You must have seen many people chase money as the key to happiness, thinking that riches can take away their suffering. Opposite of these are the people who renounce money. “Money is an illusion, the root of all evil,” they say. Who’s right?
First answer this: Is a knife good or bad?
It depends on who is holding the knife. The same is the case with money. Money is neither good nor bad. It is our relationship with it that makes it good or bad. We need to understand three things to improve our relationship with money:
Hedonic Treadmill
Lifestyle Inflation
How much is enough?
1. Hedonic Treadmill
Hedonic Treadmill is the term for the human tendency to quickly return to a stable level of happiness despite major positive or negative life events. In other words, as a person makes more money, expectations, and desires rise proportionately, which results in no permanent gain in happiness, and we are stuck running on this treadmill, never reaching our ultimate “happy” destination.
Our moments of achievement or setback can bring local peaks of happiness and lows of sadness, but over time we get back to our baseline happiness, the long-term life satisfaction (blue line above).
2. Lifestyle Inflation
Lifestyle inflation is when someone buys a 72-inch TV even though they already have a 60-inch TV, or a couple buys a six-bedroom house even though their current three-bedroom house is more than enough. And this rat race goes for their whole life. It is as if their expectations keep on rising with the increase in income.
Spending on wants surely brings peaks of happiness, but this happiness is short-lived. Over time, we get habitual of the things once wanted, and we return to our baseline happiness. As long as someone’s lifestyle keeps on getting inflated, they will be stuck on the hedonic treadmill.
3. How much is enough?
In 2010, Angus Deaton and Nobel Prize winner economist Daniel Kahneman published a study based on responses of 450,000 US residents about their day-to-day happiness and long-term satisfaction. They found that if annual income was:
Less than $75,000: People’s overall life satisfaction increased with an increase in salary up to the $75,000 mark. So, someone earning $30,000 per year is likely to feel more life satisfaction (baseline happiness) than someone earning $20,000
More than $75,000: Once people crossed this mark, the relationship between happiness and income disappeared
The amount of $75,000 can change based on your location but the lesson is universal. When we do not have enough money to satisfy needs, like health and safety, our baseline happiness increases with the rise in income. But needs are limited, and we reach a point where all our needs are satisfied.
At this point, most people start spending on wants, and become victims of lifestyle inflation, hoping that buying something better than what they already have will increase their long-term happiness but all they get are short-lived peaks of happiness. The baseline stays the same.
Improving the relationship with money
Seneca once said, “You ask what is the proper limit to a person's wealth? First, having what is essential, and second, having what is enough.”
Lifestyle inflation brings unhappiness because wants are unlimited. There is always a bigger house, a faster car, or a higher-paying job to make you feel bad about your current situation. So, if you seek happiness in external things you are bound to be unhappy because you will never have “enough.”
Nothing wrong with buying a bigger house or the fastest car. What matters is the motive behind these actions. If you do this to feel happy, you train your mind to believe “more is better,” pushing it into the chase of “more.” Slowly, you become a lost traveler in the desert of your desires, chasing mirages of happiness, but never quenching thirst and only getting more tired.
True happiness is an internal job. In fact, let’s call it “bliss” or “peace” because it does not look like the exciting peak of happiness usually brought by external things. It’s rather a state where you feel complete, even though you may not be jumping in joy. There is nothing missing.
Knowing your “enough” is the foundation to bliss. Start with:
Being grateful: Being grateful makes you aware and thankful for what you already have. As you realize that you have more than you need, you feel more satisfied, and with this grows your bliss
Awareness of motives: Whenever you see yourself falling for lifestyle inflation, slow down to ask, “Am I confusing my possessions with happiness? Am I trying to impress others or live up to a false image?”
Be blessed! 😊