Jim and Rob are friends.
They haven’t seen each other in years. To catch up, they’re chatting over a beer at the local bar.
Both of them have the same job (tech support), live in the same city (Charlottesville), and grew up eating the same boxed lunches at the same suburban high school.
Rob and Jim start talking monthly expenses (isn’t that what people at bars?). Jim spends $1500 a month. Rob spends $3000.
Clearly, Rob is twice as happy as Jim.
Nobody sensible believes that. We don’t need Harvard PhDs to tell us that spending $2 doesn’t make us twice as happy as $1.
Yet, when it comes to the big picture, people are blind to this.
Why are we chasing ever bigger paychecks, ever bigger purchases and ever bigger versions of the same things we don’t need? It doesn’t take a whole of of effort to notice that these people aren’t happy.
Past a certain point, there is no relation between spending and happiness. Choose two people at random. If they’re both making a decent salary (say, 40k+), there’s no guarantee that the poorer person is less happy, less handsome or less awesome.
In fact, the odds may be against the ‘rich’ guy.
The Hedonic Treadmill: Why Spending Doesn’t Matter
If I upgrade from regular, $1 ice cream desserts in the evening to $2 ice cream desserts, it’ll make me pretty happy for a day. But, a few weeks later, I’ll get used to the $2 ice cream desserts. Now I need something else.
That’s the “Hedonic Treadmill” — we get used to what we have and need something even better to get the same fix.
Likewise, we can reverse the treadmill with less damage than we think. If I cut spending by 50% by say, drinking black coffee instead of lattes every day and choosing a used car over a new luxury one, I might suffer for a few weeks.
But, in the long term, a 50% cut in spending does not cut my quality of life 50%. That’s the 50% rule of frugality.
A few years ago, I sold my car. I was gonna have to walk everywhere. How was I going to buy groceries? What if it rained?
Now I love walking. I save a bunch of money on transportation. I’m healthier And a lot of my best ideas come while walking.
“Ok”, you say, “I get the part about adaptation. But where does freedom come in?”
I’m glad that you asked.
The 50% Rule… Welcome to Freedom
Let me repeat the 50% rule—a 50% drop in spending does not equal a 50% drop in satisfaction. But that 50% drop does equal something else:
- Twice as much free time (because you are half as much), OR
- A huge increase in discretionary income (from saving 50%)
Frugality is a “philosopher’s stone”. We can cut spending by upwards of 50% to free up huge amounts of resources in the form of money and time. You can then take this money and time and reinvest it in things that really matter.
The average American works 2000 hours a year. Cut work hours by 50%, and that’s an extra 1000 hours a year.
Where will you spend it all?