When most people think about the subject of personal finance they think about cutting back; that a budget is all about not spending any money; that saving for the future stops them from truly living in the present. I’ve certainly heard this recently when some of my friends began hearing about what I’m doing here at Magical Penny:
“Oh Adam, you won’t like this but I’ve just bought a new laptop”
“Why are you saving so much when you could save a little less to allow yourself to live more in the present”
For many, saving money is perceived as something that deprives them of every day pleasures and happiness. They think that those who do save their pennies must be living boring lives, depriving themselves by avoiding spending money on fun things. Of course this isn’t true.
Avoid the Treadmill
One useful theory in psychology that I’d like to share is called the ‘Hedonic Treadmill’. It’s used to describe how no matter how much we progress in our lives, be it in a career, or in the size of our bank account, we remain largely at the same stable level of happiness. For almost all of us, even if we are always increasing our standard of living, our happiness will not increase with it. We get used to it, in the same way that lifestyle inflation makes what we have seem ‘normal’. Rather, our happiness is more influenced by relative measures: are we doing better than the people around us or better now compared with how we were doing recently?
Does Spending Money Make You Happy?
I’d like to take this idea and apply it to spending. It’s common knowledge that money doesn’t bring happiness so why do so many people think spending brings meaningful happiness? Of course most of us get a buzz out of something new: for me I think of things like a new camera or a computer. Perhaps for you it’s clothes or shoes, or something bigger like a car or a new house. It’s only human to enjoy getting something new, something better than what we had before or better than what our friends have!
However, soon after the purchase, perhaps over the course of the following few weeks and months you’re not likely to be more happy in your everyday life. A newer car or a faster computer may make our lives a bit easier, or more comfortable, but does it really increase our happiness over the long term? Not so much.
So if you are not going to any more happy after purchasing perhaps you may as well begin saving more! And when you being appreciating the true price that we pay for just being ‘comfortable’ or for the ‘convenience’ it becomes even easier to get excited by the idea of saving and investing in your 20s and 30s, due to the power of compounding.
The Search for Real Happiness
Although the hedonic treadmill theory tells us that our basic level of happiness stays the same it is still important to seek out happiness every day. We already know this and a lot of people look to make themselves happier through their spending habits.
However, I encourage you today to have a think about what makes you memorably happier.
What were you doing in your favourite memories? Who were you with? If for example your best memories are from holidays with friends, then make it a priority and recognise that in order to afford to do it again perhaps you should cut back on things that don’t matter so much to you.
To give my own example, I’ve not found a car to be a priority to me (yet) but when I do, I recognise that over the long term my level of happiness is going to be relatively stable whether I have a new or an older car. I’ll take the second hand car and make a commitment to save more both for my future self and for an adventure holiday to Rio De Janero for Carnival. Going on this holiday won’t affect my base level of happiness over the long term either, just as a new car wouldn’t, but I’m sure it will create happy memories that I’ll be able to call upon in years to come. For me that’s a better trade than being ‘comfortable’ in a new car. It’s just not my passion. How about you?
If Money Doesn’t Bring Happiness Why the Focus on Growing Pennies?
Saving and investing for the future is not about a quest for happiness. And I’m certainly not the first to write about money not bringing happiness! As I wrote above, we have to seek out happiness every day in our own way, but when we do, I suggest you make sure to avoid the hedonic treadmill and focus on authentic experiences.
So what is Magical Penny ultimately about? It’s about growing your pennies to give you options. Options like the choice to retire early to allow you to more control over your schedual, or being financially secure enough if you decide to change careers or take a break to start a family. Or for any other reason you may have.
I hope you’ll join me in making a commitment to disconnect happiness from spending, to avoid the hedonic treadmill and get financially fit at the same time!
This article was partly inspired by:
In other news, Magical Penny was featured in 2 blog carnivals this week and I’m understandly excited and honoured to have been selected. Reading the articles featured in both carnivals is a great way to learn about the many different facets of personal finance.
Carnival of Personal Finance @Creditcards.com
“Over at the Magical Penny, Adam presents something to look forward to: a really spiffy car for your midlife crisis. Plan for the crisis now, he says, and you’ll be able to afford it.”
The First International Personal Finance Carnival @PTMoney
Magical Penny‘s first guest post article 5 Tactics to Avoid Overspending When Traveling was featured in the carnival that features “top contributions from around the world…from bloggers who are included in the Personal Finance Bloggers Map.”