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Thursday, December 16, 2010

Financial Habits That Will Make You Happy

We all know money doesn't mean happiness – but taking care of your money the right way does.

I, for one, wasn't surprised with the new happiness finding from the Woodrow Wilson School at Princeton University. It basically confirmed what I found in a Roper study conducted five years ago, for my book The Ten Commandments of Financial Happiness. The study reports that happiness rises as household income does up to about $75,000 (my number was a somewhat lower $60,000) but beyond that more money won't make you happier - at least not day to day.

What will make you happy? Having more control over whatever money you have. That was one of the important findings out of my study. And since it didn't seem to be repeated in last week's headlines, I thought I'd do so here. You see, there are some very specific financial habits that - if you can adopt them - will make a significant difference in how happy you feel about your overall financial life. You don't have to take on every single one - just one or two can make a significant difference.

1. Get pretty organized. Don't raise your eyebrows at me. I am not saying that you have to hire a professional organizer. Or spend a mint at The Container Store. You just have to come up with some sort of filing system that you understand so that if you have to put your fingers on an important piece of paper, you can do it quickly and without hassle. That's the key. People who say they are "pretty organized and can find what they need quickly" are happier than those who aren't - and those who can't. Why? Saves you time, saves you money, saves you headaches.

2. Pay your bills as they come in rather than all at once. The research shows - very strongly - that people who do this are happier. Why? Sitting down to pay the a dozen or so bills all at once is pure drudgery. Even if you do it online, it eats up a chunk of time that you'd rather spend doing just about anything else. Moreover, watching that large sum of money fly out of your account and into the accounts of your creditors can be an emotional drain. Do it in bits and pieces, however, and it's far less overwhelming in terms of time - and your bottom line. The other benefit to paying bills as they come in is that it allows you to adjust through the month - if you get a cell phone bill that's higher than anticipated, you'll compensate by charging a little less on your credit card.

3. Save five percent. There is a strong link between saving anything and financial happiness - but if you can save five percent, your happiness jumps. So how do you best save five percent? By removing it from your spending (i.e., checking) account before you spend it. Automatically have it pulled out of your paycheck and into a 401(k) or transferred out of checking and into savings and then tell yourself "Hands off!" Oh, and once you save five percent with ease - try to get yourself, eventually, to save ten.

4. Set and work toward a goal. Attaining happiness is not a matter of having achieved your goals - it's a matter of making progress. I'm of the camp that enjoys the process more than the achievement. I get an endorphin rush from getting closer and closer to the finish line and feel a little let down when I actually get there. So I try to make sure I have one or two financial benchmarks to hit at all times. But the bottom line of our research is encouraging: You don't have to hit your marks to be happy, you just have to see results.

5. Give back. There's nothing like making someone else's life a little better to boost your own financial happiness. People who give are not only happier, they're healthier. They sleep more and exercise more and that puts them in a better frame of mind. People who know how to give are also able to remind themselves that wanting more doesn't breed contentment. It just breeds more wanting. Why? Because your happiness doesn't hinge on how much you have. Your happiness hinges on how you handle it.
Credit: Jean Chatzky

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