Discover the secret to financial happiness
Many people cite finances as their top source of stress, but Harvard professor Arthur Brooks offers a surprising insight: the real issue might be poor money habits, not income. Here, we discuss the most significant financial mistake people make and how to avoid it, revealing the secret to financial happiness.
According to Arthur Brooks, the number one mistake people make is borrowing money for consumption. Never borrow money to consume. If you need to put groceries on your credit card because you lack the funds, that’s understandable. However, this isn’t the focus here.
The common sources of avoidable stress arise from the desire to buy things and accumulate stuff without having the means to pay for them, leading to debt.
The only debt that can lead to greater financial happiness
The only type of debt that can genuinely boost your financial happiness is a mortgage, says Arthur Brooks. This is because owning a home allows you to build equity, which is more beneficial than renting. Progress, such as making headway towards owning your home, brings happiness.
In contrast, borrowing for consumption hinders progress. If you need to borrow money for a purchase, it’s better to wait. This approach will ultimately lead to greater financial happiness.
Next, we will examine five common financial mistakes that often lead to significant economic hardship. Even if you are currently facing financial difficulties, avoiding these mistakes could be crucial for survival and ultimately achieving financial happiness.
01. Relying on borrowed money
First, let’s revisit the point mentioned earlier. Using credit cards to purchase essentials has become quite common. Despite the growing number of consumers who are willing to pay high interest rates on items like gasoline and groceries—items that are often used up long before the bill is paid off—this is not sound financial advice.
Credit card interest rates significantly increase the cost of these purchases. Additionally, relying on credit can lead to spending beyond your means.
02. Extravagant and unnecessary spending
Great fortunes can be lost one dollar at a time. While it may not seem significant to buy a daily latte, subscribe to multiple streaming services, or purchase small gadgets, these expenses accumulate. Spending just $25 a week on takeout meals totals $1,300 a year—money that could be used for an additional credit card payment or an extra car loan payment.
If you’re facing financial hardship, avoiding unnecessary spending is crucial. When you’re only a few dollars away from foreclosure or bankruptcy, every dollar counts more than ever.
03. Continuous payments
Consider whether you truly need items that require ongoing monthly or yearly payments. Subscriptions to cable television, music services, or expensive gym memberships can drain your finances without providing lasting value. When money is tight or if you aim to save more, adopting a leaner lifestyle can significantly boost your savings and provide a buffer against financial difficulties.
04. Purchasing a new car
Many buy new cars but can’t pay cash, implying they might not afford them outright. Monthly payments ≠ affordability. Financing adds interest to a depreciating asset, widening the value-price gap. When borrowing for a car, opt for fuel-efficient, low-maintenance models to avoid draining funds better used elsewhere.
05. Spending excessively on your home
When purchasing a house, bigger isn’t always better. Opting for a big home, unless necessary for a large family, leads to higher taxes, maintenance, and utilities. Prior to buying, consider the long-term expenses beyond your mortgage. Is it wise to make such a substantial, ongoing dent in your monthly budget?
Reflect on your housing priorities. For instance, if having a spacious yard is crucial, that’s understandable—just be aware of associated costs such as maintenance, homeowners association fees, and unforeseen issues.
Discover the secret to financial happiness conclusion
Achieving financial happiness depends on having a solid plan. Allocate time weekly to crafting and revising your financial roadmap. A well-crafted plan enables goal-setting, wise money management, and navigating uncertainties.
It empowers informed decisions on budgeting, money saving, investing, and preparing for milestones like homeownership and retirement. Making it so much easier to find more financial happiness!
