How much money is enough? 5 points to think about
A friend is retiring next month and was calling to talk about her retirement plans. She is a senior manager with a large bank and will draw a decent pension all life. She owns two flats in the city she lives in. Her children have moved on to work and live elsewhere. And her only concern throughout the conversation was —do I have enough money to see me through? Our relationship with money is fairly complex.
How much money will make us happy and secure is not a mathematical equation. Nor is it true that higher income makes us feel secure. Our childhood experiences are an important factor in this equation. I grew up with parents so obsessed with keeping accounts that the day ended with squabbles about the expenses incurred or incurred and not accounted for. They did not go to bed without balancing the books. I resolved to never write accounts!
On a more serious note, our sense of achievement and satisfaction about money can be guided by these implicit lessons as we grew up. We might resolve to wear good clothes or jewellery if we were teased about not having them; owning a house may be important to someone who suffered too many moves and evictions; and so on. Psychologists point out that we may conform with some behaviours that impressed us as children; or we may simply revolt against them. But our attitude towards money determines how much is enough in our heads.
Among the most discussed factors about feeling rich or poor is peer group comparison. Strangely, studies have shown that neighbours of those who won a lottery have registered a higher incidence of debt pile up. They were just trying to live it up like their fortunate neighbour.
Living in one’s league might be a sensible personal finance choice, says research. We may feel secure and successful if those we live with also earn and live like us, they say. In this age of social media, the definition of peers and cohorts has changed. One is able to see and envy a much larger group that is primarily showcasing its life, home, food, clothes and travel. The sense of inadequacy about one’s wealth and income increases with these comparisons. Social groups address this issue somewhat, keeping the homogenous together so they celebrate or commiserate about similar issues. One of the perils of income inequality is the disturbance it creates in society. How does one deal with the question of adequacy of wealth and income? Here are a few things to think about.
First, what we do with the income and wealth we have is more important than how much we have. Focus on how you are using your money and take the time to see if it matters to your well being and satisfaction. Instead of trying to have it all, see if you can allocate money to those uses that matter to you. For instance, families that prioritise children’s education are happy with the sacrifices they have to make, when they know that money is being used for something important.
Second, identify the markers of security for you. Allocate funds to those uses even if that does not seem too sensible or important to others. I have ;met so many people who feel satisfied and secure with their bank balances. I would advocate investing those idle balances. But I realised that some surplus lying there, visible everyday when they transact at the ATM or use their phones, keeps them feeling secure. Invested funds are tucked somewhere else and do not offer the same feeling. It could be your house or your jewellery; do not overdo it, but go ahead and keep money in forms that make you feel secure.
Third, take some time to consider the large spends and question whether they offer you a sense of satisfaction and happiness. Many of us do not pause to consider the uses of money that actually drain us and don’t offer bang for the buck. Spending is a tough decision and we tire of regret after spending. From the outing for a movie to a tour with the family every decision to spend can be denied as being wasteful. Some simply refuse to spend; some live in denial. There is a middle path where you ask whether you spend on what matters to you. Engage in that introspection.
Fourth, setting aside money as savings and investment is a good habit. But accumulated wealth may not always bring on a sense of well being and adequacy. Many have reported worrying too much about losing what has been saved rather than feeling secure about it. Suspicion and stingy behaviour among the very rich is also well documented. Wealth that is not used is wasteful and wealth that is acquired without effort can become a source of stress, squabble, ill-will and violence as so many cases around inheritance have established. Consider the merits of earning and using your wealth in your lifetime. Don’t overdo bequests and provide for the proverbial seven generations.
Fifth, studies about money and happiness have repeatedly shown that giving is an abiding source of joy and happiness. Consider charity seriously. Even if it is among those that are near and dear to you and in genuine need that you appreciate. You may be able to reach this stage only after you resolve the other issues we listed, about your relationship with money. But make a goal to get there. It is a purposeful journey to move from fears about not having enough money to the security about having enough to give away. What you have is not what determines whether you have enough. What you do with the money will drive those emotions of security and satisfaction. If only I had more is mostly the wrong place to start that quest.
(The author is CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING.)