How much is enough?

Carl Richards (Author & Financial Advisor) on how to find the right balance between saving/investing and spending

RP: Financial planner and writer Carl Richards has spent his career helping people to find the right balance between saving and investing on the one hand, and spending on the other. 

We’re all different, and the answer will be different for each of us. But there is, he says, a fundamental question we all need to ask ourselves. 

CR: Whether it’s not saving enough or spending too much, like, they’re both challenges! Most of them come down to one simple concept and that is defining what enough is, right, getting comfortable with your enough, and that’s part of the problem here, is that there’s nobody who can tell you the answer. Right? There’s nobody who can tell you the answer should you spend on this weekend trip with the family, or should you save that because you might need it 30 years from now? 

RP: These are just the sorts of issues that a good financial planner can help you with. 

But ultimately you need to decide for yourself where your priorities lie.

CR: So, you do the spreadsheet, important, incredibly important, and then you kind of tear it up, and you do your sun salutations, or your yoga, and you go on your morning walk, whatever you do to get quiet, and say “which one is more valuable to me?”. Because you’re the only one who will know that answer. And I think that will get you closer to ‘enough’. Sometimes you’ll say, “you know what, that experience isn’t as important as making sure we have some money 20 years from now.” And sometimes you’ll say, “right now our family really needs this.” And both of those times, you’ll be right. 

RP: A rule that Carl Richards applies in his own life is to prioritise spending on experiences like holidays and adventures over spending on physical possessions. It’s advice that’s backed up by academic evidence. 

CR: The research is pretty clear: experiences bring more happiness than stuff, right? And, those experiences include experiences today, and they include experiences 20 years from now. And some of those experiences far off 20 years from now, you have a hard time even imagining, because the research is also clear: when we think about ourselves 20 years in the future, we have the same emotional connection as we do a stranger.

RP: Something else to bear in mind when you’re tempted to buy a new car or the latest smartphone is what behavioural scientists called the hedonic treadmill. 

The thrill we experience from buying things soon wears off.

CR: The point is, at a certain level, and this is true with ice cream, this is true with chocolate chip cookies, it’s true with running, it’s true with everything – at a certain level, there is decreasing marginal utility, right? The added benefit for one more bite of ice cream, when you go for bite one, that’s the best! Bite two is really awesome! You get to bite 47, and it’s actually getting worse! And it’s the same thing with income, like unless we’re really clear with how we’re using it, just earning more is not going to make you any happier. 

Again, only you can decide what you really want to spend your money on. 

And if you haven’t done this already, there’s no time like the present to figure out what your priorities in life really are.