Applying Positive Psychology to Financial Planning

Money itself is nothing more than printed paper or a digital number on a computer. Too many people get emotionally caught up with trying to achieve a number in their bank account and lose track of the real meaning of money—a means of exchange for such things as vacations, college education, helping others, time spent with loved ones, etc. The list goes on.

You must identify those things in life that you want money to support. Money itself is rarely the goal. In fact, I would argue that people’s lives can be broken down into 5 distinct areas that contribute to them being happy and fulfilled in life. Those are career, relationships, self-care, selflessness, and spirituality.

When it comes to overall wellness and life contentment, all these areas of your life must be moving in harmony. Have you ever had a conflict with someone you are close with and then tried to compartmentalize it while at work? Or have you ever been on a family vacation and been distracted by constant work emails? If you have experienced either of these, you will understand how all life areas are truly intertwined no matter how good you are at compartmentalizing your life.

Therefore, understanding what is important to you in these 5 areas will be helpful when crafting plans.

Assessment: Are You on Track to the Right Goals?

This is the time to check your current financial trajectory and identify how it aligns with your short- and long-term life goals. Some may find that they were chasing monetary goals that will have no effect in improving their well-being. We are taught that more money equals more happiness, but that is not necessarily the case. Studies show that an individual salary of $75,000 per year satisfies emotional well-being but that there is no further progress beyond an annual income of $75,000.¹

With that said, before we can identify if we are on track, we need to establish our life goals that bring us more well-being and fulfillment. Although this may seem like an easy task, you will find that “happiness” can be an ambiguous term and hard to quantify outside of the obvious things that bring positive emotions into your life. Because we need specificity when it comes to crafting plans, we must turn to the latest evidence-based research in the positive psychology domain to help.

Martin Seligman, the father of the positive psychology movement, developed the PERMA model to help us get a grip on what exactly happiness means and how to create well-being in our lives. PERMA stands for Positive emotions, Engagement, Relationships, Meaning, and Accomplishment. Below we will evaluate each of these areas and how we might incorporate them into our life plan.

Positive emotions: These are the things that elicit those positive emotions that are most synonymous with happiness, such as buying that new car, going on that trip, and winning that award.

Engagement: These are the activities that you lose track of time doing or do after a stressful day/week to “reset” yourself, such as exercise, a hobby, or even your work.

Relationships: These are the things you do to foster deeper relationships with your family, loved ones, and friends.

Meaning: What things do you do that give you a sense of meaning or that you are serving others and/or a higher purpose? Some find this by working their job, mentoring, donating, volunteering for a charity, etc.

Accomplishment: These are things that we set goals around and take steps to attain. Our society fosters and rewards accomplishment during the early stages of life (school, sports, etc), but many forget that this must be maintained to continue the sense of well-being. In adulthood, accomplishment could include running marathons, receiving promotions, or even hitting a new personal best in the gym.

Next Steps

Write down the things that you do currently in each of these areas and determine how much time and money you spend on that activity. Research suggests that those who have a more even spread across the 5 categories² experience markedly more well-being in life and tend to flourish more than those who do not. Once you establish your baseline, write out what you would do to bolster each area of PERMA in your life if money were no object. These are your true goals that are worth building a financial plan around.

Use a professional to assess your financial trajectory toward those newfound goals while you examine your current habits and nonmonetary trajectories in the various areas of your life. This will shine light on opportunities for improvement or course-correcting that the plan should be built around.

The Bottom Line

As President Dwight D. Eisenhower once said: “Plans are nothing. Planning is everything.”

This planning process is much more than just developing a financial plan to get you to an end point. This holistic approach will allow you to uncover your unique blueprint for well-being in life as opposed to simply a plan for more legal tender. By finding those things that bring eudaimonia and creating steps to attain them in your life, you can find an infinite flame and entirely change the reason you get up in the morning.

Michael Foley, CFP, CSLP, is a comprehensive financial advisor at North Star Resource Group and offers complementary, no-obligation student loan counseling for medical professionals in training. Contact him at Michael.Foley@NorthStarFinancial.com or at 480-993-9491.

References

1. Kahneman D, Deaton A. High income improves evaluation of life but not emotional well-being. Proc Natl Acad Sci U S A. 2010;107(38):16489-16493; doi:10.1073/pnas.1011492107

2. Kern ML, Waters LE, Adler A, White MA. A multidimensional approach to measuring well-being in students: application of the PERMA framework. J Posit Psychol. 2015;10(3):262-271. doi:10.1080/17439760.2014.936962