Saving Up Freedom
Here's a test question: how much would you have to earn per year in order to feel that additional income would no longer have any effective impact on your perceived wellbeing? Write down the figure before reading on.
Research offer clear answers: If you are living in poverty, money plays a major role. Financial difficulties are sheer misery. If you are living on a moderate income per year, money plays a more moderate role. Above a certain threshold of household income, the effect of additional income shrinks to nil - and remains there even if you reach the million dollar mark.
It's not all surprising. Imagine the life of a billionaire from sun-up to sundown, moment by moment. Even rich people need to brush their teeth. They sleep badly sometimes. They feel like crap, argue with their families, fear age and death.
In a well-known study from 1978, researchers analyzed the life satisfaction of lottery winners. The result? A few months after their big win, the brand new millionaires were no happier in any significant sense than before.
One famous economist in the past measured the life satisfaction of his country citizens in 1946 against that in 1970. Although living standards nearly doubled during this period ( had fridge, car, washing machine and hot water), life satisfaction had remained fairly stable.
The economist found similar results in the eighteen other countries whose data he compared. In other words, people were no happier with their lives in 1970 than immediately after the war. Material progress was not reflected in increased life satisfaction. This shows that once basic needs have been met, incremental financial gain contributes nothing to happiness.
Why then do we keen yearning to be millionaires - in the face of all scholarly consensus? The main reason is that wealth is relative, not absolute.
Imagine you manage to buy a Mercedes after years of saving, and your friend drive up beside you with a Lamborghini. What happens? Your blood pressure rises and life satisfaction drops - even though you are still living very well.
Money is relative. Not just in comparison to others, but in comparison to your past. If you earned $50,000 per year during the first half of your career and today you earn $75,000, you'll be happier than if you first earned $75,000 and now earn just $60,000. This is despite the fact that, averaging the figures, you come out better off overall in the second scenario.
Simply put, your level of wealth - above the poverty line - is primarily a matter of interpretation. But this is good news; it means it's up to you whether money makes you happy or not.
There are a few rules of thumb for dealing with money. The first has been termed by some linguistically adventurous individuals fuck-you money, in reference to the last two words - ever presumably - you will yell at your boss before storming out of the office.
Basically, fuck-you money refers to the savings that would allow you to quit your job at a moment's notice without ending up in dire financial straits. One year's salary, let's say, Fuck you money is freedom.More important even than material independence is that fuck-you money allows you to see and think objectively. So if you haven't saved up your money yet, keep your fixed costs low. The lower your out goings, the quicker you'll reach your goal. In any case, it's a nice feeling to have money without spending much of it.
Two: don't react to minor fluctuations in your income or assets. Has the value of your stock portfolio risen or dropped by one percent today? Don't let it worry you. Basically, don't think so much about money. It won't multiply more quickly the more often you think about it.
Three: don't compare yourself with the wealthy. It will make you unhappy. If you must, compare yourself with those who have less than you do - but it's better not to compare yourself with anyone at all.
Four: even if you are filthy rich, live modestly. Wealth makes people jealous. Anyone who has enough cash can buy a luxury yacht - there's no skill to that. If you are a millionaire or billionaire, it's more impressive not to buy one, to live modestly.
Essentially, once you have left the poverty line behind you and saved up a financial safety net, money is not among the factors that contribute to a good life. So work on those other factors instead of hoarding money.
Genuine success, as we'll see in our lifetime is anything but financial.
