Saving Money Is Good For Your Psychological Wellbeing 1

Copious consumption. This seems to be the trend at the moment. Everywhere I look I see people spending money frivolously. Always updating to the latest version of a smartphone. Always wanting to stay in fashion by buying this seasons clothes. Always wanting a newer car. Always wanting to keep up with the Joneses.

Now I am not against consumption. As long as you pay cash, I am fine with that. But that is not what is happening here. All this consumption is being driven by debt as opposed to money people actually have in their bank accounts. This is a worrying sign and it has has led to debt levels reaching a record level in the UK .

The irony in all of this is someone like me, who can easily update my phone every year and spend frivolously, am not a big consumer ‘of stuff’. I handle my money differently. I could buy an iPhone or a new Mercedes tomorrow. I wouldn’t need a penny of debt to do it. But I won’t. Why? Because I know those things won’t make me the slightest bit happier. I’d be the same person I was before, only I’d be £50,000 poorer!

If you study the life of self made millionaires, you will realise that the majority of them are not big spenders. They got to be millionaires by watching their outgoings and saving money. Only the millionaires you see on TV – those linked to the entertainment industry – are big spenders due to having to keep up with their image. But besides that sub-cluster, a lot of millionaires made the realisation that they could buy anything they wanted. But they didn’t. They didn’t just spend money just for the sake of it. They didn’t spend money on unnecessary upgrades or staying in fashion. And this is an important stage to reach if you want to be financially free and wealthy.

So What’s The Point of Saving Money?

I hear a lot of people asking the question ‘ If I reduce my spending, what is the point of saving? Surely if I don’t spend the money now, I won’t spend the money in the future.”

The best answer for this comes from Jonathan Clements who was a writer for the Wall Street Journal. Clements says your savings “can deliver three key benefits.” Even better, he says, “You can enjoy this trio of benefits even if you don’t have great wads of cash.” Here’s how:

  1. “If you have money, you don’t have to worry about it.”
  2. “Money can give you the freedom to pursue your passions.”
  3. “Money can buy you time with friends and family.”

The above is exactly why you need to start saving money. The great thing is, it doesn’t (usually) take millions of dollars to spend time with friends and family or pursue your passions. You don’t need a fortune to live well.

The quicker you grasp this about saving versus spending, the quicker you’ll be able to start living on your own terms even if you don’t have millions of dollars in the bank.

You might think it’s hard to stop buying ultimately useless stuff.You might think it’s hard to stop keeping up with the Joneses.But actually, it is quite liberating to give up ‘stuff.’ And even better, you’ll be financially free much quicker. So give it a try.

Cash in the bank is a better predictor of happiness than income

Saving money also has certain positive psychological benefits. A recent study conducted by Ruberton, Gladstone, and Lyubomirsky found cash on hand — the balance of one’s checking and savings accounts — to be a better predictor of life satisfaction than income.

The basic crux of the study is that individuals with higher liquid wealth had more positive perceptions of their financial well-being, which, in turn, predicted higher life
satisfaction. If you want to read the full study, you can do so here:

So if you find it hard to save money or know someone who does, point them in the direction of this report and hopefully that will give them some motivation to squirrel money away. I would also recommend reading an article I recently wrote on compounding to see the importance of starting to save today as opposed to waiting for the tomorrow that never comes.