Most people think money is a tool for buying as much stuff as possible. They get some money and spend it. They may buy essential items or they may buy frivolously, for a quick pleasure or a boast over the garden fence. Either way the money is soon gone and they need more. Which they earn or borrow, and then spend. Being well off is having and showing off the expensive things you've bought, which should make you happy. It's about showing people around you how rich you are, never mind the debt pile you're feeding and the sense of dread that's building behind the scenes.
According to the ONS, almost half the British population has less than £1,000 in savings, and in an emergency resort to borrowing money. And these types of loans are hideously expensive, which eats further into their money. So they max out on credit cards, because that's all they can do to stay afloat and at the same time get the new iPhone - to impress their friends.
It's not surprising there is a strongly held belief that having lots of money, or being wealthy, is the route to happiness.
That the ultimate is to win the lottery.
But it isn't true. Study after study has found that financial freedom, not wealth, is a better measure of lasting happiness. It might not be the only thing you need to make you happy (or have a meaningful life) like your health, freedom from conflict and being part of a community, but it is, undoubtably, a very important component. Wealth can bring you financial freedom, but if you spend that wealth on material goods (with all the complexity that owning those goods brings) you are no better off. Sure it might feel better to drive a new BMW than an old Vauxhall - but the feeling is temporary, and with today's traffic you don't get to work any faster. However, the additional financial burden you've placed on yourself to get the new car is permanent - you'll never get the money back. At least you can be comforted that the BMW salesman can take a holiday to Sri Lanka on your commission.
When you get a wage rise at work, you commit to yet higher levels of spending. Having money in your account is 'wasteful'. Better spend it!
The banks urge us to get a loan to buy the things that will make us happy. So we do, and it doesn't. It puts us more in debt, which makes the banks happy.
The sadness is that the Government needs this spending behaviour because every single purchase transaction feeds the Gross Domestic Product (GDP) numbers, which are the measure of economic activity. Economic activity needs to increase each quarter to deliver growth, and that in turn influences the stock market, the rising or falling value of pensions and interest rates. It's a hideous casino, with no odds in your favour. You lose every time. All you can do is hope other people are more stupid than you and get themselves into horrific debt before you do.
So what's money really for?
The purpose of money is to attain financial freedom, not to amass material things. And it's financial freedom, not material things, that is the route to happiness.
Let's examine this more closely: Having financial freedom is not about being wealthy; you don't have to be rich or win the lottery to have financial freedom. Instead it's about the balance between money coming in and money going out, and you can have that balance at any time of your life. It's the narrow corridor, where with the money you get each month you can afford all your current bills, save for future expenses (a car repair, a new tap for the kitchen, a holiday), go out to dinner and put some money aside for a rainy day.
I call it the freedom corridor.
Living beyond the freedom corridor is stressful, and ultimately expensive. If you've ever owed money on your credit card or to a friend, or a loan shark, or you've had to use a pawn shop, you'll know what I mean. The worry consumes you.
A corridor has two sides, and so does the freedom corridor. On one side comes the risk of over-extending yourself and getting into debt, and on the other comes a different type of challenge - you're not maximimising the opportunities that money can deliver - in short, you're being too stingy. You may bounce from one side to the other, you may run down the corridor at a frenetic pace or you may plod along with the snails. It doesn't matter, staying inside the corridor is the objective and you can do it at your own pace.
When you stay within the freedom corridor you have a balance between your income and your expenses.
What that all means is financial freedom doesn't have to be an end goal - something that's way off in the distance after the kids have left home and you've down-sized to a cottage on the Yorkshire Moors. It's not about planning for a 'comfortable' retirement - it's about living inside that corridor now. And once you achieve that you have financial freedom.
So take a look down your own freedom corridor. Start with your immediate monthly costs (food, mortgage/rent, fuel, utilities, nights out, personal expenditure) and your occasional expenses (car MOT, holiday, Christmas, home improvements). Save a little each month for your occasional expenses, so you've got a pot ready when the expense arises. Adjust your expenditure so it's a little lower than your income - that might be a few more nights in, or moving home. It depends. Then see how much you might save. If it's nothing, that's fine - but you're already inside your freedom corridor. As your income increases, you'll save some money and you can get expert advice on where to invest it.
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