11/29/2011 02:35 pm ET | Updated Nov 29, 2011

Managing Money To Maximize Happiness

A new survey by MetLife finds the economic crisis and continuing malaise has people age 47 to 65 rethinking their personal priorities. A whopping 90% of the demographic say the economy has caused them to place greater importance on personal and family relationships rather than material goods.

Their hearts are in the right place: Numerous studies have shown people who are time affluent – and spend it with other people they love -- are happier than those who are materially affluent.

On the other hand, six in ten of these respondents -- more than any other demographic -- say it’s important to achieve a higher living standard than their parents. Eight in ten say it is very or somewhat important to achieve the American dream in their lifetimes.

In short, there’s a paradox here: The baby boomers surveyed say they value relationships rather than material goods – but they still want to enjoy an affluent lifestyle. The problem is, that kind of spending often requires a demanding (high salary) job that takes time away from family and friends. Alternately, that lifestyle is lived on an unsustainable ocean of debt, which causes enormous stress, and take a toll on your health.

A new level of mindfulness about what’s most important in life has to be accompanied by a renewed level of attention to finances – because the tradeoffs are real. Consider Brian, a 60-something small business owner in Florida, who recently emailed me about his desire to retire. Brian appeared to be doing fine financially. Although his business had suffered in the recession, between that income and Social Security, he still earned $46,000 a year. Brian had a 401(k) valued at $140,000 and an annuity worth $30,000.

But between 2006 and 2007, he cashed out about $147,000 in home equity to do extensive renovations, buy a new car, take a vacation and purchase a timeshare. He told me he spends about $4,500/month – or roughly $600 more than he earns. He’s been withdrawing cash from his 401(k) to cover the difference.

Long-term, Brian told me, he’d like to be debt free, and estimates he needs $300,000 in the bank to live an average lifestyle, “or $600,000 if I want to live the way I want to live and do more travel.” But even if he sold his house, it would take a miracle to hit either number: After paying off the mortgage and equity loan, he’d net about $100,000.

I'm not judging Brian on his choices. I think one of the most challenging parts of personal finance is balancing the need to live life to the fullest today and make memories with taking care of the person you'll be down the road by saving -- so the future you can live just as well even if she can't work anymore. Since we never know when our number is going to be up, this is always a gamble. My own approach is to live within our means and save for our goals by using software that allocates our income to very specific categories -- including family vacations and home renovations -- and using unexpected income, such as a bonus, for major splurges (basically nicer family vacations and more renovations).

Moreover, Brian doesn't need to abandon his dreams. Perhaps he can refocus on new business strategies to boost business. But at the same time, he can reframe his perspective and think creatively: What is he really looking for in that ideal nest egg that he could find another way? What values are embedded in the desire for more cash?

For instance, if Brian equates the money with the freedom to travel, maybe he could accumulate frequent flyer miles and house swap with people in other parts of the country to accomplish the goal with less money. If he equates money with security, he could consider examples of people with lots of cash who don’t feel secure; and people with little cash but lots of friends who enjoy peace of mind. (Studies have found the sense of security we feel has little relation to what’s in the bank, or how much we owe.)

Ultimately, it takes both creativity and a concrete earning-and-spending plan to transform money into a tool that helps us flourish. Otherwise it’s pretty easy for the resource to disappear into a thousand black holes. For instance, the survey found 57% of Baby Boomers -- the highest of any demographic -- say they are living paycheck to paycheck. The key to breaking out of this trap is tracking spending, with pencil and paper or software, until you have a crystal clear picture of exactly where it goes. Unless we know where the money actually goes, we don’t know how well it’s serving the life goals we truly value.

Have you shifted priorities as a result of the recession? Do you need advice on a financial dilemma or have financial wisdom to share? Comment here or email me at