What’s the answer to getting the things you want? Money.
Want your house cleaned? Money. Want a new car? Money. Want to visit Rome? Money.
The more money you have, the more things you can get in exchange for it. That’s why it seems worthwhile to accumulate as much money as possible: more money equals more of whatever you want.
Of course, one thing you might want is “to be able to buy things in the future, once you’ve stopped earning money”. That’s why it’s worth investing some of your money so it earns more money for you to use in the future.
You might think that the way to invest to maximise your happiness would be to choose investments that produce the highest possible rate of return, without taking uncomfortably large risks. That way you have to sacrifice the least current spending to generate the future income you want.
But there’s a complication, which means this “rational” approach is highly unlikely to make you the most happy. That complication is emotions.
Because sometimes, what you want isn’t an item or a service: it’s a feeling.
You want to feel secure. How can money help with that?
You want to know you have the option of doing something, even if you don’t actually want to do it right now. How can money help with that?
You want to relax, and just not have to worry about something. How can money help with that?
For example, let’s say that checking your bank balance and seeing at least £50,000 sitting there makes you feel relaxed. You can’t think of a situation when you’ll need that much money all at once, and you’re not planning on spending it – but it gives you comfort all the same.
Leaving that money just sitting there seems crazy: you could invest it in the stock market instead, and make an extra £500 per year!
Yes, you could. But even if there weren’t the risk of losing money in the stock market, you still wouldn’t have the comfort of seeing it when you check your bank balance and knowing it’s there if you need it. Is that comfort worth £500 per year to you?
Another example: you could rent out your spare bedroom on Airbnb and make an extra £500 per month. But then you’d lose the feeling of peace and relaxation you get when you’re alone in your home. Is that peace worth £500 per month to you?
A third example: You could take a higher paying job and make an extra £6,000 per year. But you’ll need to be on call at night. Is going to bed each night knowing you won’t be woken up to deal with an emergency worth £6,000 per year to you?
If you make these decisions based purely on the financial return they’ll produce, you run the risk of making yourself miserable. In an attempt to use money as a tool to get the things you want, you’ll lose out on the feelings you want.
So, the only way to make the right decisions about what to do with your money is to know yourself.
Your money decisions might look crazy to someone who doesn’t know you. Why wouldn’t you invest that money? Why do you spend money on that coffee every day? Why don’t you spend money going first class when you can clearly afford it? Why did you turn down that higher paying job?
But if you know yourself, you’ll be able to make the right decisions for you – regardless of what anyone else thinks. You can use your money as a tool to get the things and feelings you want, both now and in the future.