A new book from Gallup Press called “Well Being: The Five Essential Elements” by Tom Rath and Jim Harter will be released on May 4, 2010. I strongly recommend you go out and pick up a copy or pre-order it.
One of the five elements covered in the book is Financial Wellbeing - which just so happens to be up my alley. Here is an excerpt from the book:
“For years, traditional economists have assumed that people make rational decisions that are in their best interests. But the relatively new discipline of behavioral economics is proving otherwise. Consider the following two scenarios. and assuming the same purchasing power in both, which one would you choose?
A. An annual income of $50,000, while the people around you earn $25,000 a year.
B. An annual income of $100,000, while the people around you earn $200,000 a year.
Using a classic economic model, everyone should choose an income of $100,000 over $50,000. Instead, nearly half the people presented with these options pick the lower salary of $50,000 a year. They choose to make half the total income as long as it is double the income of their peers. It seems that the amount of money we make or the size of our home is less relevant than how they compare to others’ income and possessions. This plays out in the decisions we make every day, and that poses a real dilemma.”
Wow, that puts keeping up with the “Joneses” in an whole new light. Comparing yourself to the neighbors isn’t new by any means - in fact I would say that it’s a tail as old as time, biblical even! Cain and Abel for example, Cain kills Abel because he wants what Abel has.
Why is it that we are willing to make economic decisions that do not maximize our potential benefit? Why on earth would you take $50,000 a year when you could have $100,000?! That is absurd people!
Ok I get it, some of us are competitive by nature and beating your neighbor with the latest 3-D television makes you feel good about yourself. But what if every time you spend a dollar, you started asking yourself: “What is this doing for my personal Wellbeing?” I think if you were to sit back and think about the purchases you made last month, you might start to become disgusted by how much money you are throwing away on “stuff”.
For my family, “stuff” is definitely fast food. When I looked at our spending last month, I just shook my head in disgust. Did I add any memorable moments or improve my Wellbeing by stopping at Taco Bell 5 times last month… I don’t think so. I might have even made my physical Wellbeing worse!
I don’t think that improving your financial Wellbeing is about becoming a minimalist or taking a vow of poverty. It’s about using your resources in a way that creates stability and value in your personal situation. You can keep up with the “Joneses” for a lifetime and not ever improve your Wellbeing.
This is good stuff, more later.