Financial Freedom: On Money and Happiness

Happiness, Money and Financial Freedom

Research on happiness says that we are happier if we get experiences, not things. After announcing to my friends that I had reached peak stuff and was becoming minimalist, they laughed! I was very happy to receive a yoga workshop from one friend and a gift certificate for a natural nail salon from another group of friends. Experiential gifts are a great idea for someone who has everything.

Happiness research also says that bigger houses and more expensive vehicles do not make us happier. So from that standpoint, it makes sense to cut those expenses. Perhaps we should invest more in the things that make us happier. For example, experiential activities, especially travel.

The two biggest fixed expenses are housing and transportation.

The fun, discretionary expenses, like eating out and clothing, only account for about 2% of the typical family budget. If you want to save or invest 50-70% of your income, then you will struggle if you focus only on these small expenses. You may also end up feeling deprived.

From a financial standpoint, if you can reduce your big, fixed expenses then you’ll dramatically reduce your financial outlay over the course of your life. This will speed up your progress to financial freedom and independence. Proponents and practitioners of this strategy are none other than the often hilarious Jeff Yeager, author of How to Retire the Cheapskate Way and The Ultimate Cheapskate’s Road Map to Riches, and Vicki Robin author of Your Money or Your Life.

Yeager advocates staying in one home. To accommodate a growing family, you can build an extension.  Better yet, build an extension to rent out. This way you create a passive income stream. Thankfully, it is now super cool to live in a tiny house. Plus, it is an eco-friendly option, since tiny houses require less energy. When I was in my 20’s and 30’s, I shared a one-bedroom, tiny NYC apartment to save on rent. I wouldn’t want to raise a family in such a tiny space though.

My own path to financial freedom has been the opposite of tiny living.

I buy and live in big, beautiful homes that have some potential for development. They need a bit of work, but not too much work. I prefer decorating to renovating. We made a nice profit in two years simply by painting a Georgian terraced home in elegant Farrow and Ball paint. We also added really good designer curtains (bought second hand), replaced dated lighting with brass chandeliers, and furnished it with antiques bought at auction for a song. These inexpensive changes brought out the historic charm of the home, easily adding about £50,000 in value.

Our current Tudor-style 1920’s home was a very large three-bedroom home firmly stuck in the 1970’s, complete with avocado green bathrooms. We renovated the loft, gutted the kitchen and bathrooms, creating a 5-bedroom, 4 bath home. At some point, we may want to downsize, but for the moment, I love having all the space while the kids are home.

I always try to follow Robert Kiyosaki’s mantra for real-estate investing.

It is to make your money when you buy. Look for a home that is undervalued or has hidden potential. If you have to sell quickly, then you’ll still come out ahead or at least break even. If you’ve bagged a bargain to begin with, then you reduce your risk of getting into negative equity, even if there is a downturn in the housing market.

While there is no one specific way to achieve financial freedom, all roads do not lead to Rome. If you don’t have a plan (even a rough one) , then it isn’t likely you’ll get to FIRE by accident. The default option suggests most people spend everything they earn. Stats reveal the US savings rate is only 3%. As a result, most people end up heavily relying on Social Security in old age. But who knows for how long Social Security can sustain itself. You might be lucky if you can tap into home equity to beef up your lifestyle. Luckier still if your children help you.

If you aren’t already on the path to financial freedom, now is a very good time to start. The sooner you start the path to financial freedom, the better!

Don’t worry, you can enjoy the journey to financial freedom. I like looking at houses and love bringing out their full potential. I also enjoy living in big, spacious homes. This way, I get to have my cake and eat it, too! There is no law that says you have to be frugal and live in a tiny home to achieve financial freedom. But there is likely to be some effort involved. The key is figuring out which path to financial freedom feels like fun to you. Pick your happiest route!

Some people enjoy the challenge of cutting expenses and living frugally to reach financial freedom. Others might prefer investing their time in growing a business. The ultimate in diversification is to do two or three different things to reach financial freedom.

I have my own business (LifeCoach.com) that I continually invest time and money in. I also have rental real-estate and invest in stocks and bonds. While none of my friends would call me frugal, I am a bargain hunter. I can’t seem to bring myself to pay full price for anything unless I absolutely have to. I spend freely on experiences that give me joy and happiness. Some of my favorites are international travel to visit friends and family, regular massages, and dining out.

So, what are you waiting for? Start now to get on the path to financial freedom and experience a happier life and better relationship with money.

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