By AARON TANG
You and I make financial decisions every day. Tough ones.
But most of us don’t think logically about how we spend our money. Until the credit card statement comes of course. Then, we panic.
It’s no surprise then—that money remains the biggest source of stress for most people.
What could be more stressful than worrying if you’ll have enough to eat tomorrow? Or how you’re going to pay your overdue rent?
I hope you and I are never in that position. And because of that fear—I go through a mental checklist whenever I need to spend big money.
Here’s a list of five questions I ask myself every time I make a significant financial decision.
1. Can I afford it?
If I need to borrow money to do it—I probably can’t afford it.
There are exceptions of course. Some people would argue that education and housing loans are necessary. But even then, I would think long and hard before signing up for long-term debt. As much as possible, I will only commit to things I can pay for immediately.
I say this while recognising that some people are already too deep into poverty to escape—without external help.
But for most of us non-poverty-line people—learning to live below our means would remove a lot of stress from our lives.
2. Is it the best use of my money?
So I just received a US$10,000 performance bonus. Should I buy myself a nice watch or go for a vacation?
It depends on my financial priorities. Have I paid off all my commitments? Do I have six months expenses in my emergency fund? Have I invested in good educational books this month?
For example, if I still have US$20,000 in high-interest credit card debt, I immediately know that’s where my bonus should go.
Since most of us have limited amounts of money to play with—it’s important to prioritise.
Having a budget helps with that.
3. Will it really make me happier?
From a purely selfish perspective—is this really going to make me happy? And for how long?
A lot of people enjoy experiences more than material things. If you’re one of them—going on a trip to see the Aurora Borealis would probably make you happier than buying a Rolex.
I’m one of those people who likes stuff more. But I’ve learnt that giving gifts to my loved ones and people in need makes me even happier. It’s long-term happiness too.
But if it’s something that just feels good right now, but is ultimately meaningless—I try to stay away.
4. Will it better my loved ones’ lives?
Now that I’ve convinced myself that it’ll make me happy—how does it affect the lives of my loved ones?
Because if you have a family, your financial decisions affect their lives too.
If I buy a three-storey mansion, the kids will have a lot more space to play in. But will the additional debt require me to work harder and spend less time with them?
And how about my wife? Let’s say she’s the one pushing for the mansion—would she be better off if I just agreed, or if I helped her see the burden that comes with a huge house?
5. Why do I want it?
Perhaps the most important question of all is why. Why do I really want to make that purchase? What’s my most basic desire behind it?
If I buy a big house—is it because I want a home with lots of love, or is it because I feel small if I don’t own big things?
If I buy a Ferrari—is it because I really need to travel quickly, or is it because I’m feeling stuck in my own life?
Looking at my motives not only helps me realise how ridiculous some of my wants are. It also helps me understand what I’m really missing in my life.
Things that money can’t buy. But things that I need to start working on.
In our quest for happiness, ironically these might seem like really stressful, fun-killing questions to ask. After all, who doesn’t enjoy the feeling of throwing caution to the wind and spending money like it doesn’t matter?
But hopefully if you worry about these questions first, they’ll put you on the path to financial security—the path where you eventually don’t have to worry about money anymore.
The path of freedom.
This article was first published in the Huffington Post.
Aaron is the founder of mr-stingy.com and is an expert in personal finance, money management and cryptocurrency.