There is a popular cliché of which I am sure you have heard, and it goes like, “money can’t buy happiness”. Curiously, a supposed study conducted in 2010 by Daniel Kahneman and Angus Deaton found that money does increase happy feelings up to an annual income of $75,000(GHS490,000) per person. This translates to GHS40,000 monthly salary. I will call this level of income “happy median”. Beyond this amount extra money does not increase happiness and for some people, happiness levels reduced after this happy median income point. Clearly, most Ghanaians are in no way earning anywhere near this amount.
Going by the above study, most of us in Ghana will get a lot happier with some more money. A follow up question is whether or not one can use their current salary to buy and or increase their happiness level? How you spend your money can be critical to “improving” happiness. The operating word is YOUR money, not borrowed money. You can get some of what money can buy and all of what money can’t buy. It is a truism that life generally has no rigid formulas or silver bullets. However, there are some set of principles that when followed can increase your odds of getting ahead. The below factors can improve your happiness level.
Make a Budget
Most feelings of unhappiness arise when we feel we are unable to meet our goals. In that regard, people who budget are often happier and feel more in control than those who do not. A budget is a written statement of your priorities in financial terms. Many families avoid making a budget and when they do, the budget reflects someone else’s priorities and not their own. Others feel that they live their lives and should not be controlled by a budget. I invite you to consider that you alone determine the items that appear on your budget and those must reflect what you consider most important to you.
This year, make time, write down what you value most in life and assign spending money towards achieving them. It may be helpful to include those whose lives may be impacted by your income and spending decisions in the budget formulation process. It allows you to redirect spending from less relevant areas to more valuable aspects of your life. The budget may also make tell whether the action to take is to figure out how to earn more money or to cut down on unnecessary spending.
One popular model of how to spend money is the 50-30-20 rule. Many people (especially non-finance people) find it a useful starting point in budgeting. It means divide your income by spending 50% on needs (the big 3 being food, accommodation, and transport), 30% towards wants and 20% towards paying debts and investing.
Reordering your Spending Habits
At this stage, you have established a budget, ideally cut down on spending on things that don’t contribute to your happiness. You would have made provision for you and your family’s needs etc. Someone I respect told me that when we spend on experiences, we feel happier than buying stuff. So, save money to travel around Ghana and the world, visit your parent in the village if you have one, attend Uncle Ebow Whyte’s shows etc.
Personally, I deliberately avoid buying a certain phone so that my heart does not burn when my child takes it. Why spend a lot of money buying a gadget that will spoil the mood of me and my children. Your situation might differ but look to ensure you spend on what you believe in and what makes you happy long after the expenditure.
Avoid 'Keeping up with the Joneses'
Most feelings of unhappiness occur when we feel we are unable to meet our goals, whatever those goals and reference points might be. Envy and discontent is part of human psychology. Someone was happy being a millionaire until she joined a club with a billionaire, and suddenly she feels dissatisfied with her income level. Keeping with the jones does not make us rich, it only pushes us into debt. Endeavor to avoid comparisons. You might end up happier with your current income ahead of someone who earns far higher than you.
One critical insurance is to create an emergency fund. The emergency fund is not intended to make you rich i.e. get high returns but to protect you from falling into debt when an emergency occurs. The rule of thumb is to start accumulating savings up to 6-12 months of your current salary.
Another insurance to have is life insurance. When we plan for the future, we assume we will live to realize that future. However, life happens. You want to ensure that should the unexpected happen to you before you have accumulated enough investments, then your dear ones are well taken care of. For this purpose, some pension products have embedded life insurance. I know of the Axis Pension Plan that has life insurance underwritten by Hollard Life Assurance Ltd and it comes at no cost to Axis Pension Plan clients. Kindly enquire from your investment fund provider if they have life coverage and if they do not, it is useful to sign up for one with a reputable insurance firm in Ghana.
An amount of money, a small interest rate and a long enough time can grow beyond your imagination. The power behind this is referred to as compound interest. Most ordinary people have worked themselves out of financial unhappiness through investing regular amounts over a long time. So, after you have accumulated an emergency fund, start investing as aggressively as you can. Investing in Axis Pension Plan towards your retirement or in any SEC regulated mutual fund is one of the ways ordinary people have benefited from compound interest. Those investment vehicles allow you to reinvest gains automatically while at the same time systematically adding to your capital. I started investing in mutual funds while I took time to learn more about the investing environment before venturing into other financial instruments. I started investing in 2005 and I still have more years to invest and enjoy compound returns. I avoided investments I did not understand and those not recommended by recognized financial advisors. Any time I got my fingers burned, it was because I did not follow the above 2 guiding rules. Time can work for you if you are not greedy or overly confident that you can make good investment decisions without seeking advice.
Money can work for its owner and the earlier you start, the faster it will grow over time. When you invest, someone takes your money to open shops, build factories and farms and in the process create jobs, develop communities and pay taxes. When those who got the jobs and receive wages also save a portion and invest, this positive cycle repeats itself leading to what economists call GDP growth. Let someone “hire” your money and in return pay you “rent” called interest, dividend etc.
God bless our homeland Ghana, and make us a nation of investors. No nation has grown great and strong without a culture of consistent savings and investments. Happily spend your money! You worked for it, you earned it, yet, I show you a happier way. Send me an email or leave a comment so I can know whether sharing my thoughts and experiences are helpful or not.