Maybe You Don’t Need Money to be Happy — But Achieving Financial Independence Can Certainly Help
The following is adapted from 21st Century Wealth by Rachel Podnos.
We’ve all heard that money can’t buy happiness. There’s no doubt, though, that it can help.
One highly publicized study found that $75,000 is the income sweet spot for individual happiness. More specifically, the analysis found that earning between $60,000 and $75,000 was the optimal income for an individual’s emotional well-being, and anything above that didn’t seem to move the needle on reported happiness.
$95,000 was found to be the optimal salary for an individual’s “life satisfaction,” which takes into account long-term goals and other macro considerations. In fact, the study found, increases in reported life satisfaction essentially stopped at that $95,000 mark. Beyond that, making more seemingly had no meaningful effect on happiness.
In light of this, it makes sense to shift your perspective on the purpose of money. Rather than thinking of money as a tool you can use to buy things, think of it as a tool that can give you options, independence and peace of mind. Those are things that almost certainly will increase your long-term happiness and well-being. My friend Maggie and her husband Greg found this out when they overcame some considerable financial burdens to find the peace of mind that comes with financial independence.
Maggie and Greg’s Story
Maggie and Greg moved to Colorado for his dream job opportunity practicing environmental law. Once there, they found themselves in a tough spot. Maggie was temporarily out of work. At the same time, they had a second child on the way, a new mortgage, and over $300,000 in combined student loan debt.
Things seemed grim — but their story has a happy ending. After having her second child, Maggie was able to find a good job. With her new income injecting some flexibility into her family’s cash flows, she and Greg decided to sit down and do a full financial analysis of where they were and where they wanted to go.
Together, they set two ambitious financial goals:
- Have no debt other than their mortgage, in four years.
- Have a combined net worth of at least $1 million within fifteen years.
No longer would they allow their debt to control their lives — they were going into attack mode. They decided to continue living on only Greg’s income, as they had while Maggie was out of work. They had already adjusted to it, and doing this allowed them to put every cent of Maggie’s income towards paying off their student loans.
Three Years Later
It’s now been three years since they sat down and set this ambitious financial plan. When we caught up over the phone recently, she told me that they were six months away from completely zeroing out their student loans. I asked her how they managed to do this, and she said, “We just act like I don’t have an income.”
They’ve also built a solid safety net. With umbrella liability insurance, uninsured motorist coverage, and life and disability insurance coverage, they’re well protected from financial disasters. As they pay off more and more debt, they’re also slowly starting to increase pre-tax contributions into their 401(k)s.
They’ve become so used to living on one income that they don’t plan to start spending Maggie’s income once the student loans are wiped out. Instead, they plan to split her income into three buckets moving forward:
- College savings accounts for their kids
- Paying down their mortgage ahead of schedule
- Saving for retirement
This lifestyle might sound extreme. However, they are happier and less stressed living on one income and attacking their debt than a lot of people I know who spend significantly more money on “enjoying life.”
Making measurable progress towards their goals has been very empowering and confidence-building for them. That confidence has led to even more conviction that they’re capable of building wealth, which in turn has kept them solidly on the path there. It’s a self-fulfilling cycle.
Living a Life of Fulfillment
Contrary to what many would assume, this lifestyle does not leave them feeling deprived. It leaves them feeling completely fulfilled.
Every year, Maggie and Greg take a weekend away, just the two of them. They leave the kids with relatives, head to a resort, and use that time to talk about their financial plan for the year ahead. They make a list of goals, discuss how to achieve them, review their cash flows and net worth, and prioritize what to focus on for the upcoming twelve months until they do it again. They talk about everything; nothing is off limits.
Consistently setting goals and tracking progress in this way has allowed them to remain disciplined and on track. They will likely reach financial independence well before “normal” retirement age.
There’s no doubt about it: Maggie and Greg’s progress towards financial independence brings them happiness. I’m positive that achieving financial freedom can do the same for you.
For more advice on how you can achieve financial freedom — and the peace of mind that goes with it — too, you can find 21st Century Wealth on Amazon.
Rachel Podnos O’Leary is a Certified Financial Planner™. While her clients span a variety of ages and backgrounds, Rachel is particularly passionate about working with other millennials to help them achieve financial independence through wealth building. Rachel is also a licensed attorney and member of the Florida Bar. She lives in Washington, DC, with her husband and daughter.
