This guest blog was written by Chris Budd, who wrote the original Financial Wellbeing Book as well as The Four Cornerstones of Financial Wellbeing. He founded the Institute for Financial Wellbeing and has written more than 130 episodes of the Financial Wellbeing Podcast.
Sometimes, we need to take something away in order to allow other things to flourish.
This occurred to me recently while I was pruning a potted lime tree that spends the summer in our garden and the winter in the conservatory.
As I tried to select the best places to cut, I wondered: What does the word prune literally mean?
The dictionary says: To trim by cutting away dead or overgrown branches or stems, especially to encourage growth.
I realised what an appropriate word pruning is for our relationship with money, and its impact on our long-term wellbeing.
Wellbeing takes work
Doing something that makes us happy is fairly easy. Spending time with loved ones, perhaps reading a book, playing a sport, listening to music. Pleasure is very easy to come by. However, not only is it temporary, but it can also stop longer-term wellbeing from flourishing.
Finding wellbeing over the long-term is a different challenge. It takes conscious effort to shape one’s life to be rewarding. We need self-awareness to avoid those things that are the enemy of wellbeing.
What does this conscious effort look like, and how does money help or hinder this process? It requires us to do certain things, but it also involves not doing other things.
What are the things we need to remove? What is the excess growth we need to cut back to encourage the growth of our wellbeing?
Financial pruning
The first rule of pruning is that, before you make any cut, you should understand the objective. Are you trying to encourage more fruit or shape a yew tree into an elephant?!
In the case of financial wellbeing, this means understanding the principles of what makes us happy, and how they apply to you.
For example, studies, such as the Harvard longitudinal study on Adult Development (YouTube, 25 January 2016), tell us that the quality of our social relationships is one of the main contributors to long-term wellbeing. Does your relationship with money help or hinder this?
Other research (Financial Wellbeing Podcast, 21 October 2018) suggests that seeing money as an objective will make us less happy than we would otherwise be. If we aim to be rich in order to be rich, perhaps as a status issue or to compete with others, then achieving this aim is unlikely to bring wellbeing.
If we put these together, we might see somebody who is working long and unsociable hours to earn money that they don’t actually need, possibly doing a job which doesn’t fulfil them. This is unlikely to lead to a life with wellbeing.
Pruning away certain activities, such as unnecessary spending which prevents progress towards long-term financial goals, can help encourage long-term wellbeing.
How much is enough?
Another key part of the financial wellbeing process is being clear on what your financial plan is going to enable in the future. This requires the application of those happiness principles to your long-term objectives.
One of the key questions for financial planning is to ask: “How much is enough?”. However, enough for what?
Often, we have so many objectives, it is difficult to see the ones that really matter. Perhaps we have financial goals, which have an endpoint, such as buying a bigger house or retiring at a certain age. But what happens after that end point? Setting too many financial goals can actually obscure the bigger picture – the objectives that will bring wellbeing.
It is worth spending time with your financial planner reviewing and challenging your own objectives. Review each one to create a priority, and maybe even reduce the number of objectives. Will achieving them make you happy for a short time? Or will they bring you long-term wellbeing? The ideal financial plan has a mixture of both.
The prune
The final aspect of the pruning which we can apply to the financial planning process is that it doesn’t stop. As I said at the beginning, wellbeing takes work.
Once your financial relationship has had a good prune, you should review, perhaps a year later, and prune again. Maybe this time it will only need a light touch. But that regular prune is a key part of the process to keep your relationship with money healthy, ensuring that it brings you wellbeing, not just wealth.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.