Formulas For Living Frugally vs Happily

December 2, 2013


When poor, optimize for money savings.
After reaching optimal income, aim for happiness. Operating frugally is a losing strategy at this point. Also, don’t fall into trap of buying shiny things to impress others.

Annual income $0 – $75,000 = operate using frugal model
$75,000+ = operate w/ happiness model; beware of the hedonic treadmill

Indians have PhD’s in frugality

I come from an immigrant Indian family.

And we are notorious when it comes to frugality.

Bargaining is a big practice in Indian stores. The prices are artificially set high & it’s like a battle of wits to see how low the buyer can get the item.

At social functions, us Indians like to brag to our friends how much money we saved on something. It’s like a competitive game to see who got what at the lowest price.

On the other hand, we also tend to be conspicuous spenders.

Who has the best sari? Who has the biggest house? Who’s driving the best car? Did you hear how big her new diamond ring is?

Not all Indians behave like this I’m sure, but almost all that I’ve come into contact with are like this.

What this means is that Indians have a personal philosophy for frugality combined with showing others that we are prosperous.

It’s a dangerous game, if our goal is to be happier.

Money buys happiness.

Up to a limit.

Social scientists discovered that limit is $75,000/yr in income for Americans.

After that, additional income doesn’t bring as much happiness as it did below that level.

Thus, it would be wiser to spend time & effort on other aspects of happiness at this point: developing social circles, raising kids, living with a purpose, hobbies, etc.

What Frugality Means:

It means going for the cheapest price possible.

It means driving 15 mins out of the way to pump gas at the lowest price.

It means spending a lot of time searching for & clipping coupons.

It means shopping at Walmart even if the customer service sucks & it’s a terrible experience overall. People act like savages in there!

It means arguing with customer service for 45mins to save $10/month on a phone bill. This actually happened in front of me.

My super rich relative got all hot and bothered, yelled at customer service, escalated the call 3x, then requested to go to the cancellation department – all in a ploy to save something like $10/month on his cell plan. At that time, I thought this was magic & amazing.

He may have saved $120/yr total but his blood pressure shot up and the rest of his day was ruined by getting angry. He also probably binge ate food just to calm his nerves. Possibly took out his anger on his family later in the day.

Not a great trade off in my opinion.

But if your income is way below the $75,000, by all means you have to put up with these inconveniences just to live. We’ve all eaten ramen. I get it.

But if you’re making $100,000 or $250,000, (like some family & friends I know), it makes NO SENSE to punish yourself by operating with the frugality system.

If you are rich, you should NOT be suffering thru the hoards of zombies during black friday sales, just to save a few dollars.

Switch over to the happiness model:

There are rules & formulas for happiness.

There is an actual system we can follow. I wish I had known this all those years when I operated frugally.

Little things & conveniences can make us happy.

It means spending a little more money at the pleasant grocery store: with superb customer service, fellow buyers behaving nicely, & everything is organized neatly.

What’s the price of happiness? Spending extra $10? $50?

It varies for everyone but this is just an example.

It applies to pleasant hair salons, oil change centers, bakeries, whatever.

At the end of the day, what’s the point of making (and saving) money if we feel like crap every time we spend it?

I’m not telling you anything you already don’t know here.

I’ve fallen pray to poor frugal thinking so much that I’m hoping I’ll remember in the future by posting it here!

Beware of the Hedonic Treadmill:

Spending money for happiness also has limits.

If we’re spending money on bigger houses, cars, diamond rings and other shiny objects, they will fail to make us happier.

This is known as the Hedonic Treadmil aka Hedonic Adaptation.

What’s a treadmill?

It’s something we walk or run on for exercise without actually going anywhere. We can walk 100 miles on a treadmill yet we’re still at the same place.

When we spend money on shiny things, we’re essentially going nowhere. Because humans are set up in a way to become adapted to gadgets & things.

A big house we dreamed about our whole life becomes just a house once we have it. Then this same big house becomes: large real estate taxes, a hassle to get lawn mowed, big empty space once kids move out & expensive upkeep.

This applies to cars, jewelry, smartphones & clothes.

Does this mean we should never buy a big house or a sweet car?

In my opinion, no.

Life is supposed to be fun. Part of the fun is trying new things. Buy the big house, if that’s what you want.

As long as you know what the game is. As long as you are aware that you’re on a treadmill, it’s ok. You can step off of it anytime you choose.

The troubled ones are those unaware we’re on a treadmill, who keep running to get to a place they’ll never reach.

Annual Salaries of Some Rich Folks:

Warren Buffett (CEO Berkshire Hathaway) – $100,000
Charlie Munger (VP Berkshire) – $100,000
Jeff Bezos (CEO $81,840
Tony Hsieh (CEO – $36,000

Sure all these guys are multimillionaires. Three out of four are billionaires.

Rich because they own stock in the companies they founded, not thru their annual salaries.

And all of them probably have nice shiny stuff. But I’m sure they’re aware of the treadmill & use it for fun rather than blindly run on it. Otherwise they would be paying themselves multimillion salaries.

As a matter of fact, I was introduced to the topic of happiness by Tony Hsieh’s presentation below.

That led me to read positive psychology books. Thank you Tony, you saved my life!

img source
Happiness is love & $75,000
Hedonic Treadmill

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