How NOT to buy Happiness

[mickj]

I found this on fat wallet...
http://www.fatwallet.com/t/52/484948/

Well, I think "How to buy happiness" would be a more constructive topic for discussion here on fatwallet finance, but the basis of my title comes from an interesting research paper I stumbled upon today from the MIT Press:

How not to buy happiness (http://mitpress.mit.edu/catalog/item...pe=6&tid=14403)
by Robert H. Frank

Brief excerpt:

An enduring paradox in the literature on human happiness is that although the rich are significantly happier than the poor within any country at any moment, average happiness levels change very little as people’s incomes rise in tandem over time.1 Richard Easterlin and others have interpreted these observations to mean that happiness depends on relative rather than absolute income.2

In this essay I offer a slightly different interpretation of the evidence–namely, that gains in happiness that might have been expected to result from growth in absolute income have not materialized because of the ways in which people in affluent societies have generally spent their incomes.

In effect, I wish to propose two different answers to the question “Does money buy happiness?” Considerable evidence suggests that if we use an increase in our incomes, as many of us do, simply to buy bigger houses and more expensive cars, then we do not end up any happier than before. But if we use an increase in our incomes to buy more of certain inconspicuous goods–such as freedom from a long commute or a stressful job–then the evidence paints a very different picture. The less we spend on conspicuous consumption goods, the better we can afford to alleviate congestion; and the more time we can devote to family and friends, to exercise, sleep, travel, and other restorative activities. On the best available evidence, reallocating our time and money in these and similar ways would result in healthier, longer– and happier–lives.

[unclemick]

This guy never heard of FIRE

MIT??

Heh, heh, heh, heh, heh

I monitored a couple of small research contracts we had there in the early eighties.

[Martha]

Do you want to work your rear off in a high pressure job, making a pile of money, so you can retire all burnt out after a relatively short number of years? Or work a less stressful, lower paying job for more years? Often there are tradeoffs. If I had known my job would have taken such a toll on me over the years, I might have gone for a lower paying, less stressful job.

But then again, other jobs might have stressed me out too, for other reasons.
And it looks like I can retire early.

[azanon]

I respectfully disagree with this article per personal experience.

I'm a heck of a lot happier now in my 150K dollar, nice home in my quiet clean neighborhood in LR, than i was living in a loud, small, and unattractive apartment with no yard.

I personally cannot believe that i'd be just as happy driving a 10 year old beater than i would a brand new, ole lets say, Acura TSX.* * Otherwise, i wouldnt want one would I?

I here these kinds of things, and sure freedom and not having to work is aweful attractive, but so are nice houses and cars.* *Houses and cars are not mirages;* they do bring smiles to ones face.* *Ive owned my new home 2 years now and I still catch myself everynow and then glancing up at my 9 foot ceiling and thinking, Wow - i finally made it (and got what ive wanted for years) and it feels GREAT.

As ive said a few times here, its not going to be either/or for me. I want both, and i aim to get both.

[Martha]

Yes Azanon, but there is a good chance that you won't be much happier in a house that cost 300,000 vs your 150,000 house. At a certain point, it just doesn't seem to pay off.

Me, I don't believe the initial thrilll of a new fancy car or new fancy home will pay off in long term happiness, as long as I have a half decent home and a car that doesn't break down and gets good mileage.

[azanon]

Yes Azanon, but there is a good chance that you won't be much happier in a house that cost 300,000 vs your 150,000 house.* At a certain point, it just doesn't seem to pay off.

Martha,

I agree with that and there is a point of diminishing returns.* *The key in both this AND i believe retirement savings and goals is striking the right balance.

I'm actually of the opinion that the average person here is erring too far on attempting to retire so early, that they're paying more in short term suffering than they're going to gain in less years to have to work.

Amount of money saved in the end = money saved along the way X* Time.

For every year you lower the years saved, the amount of money required to save increases exponentiallly to come up with the end amount of money needed.* This is further compounded by the fact that this end amount of money saved is going to have to support a longer retirement period.* *So, mathematically, there is probably a point where additional savings cause more pain than it brings in joy of not having to work more.

I read ones the "motley fools" collective opinion was to save 10-15% of gross but not more.* They just believed that going beyond 15% is going to cause undue strain on today's happiness for just not enough gain in the future.* * I think the right figure depends on the individual, but it CAN be shown mathematically that for every year extra you want to shorten your retirement date, it takes exponentially more money saved to pull that off.* *

The key term here is "diminishing returns" and determining where is that line crossed.

[Martha]

Originally Posted by azanon

The key term here is "diminishing returns" and determining where is that line crossed.

Absolutely agree.

[bow-tie]

Originally Posted by azanon

...I agree with that and there is a point of diminishing returns.* *The key in both this AND i believe retirement savings and goals is striking the right balance.

I'm actually of the opinion that the average person here is erring too far on attempting to retire so early, that they're paying more in short term suffering than they're going to gain in less years to have to work...For every year you lower the years saved, the amount of money required to save increases exponentiallly to come up with the end amount of money needed...* undue strain on today's happiness for just not enough gain in the future... The key term here is "diminishing returns" and determining where is that line crossed.

Great point Azanon.*

The more I study the profile of how I think it should look before we can pull the plug, trying to move the time up closer, say from age 45 to age 38-40, it looks very very difficult to achieve.

Trying not sacrafice too much today for tomorrow is a fine line for me, and a difficult little bugger to find*

[unclemick]

Like all things - it depends - if you were smart/lucky enough to save a bunch early enough(whatever %) - time in the market is your friend.

I gave my oldest nephew Bogle's 1994 book out of the Naval Academy - ten years of TSP(21 - 31) - now with wife, first child, and not low cost Coranado(Greater San Diego) they won't be saving much - but a heck of a good start.

