QLagoon - Health, wealth and happiness

More Wealth = Good ?

Seemingly unassailable logic to us Baby Boomers, many who have spent our waking hours accumulating it.

It’s easier to see the flaw here. Accumulating more wealth than we need is not good if it inhibits, in any way, our ability to pursue our happiness goals. For rare individuals, the two coincide, which can make them a little difficult to live with. For most of us they don’t, so we face a trade off. Once again, it’s surprising how few people examine the matter in any detail.

You might start by trying to get a fix on how much time is the subject of this trade-off. Not unreasonably, you might have a bit of guess at your (and here it can get a little macabre) Date of Death. Don’t be shy; we will all have one – unless you’re planning on bucking a pretty firmly established trend. You can use the QLagoon Life Clock which is more scientific.

So, now a quick calculation gives you the maximum period over which you can conduct the trade-off. Let’s say your age is 50 and you reckon you are going to fall off the twig at 80 – we’re talking 30 years. For couples, you need to factor in which of you ‘plants’ the other and when. More seriously, if you have aged relatives that factor in your ‘balancing for happiness’ plans, make the necessary adjustments.

How much of this time will you be able to do the activities you value in terms of your happiness quotient? Unless synchronised drooling is your thing, you will find that most activities are best done younger while you are physically active and independent. This might reduce the trade-off window from 30 years to 20 or, in terms of your age 50 to 70.

All of sudden, if you are like us; you feel the chill wind of mortality swirling up yer kilt. Twenty measly years, and that’s barring disease and anvils or pianos falling on your head.

So that’s how long you’ve got. How much money do you need? When is enough – enough? The answer of course largely depends on.

1. Your lifestyle costs, over the next 30 years in our example
2. Your attitude to funding the children after college, housing deposits, cars etc…
3. Your financial responsibilities to parents and siblings.
4. Your attitude to leaving an inheritance for your children

This of course is not an exact science but the sums can be done – see our Personal Finance Zone. Our experience has show that certain individuals approached this exercise in different ways from the rest of the population. As a result, they came up with a much lower wealth requirement to see them through. When we isolated the reasons, we found their attitude varied from the rest of the population in one or more of the following ways.

1. They accepted that it was perfectly reasonable after having spent most of their life accumulating wealth to switch to de-cumulating wealth to fund their lifestyle choices in later life. One laughingly said he preferred to be buried owing money as he was slid into the ground! They expected to ‘downsize’ and release funds, particularly from their properties.

2. They had correctly worked out that the requirement for spending money falls off markedly in old age (last 10 years in our example).

3. They understood the nature of risk as human beings and did not attempt to over-provision (their view was closer to professional actuaries) despite a life-times exposure to financial services companies that has some of us insuring our pets!

4. They understood the services the state offered, and excelled at (acute conditions) and did not attempt to insure for these privately. They also foresaw pressure on the state to means test individuals thereby devaluing their savings.

5. They realised that with current IHT laws any £ over the IHT threshold that is spent before death is worth about 166 percent of one that is inherited. Or, put another way, any investment income accumulated on top of the IHT threshold could only worth 36p in the £1.

6. They recognised their kids were separate economic units. They provisioned a limited amount of financial help but were aware of the unpredictable results of ‘over-funding’. For example, wealth can leave the family through an offspring’s divorce settlement. They believed more in emotional and relationship support – good ‘ole family love.

Adopting such attitudes, radically changes the result to your calculations. You may well find you have sufficient wealth, or are closer to having it, than you ever realised.

So, wealth is good; but more wealth is only better up to a point. And that point is when you are trading happiness for wealth that you are never going to need. The real crime is not to do the sums.

Moving on then to tackle the final Premise 3. That states that more money = greater security against unforeseen risk.