Some people save as much as they can in order to put a hefty down payment on the largest and nicest home they can get financed. Or maybe they pay cash, and happily settle in for the long haul to enjoy their hard-earned new housing.
Both of these are fine ways to save and invest money, but Laura Vanderkam, a 33-year-old mother of three who recently bought her first house, says this conventional wisdom is dead wrong. Her latest book, “All the Money in the World,” is a lively and provocative look at how we get and spend our incomes.
Much of what we think is the best choice actually isn’t, she writes.
“I learned that spending a modest percentage of one’s income on housing is probably the smartest financial decision you can make,” Vanderkam says. “Real estate agents may encourage people to stretch to afford as much house as possible, but spending less gives you more freedom to change careers, take a sabbatical or just spend your money on fun.”
In her book, Vanderkam says we should ignore what society says we ought to buy or own, and focus on things that make us happy. And in order to do that — we have to give up some of the other finer things like a nice car or a fancy house.
“I was recently watching HGTV and realized this philosophy is starting to sink in. Two young women were each purchasing their first homes. They’d been approved for certain mortgage amounts, but both chose to spend much less because they wanted to use their money for other things: travel, going out with friends, etc. “In the long run those experiences would bring them a lot more pleasure than extra square footage,” she says.
“Our beliefs about money are muddled,” she writes. “Most of us fail to consider our decisions rationally and in the end we succumb to one, essentially universal, basic financial assumption: there is never enough… No one is forcing us to earn or spend our money in certain ways, and when we step back, we may realize that the resources we already have to can obtain can do more for our happiness than we think.”
Another traditional purchase Vanderkam dismisses is the idea of a costly diamond engagement ring — in favor of years of lovely bouquets and dinners out that same $5,000 or so could buy instead.
Vanderkam also purports that social media may not be helping us out much in terms of keeping a close reign on our spending.
“I do think social media makes us more likely to try to keep up with the Joneses, simply because we see more Joneses. Once, you simply lost touch with people from high school. They moved out of your reference group. Now, even if you never speak with someone and they live across the country, you can read about their expensive holiday on Facebook. So you compare your life to that — but why is that the right reference group?”
Her book, a quick, fun read with lots of off-beat and fresh ideas, offers a whole new perspective on how much money — whether income or savings — we might really need to achieve some of our goals.
“If money can’t buy happiness,” she writes, “perhaps we’re not spending it right.”
