it as a tool to feed their insecurities — maybe hoarders grew up in a household where money was scarce and cash splashers crave affirmation from other people.

Instead, money should be used as a tool to optimize your happiness.

Choose what matters to you

Say your income were to double overnight. What would you do with that extra money?

Most people would probably either spend nothing additional in a bid to save or increase their spending on everything.

A slightly nicer house.

A slightly nicer car.

A slightly more indulgent food shop.

A slightly more expensive wardrobe.

A slightly more luxurious holiday.

This logic is flawed. But it doesn’t mean you should be saving all your money either.

What about, instead of marginally improving so many different areas or improving nothing at all, you were to dramatically improve one area of your life?

Forget upgrading the car, the house, and the wardrobe. Instead, you could buy that new DSLR camera you’ve been eyeing up for the last year to take your photography hobby to the next level.

The prospect of doing this makes most people uncomfortable. It seems reckless and irresponsible to spend such a large amount. It would be — if you were to spend ‘irresponsibly’ on everything. But if you live a humble life in all other respects and your income allows for it, why not? You may even find yourself saving more money than before.

Where to scrimp and where to splurge

Personally, accommodation is top of my list to scrimp on. That might change if I were to buy my own house, but I refuse to spend a lot of money on a rented place.

I once lived in a house in which my bedroom had no window, the kitchen had no microwave, and I had to go to a launderette to do my washing. It cost $100 a month for my room. It sounds grim now, but honestly, it didn’t really bother me at the time. I got used to it.

Yet in other aspects, I’m a big spender. My weekly grocery shop usually consists of expensive items like macadamia nuts, fresh blueberries, and avocadoes. It sounds indulgent, but keeping my cupboards stocked full of my favorite healthy foods helps to ensure I don’t fall into old patterns of restrictive eating and bingeing on junk.

In general, a good rule is to spend money on anything that will aid your growth.

Avoid spending money on anything that provides you comfort and pleasure; you may receive an initial happiness boost, but the effect of which will soon wear off. This phenomenon is known as hedonic adaptation:

“People repeatedly return to their baseline level of happiness, regardless of what happens to them.”

You can also use your money to buy time. This could mean that you ‘buy’ yourself extra time off work or just that you buy yourself more hours in the day buy opting for ready-chopped vegetables or hiring a cleaner.

Warning: discipline required

Of course, this technique only works if you’re honest with yourself and exercise some self-discipline.

Things start to go horribly wrong if you convince yourself you’re living like a pauper to justify purchasing that top-of-the-range gaming computer when the reality is that you’re eating out for dinner every day.

It also goes without saying that you have to be in a relatively comfortable financial position to begin with to be able to practice this technique. Nevertheless, I think most people can identify ways in which they’re underspending in growth and overspending in comfort. After all, I started trying to manage my money in this way when I was still a student!

Regardless of how much money you‘re actually able to redistribute, the most important thing is to figure out your priorities. Be strategic and design the life you want.