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According to the World Happiness Report, Finland ranks as the happiest nation in the world, a title it’s held for eight years in a row. Each time this report is updated, it makes the news for a day or two but then fades. That, I think, is for good reason. As much as Finland might be a nice place, it isn’t necessarily practical to suggest anyone pick up and move. The good news, though, is that there are many other, more practical ways to boost financial happiness. Here are five that I’ve observed over the years. Connection. What’s the number one recommendation of happiness researchers? It’s something that doesn’t cost anything at all: social connection. But it isn’t always easy. Whether you’re in your working years or in retirement, day-to-day life can get in the way. That’s why one busy doctor I know tells me that he maps out lunches with friends several months in advance. Another fellow tells me that he plans out vacations up to two years in advance. That might sound extreme, but it makes good sense. Indeed, it’s a point that Jonathan Clements often emphasized. “One of life’s great joys is anticipation,” he wrote. If you’re thinking about a vacation, for example, don’t plan it at the last minute; book it well in advance so you’ll have it to look forward to. Simplicity. Take some time to audit the complexity level in your portfolio. What does complexity have to do with happiness? In my experience, investors whose portfolios are complicated—especially those holding individual stocks—find themselves worrying more. That’s for a few reasons. First, if you own a collection of individual stocks, you’re more likely to follow the news about each company. And because no stock ever goes up in a perfectly straight line, there will inevitably be news from time to time to cause you worry. It’s also harder to achieve broad diversification when you’re choosing individual investments. If, on the other hand, your portfolio consists of a set of simple index funds, it’s much easier to be diversified. And the value of diversification can’t be overstated. Consider, for example, an event that occurred back in 2001. After years of impressive gains, the energy company Enron was exposed as a fraud and filed for bankruptcy. It was, at the time, one of the market’s most popular stocks, but investors saw their shares fall nearly to zero. Those who simply owned the S&P 500, on the other hand, were barely affected, because Enron’s weighting in the index at the time was less than 1%. That would have been the first benefit to an index fund investor. There’s an even more powerful lesson in what came next: When Enron was delisted and removed from the S&P index, it was replaced by a company that, at the time, was relatively unknown: Nvidia. In the 25 years since it was added to the index, Nvidia has gained approximately 150,000%. Individuality. Another key principle in personal finance is that there’s no need to see things in all-or-nothing terms. A fellow in my town lives in a home so large that it used to be a school building. But where does he go for his coffee each morning? Dunkin’ Donuts. Financial author Ramit Sethi addresses this phenomenon in his work. He talks about “money dials,” which is the idea that we should feel free to spend more on the things that are most important to us and to economize everywhere else. This probably seems like common sense. I mention it, though, because there are many textbook “rules” out there for financial happiness. But because we’re all different, we should feel free, in Sethi’s terms, to turn the dials as we see fit. Surplus. In the book The Happiness Project, author Gretchen Rubin includes this unusual recommendation: Keep a shelf in your home completely empty. Why? She explained that when she did this in her otherwise cramped New York City apartment, seeing that little bit of extra space gave her a peace-of-mind boost. How can you apply this idea to your personal finances? Consider your checking account. Most people hold just enough to cover perhaps a month or two of expenses. More than that might feel wasteful if it isn’t earning interest. But I’d encourage you to think about this differently. Think about it like Rubin’s empty shelf. If you have some surplus funds, leave those dollars in your checking account. Even if they could be earning a higher return elsewhere, I think there’s an intangible benefit to having that margin for error. Housekeeping. I apologize if my last recommendation seems a little morbid, but I see it as another effective way to boost peace of mind. When it comes to estate planning, the most basic document is a will. Other documents, including a healthcare proxy, are also important. But there’s an additional step you can take. I suggest writing up a document with further details that would be helpful to your family in case something were to happen. I suggest including the following:
I suggest stowing this with your formal estate planning documents. Then communicate the location of that information to family members or trusted friends. |
