How to Underwrite a Meaningful Life
I recently read the new book The Geometry of Wealth by Brian Portnoy and found it to be one of the most insightful books on personal finance I have read in years. I love this book because it's not just about money -- it's about life! I highly recommend it to anyone interested in building wealth and using your wealth to underwrite a meaningful life.
This book resonated with me on so many levels. He addresses the "why" behind financial decisions, which is so important. Without purpose and a "why", what's the point of all this? He lays out three critical steps for building wealth:
Define purpose: Illuminate the ingredients for a life well-lived
Set priorities: Chart a focused strategy to do the right things in the right order
Make decisions: Employ simplified tactics to drive better outcomes.
These three steps are deceptively simple, but not easy to implement. I view money as a tool, not an end goal. The goal shouldn’t be simply to build the biggest pile of money you can by the time you die! The goal should be to use your money to live the life you want to live (both now and in the future). The author defines wealth in a way I absolutely love. He calls it: “funded contentment.” He goes on to say that “It is the ability to underwrite a meaningful life—however one chooses to define that.”
Again, this resonates so much with me. Everyone’s definition of wealth is different because everyone’s version of a meaningful life is different. It’s your own unique version of your own great life. A meaningful life includes aligning your values with the way you spend your money. Define what is most important to you and your family, and make sure you are making spending/savings/investing decisions with those values in mind. For example, if spending time with family is most important to you, make sure you’ve got money in the budget for vacations and other ways to spend quality time as a family. If education is most important to you, make sure you are spending your money on books and classes and educational opportunities -- things that will get you to that goal. And don't forget saving for college, of course!
A Framework for Thinking About Money
Portnoy also lays out a really clear way of thinking about the different aspects of money:
Each of these components is important! Each can get you in trouble if ignored or done badly. Each builds on the last. You start out adult life by earning an income and spending that income. Most people know that one of the building blocks of personal finance is to spend less than you earn, which will allow you to start to build up savings. The common advice is to "pay yourself first", which means sending money to your investment and savings accounts before you can spend it. Don’t forget to set aside regular targeted savings for unpredictable but inevitable expenses as well! Learn more about what I mean by that here. Once you’ve got savings starting to grow, you should start putting your hard-earned dollars to work and invest those funds for future growth.
Like I said, all the advice so far is simple, but far from easy to implement. Spending less that you save is critical, but it’s also really easy to be so caught up in the day-to-day aspects of living that there’s nothing left over at the end of the month to save. That's why it's so important to pay yourself first. Working with a financial planner often provides accountability, motivation and clarity that will help you reach your savings goals.
How to Fund a Life of Meaning
So how can you use your money to fund a life of meaning? Well, a clear prioritization of goals will help you distinguish the important tasks from the distractions. There has been a ton of research done on the relationship between money and happiness (it's not a linear relationship).
As Portnoy writes, “Money is an opportunity for happiness, but it’s an opportunity that people routinely squander because the things they think will make them happy often don’t”. People just don’t spend wisely. There are ways to spend money with purpose to underwrite a more meaningful life, and they can be summarized by focusing in three areas:
Spend on Experiences
You’ve probably heard by now that experiences tend to bring more lasting happiness (contentedness) than material possessions. The biggest reason is the hedonic treadmill. We humans are really good at adapting to our circumstances (good or bad). Once you buy whatever new, shiny thing you’ve been craving, you experience a few days, maybe even a few weeks or months of joy because of your purchase. But eventually, you become accustomed to the new purchase and it no longer brings happiness. Experiences tend to be immune to hedonic adaptation. They are harder to get used to (unlike material purchases). Spending on experiences with others has the added benefit of deepening connections with others, another way increase joy in your life!
Spend on Others
The second way to spend money to bring happiness is to focus on others. Study after study has shown that money spent on others brings more and longer lasting joy than money spent on yourself. The links between generosity and happiness are consistent across countries and income levels. Pro-social spending also deepens connections with others (much like sharing experiences with others).
Time is the third way to “buy” happiness. You can use money to buy time by both eliminating distractions and purchasing short-cuts or conveniences, which frees up time for things you actually enjoy doing. Paying someone to mow the lawn may be a great investment in your psychological well-being if mowing the lawn is something you hate doing!
By spending your money on experiences and others, and also using it to buy time, you'll likely find greater satisfaction from the money you have earned and the wealth you have accumulated. Aligning your spending with your values and what's most important to you will go even further toward building a life of meaning.
I plan to expand on more ideas from the book in future posts. For now, if you are intrigued by the idea of using your wealth to underwrite a meaningful life, I encourage you to check out Brian Portnoy's book Geometry of Wealth. As always, please reach out to me if you'd like to learn more about building your own financial plan and using your funds to achieve the goals that are most important to you!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Alyssa Lum, and all rights are reserved. Read the full Disclaimer.