In financial planning, we talk a lot about how to grow and manage your wealth. Whether it’s saving and investing or leaving a financial legacy, you might be focused on building assets and passing them to the next generation.
Of course, this is often extremely valuable as you need to accumulate funds to fulfil your goals.
But there’s one aspect of financial planning that many people shy away from: spending.
You work hard to earn and grow your money. But what’s it all for if you don’t allow yourself to enjoy it?
After all, life is for living. And, as the old saying goes: “you can’t take it with you”.
So, keep reading to explore four reasons to enjoy your wealth while you can and some top tips for making the most of your money.
1. Spending could boost your happiness
It’s hardly groundbreaking to suggest that spending money on things you enjoy could make you happier.
That could mean treating yourself to a luxury item you’ve always wanted, taking the trip of a lifetime you’ve been dreaming of, or spoiling a loved one.
However, simply spending money doesn’t necessarily make you happier. It’s important to consider how you spend, and whether these purchases add true value to your life.
For example, a study published in Psychological Science has shown that experiences can deliver more joy than material purchases. And it’s not just the experiences themselves that could make you smile: the study also identified that both the anticipation and memory of an event can boost happiness.
While material purchases were found to similarly bring joy, those spending on experiences generally reported higher levels of happiness.
By spending on things like holidays, theatre tickets, or days out with the family, you may find that you feel happier and more fulfilled.
What’s more, a 2008 study published by Harvard Business School found that spending money on others could boost your happiness further than spending on yourself. This includes both gifting to loved ones and donating to charity.
Of course, it’s important to strike the right balance. It might not be wise to enjoy three holidays a year if it affects your ability to achieve your retirement goals, for example. To maintain a suitable balance, it can help to create a clear budget with spending and saving assigned into categories according to your needs and wants.
2. Money can only buy you so much happiness
Sometimes, people will associate accumulating wealth with becoming happier. For example, you might think, “if I had X amount, I wouldn’t need to worry anymore, and then I could be happy”.
But a study reported by BBC Science suggests that money has a limited ability to buy happiness.
When you’re building a life and growing your funds to achieve a basic level of security, the link between money and happiness might be strong. But once you’ve passed the point of feeling financially secure, growing your money could have a less direct impact on your happiness.
Spending on treats and experiences for yourself and others might bring you joy, as described above, but ownership of more money might not.
Indeed, the study suggests that having too much money could make you unhappy due to increased stress. Consequently, once you have enough for your safety and security, spending could make you happier than saving.
3. Sharing with loved ones could strengthen your bonds
Often, people focus on growing their wealth with a view to leaving a financial legacy to loved ones when they die. Indeed, it’s natural to want to help ensure they are set up for life when you’re no longer around to support them.
But sharing your wealth with them in life, rather than death, could deliver many valuable benefits.
Besides boosting your happiness as described above, sharing your wealth early could mean your loved ones get more out of your money. With Inheritance Tax typically charged at 40% for assets exceeding the £325,000 nil-rate band and £175,000 residence nil-rate band, spending and gifting in life could mean less of your money goes to HMRC.
Could HMRC be your biggest beneficiary on death? 5 ways to cut a potential Inheritance Tax bill
What’s more, gifting early could mean your loved ones could reach key milestones much sooner, potentially allowing you to enjoy precious moments with them – such as visiting their first home or attending their wedding.
Alternatively, rather than gifting money, you could opt to pay for a shared experience with your loved ones, such as a large family holiday. This could give you a priceless opportunity to spend quality time together, create memories, and strengthen your bond.
In fact, you might find your loved ones would treasure that time with you more than any amount of inheritance.
4. Enjoying your wealth could save you from regret later on
One day, a time may come when your health limits your ability to enjoy your wealth.
This could be particularly true when it comes to experiences. None of us knows for sure what the future might hold, so putting off your dream holiday, bucket-list activities, or days out with loved ones could risk those dreams never being fulfilled.
And nobody wants to reach the end of their life regretting all the things they didn’t do.
As reported by the Guardian in 2012, palliative care nurse Bronnie Ware discusses the most common regrets among those approaching the end of their life. Based on her experience, many people wish they had let themselves be happier.
Of course, that can encompass a great many things. But, for some, denying yourself opportunities to enjoy occasional luxuries, experience new things, and share with loved ones in the name of building wealth could lead to regret further down the line.
As such, rather than putting off spending that could bring you joy and help create meaningful memories, it might be worth adjusting your budget to allow for a little more living.
Spend intentionally rather than impulsively
While you may be ready to start enjoying your wealth, it’s still worth ensuring your spending is worthwhile. You no doubt want to ensure you’re getting the most out of your money, rather than frittering it away on impulse purchases you might regret later.
To help you make smart purchasing decisions, here are a few questions you might ask yourself before spending:
- Will I still want this in a week, or am I getting caught up in the moment?
- Will this improve my life, bring me joy, or make something easier?
- What am I potentially giving up by spending this money now, and am I happy with the trade-off?
- Am I buying this because of an emotion, such as stress or boredom?
- Have I researched alternatives and shopped around for the best price?
Once you have answered these questions, you might feel better positioned to make an informed decision about your purchase.
Balancing your current wants against future needs is key
All this said, it’s important to ensure your spending is balanced against both your future needs and current income.
It’s all very well and good saying, “I want to spend six months on a beach in Hawaii”. But if doing so could mean you’re unable to retire at your desired age, it might not be practical to fulfil your dream just yet.
To be able to really enjoy your wealth without the stress of how it will impact your wider finances, it can help to create a comprehensive financial plan. Using cashflow modelling to visualise your current income and outgoings, as well as forecast your financial future, a financial planner could help you define how much spending you can afford.
Creating and maintaining a detailed household budget could also help liberate your spending. Once you have determined how much disposable income you have, you could even split it up into categories such as holidays, gifting, and clothing to help you spend guilt-free.
That way, you could splash out without worrying about whether you’ll have enough for retirement, have enough of a financial safety net, or will still be able to leave a legacy to the next generation.
Of course, saving and investing will likely still form a large part of your financial plan. But by creating a clear financial framework tailored to your goals, needs, and wants, a financial planner could help you save for those dream holidays, as well as your dream retirement.
Get in touch
For support to both enjoy and grow your wealth, get in touch with our financial planners to find out how we can help. Email help@fourseasonsfp.co.uk or call us on +44 (0) 13 7240 4417.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning or cashflow planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
