During the last two weeks, my blogs have dealt with “soft” issues. I call them soft because they cannot be solved by applying mathematical calculations or financial planning principles.
Instead, the reader must apply behaviour psychology to gradually understand the issues.
In my blog on risk tolerance, I made the point that risk tolerance is based on personal experience and is unique. So, if I feel comfortable with 30% of my net worth in stocks, then that is the path I should follow. I also recommend against comparing your own risk tolerance to anyone else’s. That can lead to sleepless nights and poor investment decisions.
In my blog on getting rich carefully, I explained that I’m not a big risk taker and I will never “bet the farm” on a single investment. This kind of speculative investing does not fit my personality, so I will never become Warren Buffet and I’m totally fine with that. I’m the happiest when I follow my personal approach rather than trying to match other people’s investment approach.
Today I’d like to touch on another soft issue (don’t worry, I have many technical blogs in the queue).
Recently, a book title caught my attention: Too Much and Never Enough by Mary Trump. I haven’t read it, but I have been contemplating the meaning of the title and my own drive to accumulate “enough.”
Long time readers of this blog remember that I grew up in a modest family, where money was always in short supply, and that I started working at a young age to help my family make ends meet.
Although I never felt poor, I could see the strain that money placed on my parents and their relationship. Today, I know that my childhood shaped my drive for wealth and my low risk tolerance.
As I get closer to the big 60, I ask myself two questions:
- Have I become so obsessed with the accumulation of money that I’ve missed the point of achieving financial independence?
- Will I ever accumulate enough wealth to feel I have enough?
My series of blogs called “When can I retire and how much do I need?” discuss the mathematics of the question.
But after re-reading them recently, I feel the complete answer includes an honest assessment of one’s definition of “enough.”
I have often recommended that retirees accumulate enough assets to generate between 60-70% of pre-retirement income in retirement.
For example –
If you spend $100,000 per year during your working career, you should expect to spend around $60,000-70,000 in retirement. Using the 4% rule, you would need a portfolio of approximately 1.5M to 1.75M ($60,000*25 and 70,000*25) to achieve the retirement goal.
Is that enough in my case? Or would more retirement income make me happier, say, $125,000? I would then increase my retirement pool to approximately $3.1M ($125,000*25).
Does it make sense to conclude that more money makes us happier? My answer has always been a resounding YES. But in fact, the evidence suggests otherwise.
In 2010, Princeton University performed a now famous study to determine how much money people need to feel content and at what point increasing their salary no longer improved their happiness.
The answer they discovered at the time was approximately $75,000 USD. Today, that would translate to about $90,000 USD.
Here’s what the Princeton study says:
“More money does not necessarily buy more happiness, but less money is associated with emotional pain. Perhaps $75,000 is a threshold beyond which further increases in income no longer improve individuals’ ability to do what matters most to their emotional well-being, such as spending time with people they like, avoiding pain and disease, and enjoying leisure. According to the ACS, mean (median) US household income was $71,500 ($52,000) in 2008, and about a third of households were above the $75,000 threshold. It also is likely that when income rises beyond this value, the increased ability to purchase positive experiences is balanced, on average, by some negative effects. A recent psychological study using priming methods provided suggestive evidence of a possible association between high income and a reduced ability to savor small pleasures.”
A 2018 Purdue study came up with the same results (in US dollars):
“It’s been debated at what point does money no longer change your level of well-being. We found that the ideal income point is $95,000 for life evaluation and $60,000 to $75,000 for emotional well-being. Again, this amount is for individuals and would likely be higher for families.”
Here’s a summary Purdue offered:
“The study also found once the threshold was reached, further increases in income tended to be associated with reduced life satisfaction and a lower level of well-being. This may be because money is important for meeting basic needs, purchasing conveniences, and maybe even loan repayments, but to a point. After the optimal point of needs is met, people may be driven by desires such as pursuing more material gains and engaging in social comparisons, which could, ironically, lower well-being.”
