This guest blog was written by Chris Budd, who wrote the original Financial Wellbeing Book as well as The Four Cornerstones of Financial Wellbeing. He founded the Institute for Financial Wellbeing and has written more than 100 episodes of the Financial Wellbeing Podcast.
Why do we do the things we do? What motivates us to do certain things, and why are we not motivated to do some of the things that we know would be good for us?
Answering these questions can give us insight into whether our relationship with money is making us happier.
Understanding motivations
Let’s look at the nature of those motivations in a bit more detail. Why are we motivated to do something? Sometimes it might be because that thing has to be done, like preparing or eating food. Sometimes it is because not doing it isn’t very pleasant, like putting out the rubbish. Sometimes, however, we are motivated to do something because we think it will bring us joy.
Let’s bring money into this equation. Sometimes we have to spend money on essentials like food. Sometimes we spend money because the alternative isn’t very pleasant, like fixing a hole in the roof of your house. But often we can choose how we spend our money to bring us joy. And this is where things get complicated.
2 types of motivations
We can categorise the reasons why we do things into two categories. Firstly, there is an extrinsic motivation. This is something that we do because we want to please somebody else, or for some form of external reward (such as money, fame, or praise).
In contrast, an intrinsic motivation is something that we do because it is satisfying for us, something that we do for its own sake. Intrinsic motivations are very often things that are purposeful.
Achieving an extrinsic motivation tends to have only a temporary effect on our wellbeing. Doing something to please others, for status or to gain approving looks, only lasts as long as we are receiving those looks.
Achieving an intrinsic motivation, on the other hand, has a much more significant effect on our wellbeing. Doing something just because we find it satisfying is clearly going to make us feel happy. Doing something that brings meaning and purpose to our lives will also have a positive effect on our long-term wellbeing.
The ideal financial plan works towards achievable intrinsic motivations.
Your financial planning objectives
This knowledge should have a significant impact on the objectives of your financial plan. These objectives describe your desired future. Understanding whether they are intrinsic or extrinsic motivations is going to determine whether your planned future is one which brings you wellbeing.
Here are three steps to take when thinking about those objectives, in order to create a future of wellbeing.
Step 1: Are they real objectives?
First, let’s check that you actually have a real objective in place. Do these objectives describe what you would like to be different as a result of engaging the financial planning process, or do they simply describe the financial advice?
“I would like to retire” is an objective. “I want to consolidate my pensions” is not!
Step 2: Goal or motivation?
Next, ask if the objectives relate to a particular target, perhaps a specific goal, or do they suggest a deeper motivation.
The difference between the two is that once a goal is achieved, a new goal is required. A motivation, however, tends to be something purposeful that continues to provide wellbeing after it has been achieved.
As an example, let’s take a financial plan that helps someone retire. This is a goal. Once reached, the goal has been completed. A motivation might be to be able to stop working in a job you hate and instead spend time making stained glass windows because that is your passion. The cashflow forecast will look the same, but the objective is very different.
Step 3: Intrinsic or extrinsic?
A few years ago I was coaching a business owner. At an early stage I asked how much he needed to sell the business for. He replied that he wanted £3 million.
I’m always suspicious of such a round number, so I asked where that figure had come from. We talked about what life after the business might look like. After half an hour or so, he finally admitted that he wanted £3 million because that’s what a friend had sold his business for.
With more discussion, we started to get into the things that really motivated him – his intrinsic motivations. This enabled us to work on a financial plan that showed that he didn’t need anything like that much money in order to do the things he wanted to do with his life.
Asking the question “How much is enough?” can often start this conversation. If the answer to that question involves owning things, ask yourself whether this is an intrinsic or extrinsic motivation. Is that bigger house necessary for your wellbeing, or is it because other people you know have a bigger house than yours?
Understanding our motivations in this way can help us to create financial plans that will make us happier, not just wealthier.
Please note:
This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.