The Wealth S-Curve: Why Billions Might Make You Miserable
A well-connected friend once told me that she’s never met anyone worth over $20M who wasn’t miserable. Knowing a few aimless, addicted and hopelessly depressed people with hundreds of millions of dollars, and having met others without $5 to their name who smile and dance in the street at the first sound of a samba beat, I can also attest that wealth and happiness are not necessarily linked.
This dichotomy is well documented. Richard Easterlin wrote about the Economics of Happiness as early as 1974. Barry Schwartz posited that for most of us “More is Less” in the Paradox of Choice in 2004. We have all felt overwhelmed by too many options at one time or another. Yet, why do we continually seek more wealth, and thus more options, as if this were the key to happiness?
In my own experience, wealth and options provide happiness in my life on a rather predictable S-Curve. An s-curve is a graphical representation used to describe things like the effectiveness of an advertising budget — and now the impact of wealth and options on our lives. The basic idea is that at very low levels and very high levels, you get very little incremental benefit from the next unit of a given thing, but there’s a sweet spot in the middle of “optimal utility.”
For example, if you are selling a product and want to run national TV ads, going from a budget of $1,000 to $2,000 does nothing. You still can’t run any ads. At the other end of the spectrum, going from $100,001,000 to $100,002,000 will do very little — you’ve already saturated the market. But increasing your budget from $100,000 to $101,000 might actually reach 1% more customers.
Similarly, when you are dirt poor and have zero options, you might feel rather miserable (although this is also relative — if no one you know has any money or options either, you might be perfectly content). And at the other end of spectrum, having endless resources and endless options is actually crazy-making for many people. Life can become an endless smorgasbord of meaningless consumption and “management” of your wealth. Look at the sad, lonely lives of some of our most beloved stars.
As you see below, the idea behind the S-curve is to stay right at the maximum slope of the curve, so that every incremental dollar or option provides maximum satisfaction. If you get beyond that you enter into the zone of “diminishing happiness” where no matter how many toys you accumulate you feel less and less satisfied by the next.
In the brainstorming process made famous by design shop IDEO, constraints are important drivers of creativity. Poets have known this for centuries. The structure of a haiku, a sonnet, or Iambic Pentameter force us to think in a different way than a blank page does. Constraints give us direction and focus.
So, how to do you find your own Wealth S-Curve? As you might imagine, it’s really hard to do. I’m still working on it myself. I know that not being able to pay rent sucks, so I’ve found the bottom end of my Wealth S-Curve.
Finding the upper end of the “ideal wealth range” is something we can only feel out through experience. The Wall Street Journal reported in 2010 that the “ideal” salary for maximum happiness was $75,000. Living 20 blocks from Wall Street, I can say I know that doesn’t quite cut the mustard for me.
But I also know I don’t need $10M a year to be happy. Many of my friends got to a point where they were making the mid-$200’s and said, “I could make twice that, but the incremental work pressure and responsibility doesn’t seem worth it.” They found their own upper limit, and feel really happy about it.
Other people push right through their upper limit and become workaholics, or simply out of touch with reality. You know the type. They never see their kids, have a vacation home they don’t have time to use, and you can’t remember the last time they accepted one of your invitations to a dinner party. Or they spend all their time bitching about the lack of amenities in business class.
Successful? Yes, by some measure. Happy and fulfilled? You tell me.
And while I still haven’t found the upper end of my ideal wealth range yet, maybe I should take my friend’s advice and stop just short of the $20M mark. Maybe… Although I’ve got a long way to go before I need to make that decision.