Financial security and the five pillars of happiness

The relationship between money and a happy life is a complex one. While financial insecurity is a major impediment to a happiness, it is not at all clear that vast wealth delivers great fulfilment. The pursuit of wealth may even get in the way of other factors that definitely make us happy and content: friends, family or community. How should happiness and financial planning interact?

Sociologists identify five key pillars for a happy life: social, career, physical, community and financial. The social pillar is about having strong relationships and experiencing love, including spending time with family and friends and having a good support network. Career covers not just how high a position you have reached, but also to what extent you are fulfilled in your work and your work/life balance.

Physical wellbeing is about having sufficient mental and physical fitness and energy to live well. This may conflict with work, which can command significant time and resources. Community is another source of happiness – an individual’s connection to their local environment. The financial pillar sits alongside the other four, covering the management of your economic life and the enjoyment of financial security.

Sociologists identify five key pillars for a happy life: social, career, physical, community and financial.

While around two-thirds of people are satisfied in at least one of these areas, just 7% believe they are thriving in all five, according to a global study from 2010 spanning more than 150 countries. It is easy to understand why this might remain true today. The pillars can be incompatible: excessive commitment to the financial or career pillar can threaten those of family and community.

Everyone is familiar with the cliché of the work-addicted CEO who provides financial security for his children, but misses out on an emotional connection. On the other hand, prioritising community or family commitments may interfere with your ability to create financial security. Financial difficulties can worsen physical health, while poor physical health can impede someone’s ability to work.

Balancing different factors

This demonstrates why financial planning cannot simply focus on money, but may need to incorporate all aspects of a person’s life and find a balance in order to be truly successful. Every financial planning decision needs to be taken with an eye to each area rather than a narrow focus on whether it will increase wealth.

Every financial planning decision needs to be taken with an eye to each area rather than a narrow focus on whether it will increase wealth.

It is important for any financial plan to set out long-term goals. If your real ambition is to retire to a Greek island and live simply with your family, you will need to be clear about how much you need and when you are going to do it. It is easy to get distracted, to wait just another year, feeling that the extra salary will provide additional security, or to take a promotion that appears to be a step toward your working ambitions but keeps you away from your family. But without long-term financial goals, you risk focusing on the purposeless accumulation of wealth, potentially impacting other sources of happiness.

However, goals need to be flexible. Circumstances change and life will throw up opportunities, such as living, working and travelling in different places. These need to be evaluated through the prism of each pillar rather than just, for example, career advancement or a higher salary. What will it do to your support structures, or to the wellbeing of your family?

Considering each of the five factors can also help you manage risk better. A key part of wellbeing is being prepared for what might happen in the future, including possible ill-health, redundancy, family break-up or other crises. A sound financial plan should incorporate the relevant insurance needs, such as life cover and critical illness protection, which may cost money in the short term, but can provide invaluable longer-term peace of mind.

All financial planning needs to allow for contingencies, which may mean holding a certain amount in cash for emergencies, or ensuring adequate diversification in your investment portfolio.

Balancing long- and short-term priorities

Risk mitigation should also be a factor in your investment plans. While it is tempting to pursue the highest possible financial growth strategy, this might expose you and your family to unwelcome volatility. It is no use accumulating wealth if it comes at the expense of emotional equilibrium. All financial planning needs to allow for contingencies, which may mean holding a certain amount in cash for emergencies, or ensuring adequate diversification in your investment portfolio.

Creating a balance between the needs of tomorrow and the needs of today is vital. All financial planning needs to be carried out with an eye to the long term. For example, it is easy to get caught up in the ebb and flow of financial markets, but focusing on short-term fluctuation can entail missing out on the higher returns and protection against inflation that stock markets provide in the longer term. Thinking long-term enables you to keep volatility in perspective.

However, future wealth considerations should not lead to disregarding the imperatives of the present. It might be prudent to save hundreds of euros a month into a personal pension, but is the most affluent possible retirement worthwhile if it means scrimping on holidays with your family? Financial planning needs to seek out and balance your priorities.

Charitable giving and philanthropy

A final area where the five pillars are likely to influence a financial plan relates to charitable giving and philanthropy. How do you create a legacy with your wealth, and ensure benefit to the causes that mean most to you? The sense that you are doing something for others can boost your social wellbeing.

A final area where the five pillars are likely to influence a financial plan relates to charitable giving and philanthropy. The sense that you are doing something for others can boost your social wellbeing.

This may also influence your investment strategy. Are you using your wealth for good or sacrificing your principles to accumulate money? As the universe of sustainable investments has grown, it is increasingly possible to align your investment objectives with your values. Do you want to invest in fossil fuels, for example? Or in companies that manufacture or use harmful plastics? Adjusting your portfolio strategy can be an effective way to align the financial pillar with your other priorities.

Financial decisions should not be simply about numbers on a spreadsheet. Sound financial management should be a foundation for all aspects of a fulfilling life, rather than assuming that the relentless accumulation of wealth will lead to happiness. A good financial planner should build an understanding of your motivations and ambitions, and bring your financial plan into line with it.