For me, the studies are not so much about any exact amount of money needed to be happy.
One of my strongest takeaways is that more money leads to negative experiences, such as comparing one’s net worth with that of others.
Many of you know that one of my passions is cycling. The rider motto “ride your own ride” means resist the urge to compare your speed or number of miles with other riders.
Yet I invariably compare myself to the fittest and strongest climber in the group. Of course, this robs me of the joy of my own successes and sense of achievement…
Do you find yourself comparing your investment returns to the “geniuses” you see the media? Do you compare your net worth/income to the richest people in the world?
Or even just to a person you know who earns more, invests more, and has more stuff?
When we make these comparisons, we become less happy and move further away from living. As I’ve said before, comparison is the thief of joy.
In my new book, Live Well, Stay Rich, Never Retire, I suggest we strive to live deliberately based on personal goals, and compare the progress we make toward those goals and not to what others have achieved.
As I have pondered how much is enough for me, I developed five prompts to help you answer the question for yourself:
1. Separate spending from happiness.
A faster car, bigger house, more stylish clothes are all nice to own, but they don’t actually add to our happiness and may cause us to work harder and longer and miss out on life’s positive experiences. So, go through your expenses and determine which bring you happiness and which cause you to give up more than they’re worth. Be honest, thoughtful and deliberate.
2. You are not your business or profession.
I often define myself as a financial planner but in reality, I’m much more than what I do. I’m a father, a son, a brother, a friend, and a mentor—and of course a cyclist and a blog writer too.
A complete assessment of my progress and success should include a fair measurement of all aspects of my life, not just my profession.
3. Stop comparing yourself to others.
Comparing yourself to others is similar to the sin of envy, which is the resentful covetousness of the traits or possessions of someone else. In fact, envy is one of the seven deadly sins and was the inspiration behind Cain killing his brother Abel, because Cain coveted the favour God showed Abel.
Proverbs 14:30 says, “A heart at peace gives life to the body, but envy rots the bones.”
The rise of social media makes comparing our lives with others much easier and can cause a vicious circle of comparison leading to unhappiness leading to more comparisons and more unhappiness, and so on.
In 2021, let’s work on comparing ourselves to our own progress in meeting our goals and take time to appreciate how far we have come rather than focusing on how far we still have to go.
4. Learn to appreciate the life you have.
At the end of life, what will you regret doing or not doing? Take it from someone who has experienced a great loss that the answer will not be “making more money.” Much more likely will be all the family, friend or life experiences we missed because of work commitments.
5. What’s your purpose of life?
In my Live Well book, I argue that the purpose of life is to use your passions to become the best person you can be. I also say that becoming your best self is possible when money worries are eliminated by achieving financial independence, which makes it possible to dedicate your life to growing and improving as a person.
After a certain income, happiness reaches a point of diminishing returns and increases at a decreasing rate. More money doesn’t mean more happiness.
In fact, it may actually mean more problems and less satisfaction.
Given this, it’s imperative that everyone become financially literate and we all make the best financial decisions possible with the funds we already have.
If you find yourself on a human “hamster wheel” and your high income is not making you and your family happy, please give me a call. The Dri team can help you define your goals and determine when you have “enough.”
Never Retire Profile
Galen Weston Sr.
You can’t really be a Canadian and not know the name Galen Weston. Galen Jr. is the one we see in the Loblaws commercials for President’s Choice products and has recently succeeded his father as CEO of George Weston Ltd. At 80 years old, Galen Sr. continues to remain involved in the business, on various boards and committees, and with the Weston Foundation, which supports education, land conservation, science and much more in Canada. For his charitable work, Weston was appointed as an Officer of the Order of Canada in 1990, awarded the Order of Ontario in 2005, and made a Commander of the Royal Victorian Order in 2017. Galen is married to Hillary Weston, who served as the Lieutenant Governor of Ontario from 1997 to 2002 with an emphasis on issues related to women, young people, and the homeless population. The Westons continue to work in the social and philanthropic sphere, well after “retirement.”
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