The Less We Want, The Richer We Are
Updated: Feb 22, 2019
A couple weeks ago, I was on the ChooseFI Facebook page, and saw the following thread. Thanks to Amy Koit for this awesome exchange.
Amy Koit to ChooseFI
Yesterday at 2:23 AM · There was another thread where a child asked the parent "Are you rich?" (sorry, I can't remember which group it was posted in and who the OP was ... but wanted to share my answer because my kiddo asked me this only yesterday).
Me: Different people define being rich differently. In what context are you asking?
Child: In the money sense.
Me: I'm rich enough to take you to the local amusement park whenever we want, because I have enough in the saving for that to happen at any time. But I still need to save up if I want to take you to NYC (we don't live in the US and I chose NYC because they know this is on my bucket list of places to visit). I am also rich enough to buy most of what you and I want, but that's because we generally don't have many things that we want. But if either you or I start wanting a lot of things, then I won't be rich enough to buy most of what we want.
Me: Why do you ask?
Child: Just wondering whether you thought you were rich.
Me: Does my explanation answer your question?
Child: Yep. Basically the less we want the richer we are.🙂 From the mouths of babes.
What does it mean to be rich? A new Bentley and a Villa with a household staff? Custom made suits or dresses for every occasion? Not worrying about how you’ll afford to pay your bills? There’s no real cut-off that is universally accepted for being “rich” and a lot of it seems to come down to how you feel.
There are many stories about people making one million dirhams a year and barely “scraping by” financially, living paycheck to paycheck without anything in savings. Over 50% of expats in the UAE save less than 10%, with a lot saving nothing. Even that much money can be easily absorbed with a high-flying first class lifestyle common here in the UAE, and in the end, you’re just as stressed as someone who makes far less but also doesn’t have enough to save a chunk of their income. This isn’t rich, because they’re not secure in their wealth, their high income is all going to supporting a level of consumption that is one emergency away from collapsing their entire life.
But there are many people who have far less income, but have modified their lifestyles so that they spend only a fraction of what they take home and save the rest, investing so that their money works for them to provide for the future. That cushion of money gives them confidence to start new businesses, quit jobs they don’t like, or retire early to fully pursue their passions. They won’t be destroyed by one piece of bad luck. Those people might not consider themselves “rich” per say, but because their expenses are much less than their earnings, they have a level of comfort and security that I think is actually the goal of getting rich.
There are many ways to increase your income out there, from promotions at work to changing careers to starting side hustles. And those are just the legitimate ones that won’t get you thrown in jail! I’ve personally done all three of those ways, to varying degrees of success, but I can tell you that even the lowly side hustle can drastically change your financial situation. At various points of my career, my side hustles in tutoring, music, and photography were enough to pay all my bills and expenses for the month and allow me to save my entire paycheck from my 9-5 job of teaching. You don’t have to be a doctor or lawyer to make enough money to build up a great deal of actual wealth. In fact, the Spectrum Group of Chicago did an analysis of millionaires, and there are more millionaire teachers than there are millionaire doctors in the US.
The key to all this is keeping expenses down, and there are two important ideas to understand here. The first is the idea of “hedonic adaptation” which basically means that after you buy something, you get a burst of temporary happiness (we often call it retail therapy). But then, that temporary happiness goes away, and you need to buy a new shiny thing to get the burst. This experience also usually requires bigger and bigger “hits” to get the same materialistic high. Sure, you were happy with your Toyota, but then you got your raise and you were even happier with your Mercedes! Until you got used to it and it was just “your car” and then you desired an even more luxurious ride. This cycle never ends, driving your expenses up and up and up, but not leaving you any happier than when you started. This leads to the second idea: buying things doesn’t lead to permanent happiness, so why buy? Is there a way to shift your thinking away from consumption driven temporary happiness?
The answer is in your definition of “enough”. If you want less than the average consumer, then your level of “enough” material possessions is reciprocally lowered as well. For me, a good quality used car that won’t leave me stranded, and has a decent sound system (gotta have my tunes!), is enough. For me, non-luxury branded clothes that allow me to teach or relax accordingly are enough, and thrift shops are the best friends of my wardrobe. For me, even though I could afford a two bedroom apartment, a one bedroom does the trick nicely.
I choose to focus my "happiness energy" on a career that I love: being a teacher and helping kids reach their goals. I have side hustles where I create with my band, photography, and writing. All of which allow for autonomy and creativity and community, which are three key aspects of long term happiness. Putting my savings to work for me in relatively safe, productive investments leads to a feeling of confidence and lack of stress about finances. None of the things that lead to real happiness come from buying stuff, so I lower my level of “enough”.
If you’re able to do that, to want less, you can be “rich” on a much lower salary. Your materialistic wants and needs will be met. You will be able to accumulate enough real wealth to retire, which will be easier because you will require less income in your retirement to be satisfied. It’s a win-win situation.
The key is to realize you won’t become happy through buying stuff, and that you don’t really need to impress the neighbors anyway. Don’t get caught up in the flashy lifestyles that you see around you. Become rich by being satisfied.
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This article was originally published in "The National" with a few changes. They are a great paper who publish lots of good FI stuff.