One of the weirdest things to me about financial planning is how widely the amounts differ for what people say they need to live on. Equally astonishing is how adamantly people state what they need, as if their current level of spending is some non-arbitrary minimum, below which they will suffer unimaginably. Embedded in this attitude is the belief that spending money leads to greater happiness, and a higher quality existence. As of yet, there is zero evidence that this is the case, and quite a lot of evidence to the contrary.
This should be fairly intuitive. After all, at their core, all humans are basically the same. We need about the same amount of food, the same amount of space, and clean water… Our social needs are roughly independent of income; we are best off with a few close friends…And we all need some level of mental and physical activity to stay healthy. When those areas are covered, it’s been shown that not much really makes a permanent dent in our sense of well-being.
And yet, we still see tremendous variation in household consumption, and it seems that everyone is convinced that their own expenses are reasonable, necessary, and fixed. So why is this?
I think a lot of it has to do with our culture of consumerism. It’s insufficient to say that we’re this way because of advertisements and corporations, because there’s a whole lot else going on. At this point in our country, many of our basic desires are mediated or represented by money. We want a good job, for instance. Well how do you measure that? With money. Earning power is quantifiable, “liking your job” isn’t. It’s tempting to think that the most visible aspects are the most important. So, for millions of people, “success” means financial success. Not happiness, nor a sense of purpose, nor relationships…Just money and the ability to spend it in conspicuous ways, because this is the first thing we see when we peer into someone else’s life. Expensive houses, expensive cars, expensive gadgets, expensive boats, expensive vacation homes…They communicate the ability to make money, which is a cool skill, but it’s not the most important one.
A lot of us are insecure, too. We want a way of measuring our lives. Introspection takes work (not to mention vulnerability and honesty) and it brings only soft, intangible results. What’s worse, it brings results that we can’t shove in other people’s faces. It matters very much to us whether other people think we’re successful. So we aim to impress them in ways that are most visible and measurable (i.e. purchasing and displaying expensive things) to send that message.
When we define success this way, we give way too much credit to rich people. We assume that the ability to make money demonstrates that they are smarter and better at life than the rest of us. (Which it doesn’t. All it really says is that they know how to make money, a narrow slice of the richness of life) When we see them spend money in those ways, we assume they know what they’re doing and are happier as a result of their purchase, so we then do the same. So everyone becomes obsessed with looking successful, but very few discover the keys to actual happiness.
All of this leads to a particular trap that few manage to escape from. We believe our own success and well being hinge on the ability to display our wealth, and feel threatened when our ability to do so is constrained. We convince ourselves that we need these things to be happy because so much of our life was dedicated to acquiring them.
The reason I advocate for frugality is that it leads people to better evaluate their lives and keep track of what really matters (and then spend resources in those areas that provide the best returns in their happiness and well-being, while turning away from areas that don’t really make them feel any better off.) I couldn’t care less about the dollar amount you spend, as long as it’s kept in good perspective with an attitude of gratitude, and the things you spend money on bring you lasting joy.