How I Found Happiness in My Finances
How One Simple Equation Changed My Life — Part 1
So I have refrained from ever giving financial advice in my writing (if you don’t count recommending books). Mostly, because I am not particularly wealthy or well-versed in financial literacy, and many of the simple financial skills necessary to gain wealth I am still learning.
That being said, I’m going to throw a few things out here. Some of them might be valuable, some of them might be terrible advice — I will leave it up to you to decide.
I have spent a fair amount of time reading a great blog about financial saving called Mr. Money Mustache (hat tip Dylan). I would highly recommend checking it out for the shear value of a difference of opinion. Some of the things he gets into I personally find a bit crazy, but his perspective on life has a lot of value.
But it got me thinking a lot about the concept of spending money in the right places.
Neil Pasricha, author of The Book of Awesome, and more recently, The Happiness Equation, proposes the following as a way to govern life:
Want Nothing + Do Anything = Have Everything
A slightly different variation as popularized by a few different articles, most notable this one from Wait But Why, might be stated as such:
Happiness = Reality — Expectation
I want to propose a simple variation that goes about explaining how I feel about this concept:
Happiness = Value / Cost
To better understand how I changed this, I want to delve a bitter deeper into the logic here.
If happiness is equal to reality minus expectations, there are two ways to maximize your happiness: have an absolutely ridiculously awesome reality (doable for very few of us) or have really modest expectations (doable for all of us). Optimizing your reality likely involves some pretty hefty expenses and a lot of things to go right. Think of how often a small detail throws your entire day off — like a pebble in your shoe when you’re walking. On the other hand, changing your mindset is free — not easy, mind you, but free.
However I feel as those the difference here is much greater than simply one minus the other. I strongly feel that reality divided by expectations better suits my experience.
If we say that reality has a value of 1 for a given situation, but my expectations for that situation were 0.25, with the standard equation we would get a happiness value of 0.75. But hey, if my experience was four times as awesome as I expected, shouldn’t my happiness reflect that?
Therefore I propose the following:
Happiness = Reality / Expectations
A subtle change, but a profound difference. Want to double your happiness? Cut your expectations in half. Simple.
What does this have to do with money?
A lot actually.
If we thinking about this purely in financial terms, we get back to my proposed equation:
Happiness = Value / Cost
If value matches your particular reality, the cost is the assumed expectation.
Ever go out for a really expensive dinner, only to have the food be totally forgettable? Or even worse, just plain bad?
The value is low, and the cost is high, and therefore, the resulting happiness is really low.
On the flip side, remember the first time you rode a bike? The value you receive from learning to ride a bike is nearly endless — it is a lifelong skill that you “never forget” — but the cost of learning to ride a bike is a few bruises, some loss of pride when you fall over, and the financial cost of the bike (and hopefully helmet). In the grand scheme of life, the value greatly outweighs the cost, hence a large amount of happiness.
At least, for me, riding a bike brings me tremendous happiness.
The feeling of freedom to go wherever I want to go, the knowledge of getting there through willpower and burning carbs, and the joy of the wind in my hair and centering of being grounded to the pavement — it makes me feel incredible. The value is huge, and doesn’t deplete the more I do it.
The cost, however, is free (almost). Once I’ve paid for my bike (I have) and cover the costs of occasionally repairing it (I do), everything after that is gravy.
If value is high, and cost is low, then happiness, as it turns out, is really, really high.
Using this simple equation, I want to help you restructure the way you think about your life.
Here are some quick tips:
- Before you buy something, ask yourself seriously if it is going to provide you more value than the cost. Could you buy something with an equivalent cost that provides more value? That’s how to maximize happiness.
- Investigate the stuff you already own and the things you already do. What is your favourite thing to do with your free time? Is there a way you can do that without spending a lot of money?
- Double-down on the long-term happiness of items and services. Paying $50 per week to go out for dinner brings you far less happiness, and is more expensive, than buying a set of really good kitchen equipment and cooking at home every day — particularly in the long run. Thinking in terms of lifetime value and lifetime cost as opposed to initial value and initial cost will help you optimize for lifetime happiness vs. initial happiness.
- Rethink the value of work. Are you working because you love to? Or are you working to justify your means? Evaluate the importance of work in your life, and the power of achieving financial freedom in order to do work that has meaning for you.
Summary:
Happiness = Reality / Expectations = Value / Cost
Find things that have a much higher value than their cost, and prioritize those.
Identify the things in your life you already own that provide a huge value and minimal cost.
Be mindful about your money — it can make you happy, after all.