[azanon]

The more I study the profile of how I think it should look before we can pull the plug, trying to move the time up closer, say from age 45 to age 38-40, it looks very very difficult to achieve.

Another thing i think of when i reflect on this, is those growth models charts we've probably all seen that show how much you'd have, itemized year by year, if you invested, say, 2000 today, or $2000/year.* * *If you look at one of those charts, the amount increases unimpressively for the first 20 years or so, then by year 25+, the growth literally goes through the roof.* *

Early retiring effectively eliminates those last "super growth" period years, so to make up for that, one has to either save substantly more to compensate or start saving earlier than the typical american.* *So in effect, eliminating those last years of time saved in a compounding growth chart is just as damaging as not having saved earlier;* or mathematically it has the same effect.

Though i find myself changing my mind alot, my current savings choice rate is also 15% of gross;* (plus federal pension and SS).* *For me, that feels about right.* *I know for a fact it's far more than what practically all my friends and family save, but its probably not even half as much as some of the hardcore folks here save.* *And by 15%, i mean strictly retirement savings. I also have a car fund, long term savings funds and other funds that i contribute to so that i can buy stuff outright.

[laurence]

Didn't have time to read the article, forgive me, but the thought of relative wealth vs. absolute wealth touched off a thought:

If you took the average middle class family today and transported them back 40 years, their lifestyle would probably look like wonderous luxury to his 1960's neighbors. A lot of that is technology, but in any case, standard of living has supposedly gone up all this time. Are people really more into having something others can't? IE, would you get more happiness living at 80% of the standard of living you enjoy today if everyone else was at 40% vs. 120% if everyone else was 120%, too? I mean, commonplace luxuries are kind of an oxymoron.

So maybe that's a key of the ER mindset, taking a step back and recognizing your absolute wealth, and not worrying about relative wealth.

-as an aside, I can't see getting out before 45-48 years old either. I need that last doubling of my investments, otherwise my savings rate would have to go from 45% gross to 90% :P

[wabmester]

There were two periods in my life when I recall being very happy: before I started working, and after I stopped working. It's not the money that does it. It's the freedom.

[FlowGirl]

Originally Posted by azanon

Martha,
I read ones the "motley fools" collective opinion was to save 10-15% of gross but not more.* They just believed that going beyond 15% is going to cause undue strain on today's happiness for just not enough gain in the future.* * I think the right figure depends on the individual, but it CAN be shown mathematically that for every year extra you want to shorten your retirement date, it takes exponentially more money saved to pull that off.* *

I agree that people of ordinary income should not go nuts on retirement savings. Our plan since the beginning of the year is to save X% of gross pay and not one penny more for retirement. We aim to enjoy the rest of our money and get at least some of our cookies up front. Also, because we enjoy our life "as is" our attitude is that ER is nice, but not a burning urgency. Actually we always enjoyed life and did the things we wanted, but the nagging guilt that we should be saving more is completely gone.

If we miss our ER target by a few years or even a decade, oh well - we'll still be ahead of most Americans and have enjoyed life in the meantime. Fortunately, our minimum ER date is limited by my spouse's military pension (which will provide at least 50% of our income) so going crazy to retire in less than 12 yeas is not even an option for us. Plus we decided that we would both rather put in an extra five years of work and have a better standard of living now(and later), than have to pinch pennies. If it was just me, I might push harder, but I know for certain the spouse would rebel against the whole ER idea if he felt at all deprived.

[azanon]

There were two periods in my life when I recall being very happy: before I started working, and after I stopped working.* * It's not the money that does it.* *It's the freedom.

This is why I may not be a truebreed ER.* *The tendancy is definitely in me (to want to ER), and I find the whole idea extremely appealing enough so that saving is a major priority, but I cant go this far.* *With my new house, and 2 year old (only child) and finally pulling in some serious money (we sure waited long enough patiently making our way through school); Now is the best time of my life since i was born.* *And now...... i'm working.

If we miss our ER target by a few years or even a decade, oh well - we'll still be ahead of most Americans and have enjoyed life in the meantime.

Sounds like you guys are pretty much where we are.* *I know for sure i'm way ahead of my peers whom i'm work with and the American public in general, but OTOH i've crutched some numbers and these retirement dates some of the guys here are shooting for would be lunacy for me (such as before 40, or even 45).* * And its not like i started saving too late;* *we started making IRA contributions when we were about 24.* *I'm also going to need the help of my later years for compounding, and I anticipate for us it'll end up being a mid to late 50s retirement.* *I want to get to the point where I virtually KNOW i have it made, not have to worry every day.

[unclemick]

Worry is normal - at least for me.

Young, middle aged, now an old 61/62. If you have the misfortune of being an IT or engineer type - so is endless numer crunching. Accept it as part of your personality and don't take yourself so serious.

Have a plan with the best information you have - a backup plan - and get on with life while you are worrying.

I have this quirk - wherein I'm happiest when worrying - so life always turns out better - usually.

Young stuff - is best done while young - snow sking - scuba diving(exception here) and climbing Mount Kiliminjaro - or

If you feel you are over sacrificing to get to ER - don't. Balance in all things.

[wabmester]

Originally Posted by azanon

With my new house, and 2 year old (only child) and finally pulling in some serious money (we sure waited long enough patiently making our way through school); Now is the best time of my life since i was born.* *And now...... i'm working.

Yup, house + wife + kid(s) can take you a long way towards happiness. I retired first and then we had the kid. I didn't really plan it that way, but I think it's the ideal ordering of events.

Did you read that NY Times article on the super-rich of Cape Cod?

http://www.nytimes.com/2005/06/05/na...bdf14c&ei=5070

I like the rich bastard who has the stone sign on his lawn that reads "I'd rather be working."