❝I think everybody should get rich and famous and do everything they ever dreamed of so they can see it's not the answer.❞ -Jim Carrey
I'm catching up with my brother at his kitchen table when I get an email. I get wind that my exam results are out. For the past several years I've been studying for the Chartered Financial Analyst (CFA) certification. It's hard! It's a series of three increasingly difficult 6-hour exams that cover everything you can think of about investing, including math, economics, accounting, stocks, bonds, many different kinds of derivative investments (complex investments that derive their value from other things). It's brutal; it's estimated that only about one person out of every five who start the program end up finishing. The pass rates are very low; I have failed each level at least once.
I nervously open the email. I'm optimistic, but I'm not confident. As I read the email it says that I passed! I don't believe it; I actually fall off my chair!
For nearly the next decade I view the world through the lens of the skills I learned. One of the main tenants of personal finance is called the time value of money (TVM). This is at the core of many other ideas in finance. The idea is that money is worth more today than it will be in the future - a bird in the hand is worth two in the bush, so to speak. Interest is the component that ties together the present value of money and the future value of money.
TVM is a concept I've internalized. It's a part of me.
Years later I'm reading a book called Happy Money by Elizabeth Dunn and Michael Norton. They describe how we can use our money in a way that brings more happiness by prepaying for experiences. The idea is that by prepaying, we don't have to fork over money during the experience so we won't experience the sting of spending money.
I've heard this idea before and I both like and agree with the concept. There is a part of me though, that cringes. TVM says that we should not pay for something if we don't have to because we could be earning interest on that money.
Then, almost as if they are reading my mind, I turn the page and read that they agree with me. It's not mathematically optimal to forego interest. However, they go onto to say that maybe we shouldn't be optimizing our money to make more money. What would it look like if we used our money for happiness instead?
Indeed - what would it look like if we changed our focus toward happiness?
MONEY IS A TOOL, NOT A GOAL
It's common to pursue money as a goal. You may know people who will do whatever they can to make at least $100,000 per year, or will retire once they hit their "magic number." These are obvious examples, of course. Sometimes it's a bit more nuanced than that. Instead of dollar targets, some people set goals related to the collection of things - a nicer house, a fancier car, or a better job title. These are indirectly treating money as a goal insofar as money is used in a way that indicates how much people have.
Upon further inspection, though, we learn that money is useless on its own and buying things won't make us happier.
Changing our perspective from using money as a goal to using money as a tool is a profound mindset change. Money can be used as a tool to help you live a life that you would be happy to look back on.
MONEY DOESN'T BUY HAPPINESS
The main reason it makes to shift away from viewing money as a goal is that, as the old cliche goes, money doesn't buy happiness.
It's more nuanced than that simple sentence, of course. For starters, money does buy happiness if you are in poverty or your basic needs aren't being met. Psychologist Daniel Kahneman, author of Thinking Fast and Slow, says that "Money doesn't buy happiness, but the lack of money buys misery."
The takeaway is that you get a better happiness bang for your buck if you use your money as a tool to bring you more happiness.