You may have heard of the term wealth effect - it is the idea that when the value of stock portfolios, IRA's, 401k"s, rises due to escalating stock prices, investors feel more comfortable about their wealth, allowing them to spend more.
We now have the happiness quotient as determined by studies in the UK where a group of social scientists measured the "happiness" of bank clients through multiple surveys. They found that overall wealth was not the factor. What produced a true sense of happiness and well-being was the amount of available cash in personal checking or savings accounts.
Invested money or a pension felt either abstract or inaccessible whereas their large ATM balance evoked a sense of security and importance.
The thought of surplus cash not invested as losing value (due to inflation, lack of growth) misses the human psychology element. The premise is how you maximize your well-being over maximizing your financial benefit.
Ways to increase your happiness:
1. build your savings i.e. your emergency fund,
2. save for vacations before you take them,
3. live within your means (aka spend less than you make),
4. buy experiences not things,
5. give money to causes that feed your spirit.
Be $ Smart: Enlarge your cash buffer to increase your sense of personal power, security and happiness.
