A three-bedroom apartment. Two cars. Enough flying miles to send an airline into losses (well almost!). Job with a foreign consulting company. Annual salary of Rs 30 lac…or around 45-times India’s average per capita income.
Yet my friend Rohan is not happy.
Whenever I meet him, he is, as I put it, caught on the “work-spend treadmill.”
So, last week when he was showing off his latest purchase, a third mobile, and one costing in excess of Rs 45,000, I told him, “Spend less money, my friend.”
“But spending money is what makes me happy,” he replied.
Join The Safal Niveshak Mastermind , my special one-year course in Value Investing to reinvent how you invest and take control of your financial life. Click here to know more and subscribe . Subscriptions for the first batch close on 25th August 2013 !
“You don’t have to feel deprived when you spend less money,” I said. “In fact, if you keep spending and spending even as your income rises, you’ll keep running and running and never get anywhere.”
“Why?” he asked in a state of confusion, while playing with his new toy.
“Increases in income can be like that,” I said. “Your overall level of happiness doesn’t ever progress because you just get used to the new way of life.”
He replied, “But reducing spending means giving up the good things in life, which I think is difficult to give up!”
I had made up my mind to change his, so I countered, “You see, when you start earning more money, you might drive a Honda Accord instead of a Maruti Swift, shop at Marks & Spencers instead of Hypercity, and eat at TGIF instead of Dosa Plaza.”
“Yes, that’s my point!” he interrupted.
“Indeed!” I said. “So you’ll feel a burst of pleasure when your new lifestyle is still novel but eventually you’re likely to adjust back to your baseline level of happiness, even though your spending has permanently increased.”
“In effect, you will always remain on that hedonic treadmill!”
“Now you are confusing me!” he replied, finally keeping his handset aside. “What’s this hedonic treadmill, and what do you mean I will always remain on it?”
“Well, I read about the “hedonic treadmill” a few years back,” I replied. “Wikipedia describes it as…
…the tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes.
According to this theory, as a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness.
“And how do you get off this hedonic treadmill, Vishal?” Rohan asked.
“Like I did!”
“And how did you do it?”
“Using four simple rules…
- Questioning each expenditure item, especially the big ones.
- Stepping down my expectations and aspirational spending.
- Not trying to keep up with the Joneses (there’s something really satisfying about driving a modest car when you could afford a lot more!)
- Getting excited about being a cheapskate (yes, it’s a virtue not a vice).”
“Great, but what did you achieve out of that?” Rohan asked.
“Rs 25 lac in extra savings over 6 years!”
“You see Rohan, the idea that you need to go bigger to be happy is false,” I said. “I really believe that mindless acquisition of material goods doesn’t bring about happiness.
“And thanks to my willingness to not run on this hedonic treadmill, and thanks also to the due support from my wife, here is how I have saved approximately Rs 25 lac by NOT spending on…
- Bigger house in 2007 – Saving of Rs 15 Lac (that Rs 15 lac would have multiplied by 5 times till-date is another matter, but I couldn’t have afforded a bigger house then!)
- Bigger car in 2007 – Rs 5 Lac (my friends bought, so what?)
- Timeshare holidays in 2009 – Rs 2.5 lac (got lucky, as stopped payment of the cheque at the last moment!)
- Smarter mobile in 2010 – Rs 40,000 (I still use my handset only to text and call)
- Shiny tablet PC in 2012 – Rs 40,000 (someone then gifted it to me :-))
- Bright, beautiful toys for kids during 2009-2012 – Rs 50,000 (no peer pressure please!)
- High-end clothes for myself during 2008-2012 – Rs 50,000 (I look handsome in plain cotton stuff)
- Painting the house in 2010 – Rs 30,000 (my wife did it :-))
- Other ego-boosting stuff – Rs 50,000 (first pocket, then ego)
“So total savings of around Rs 25 lac!”
Image Source: Lifehack[dot]org
Rohan seemed stunned to see these numbers, and thus I continued,” You see Rohan, saving money by not spending it is just one side of the picture. I have not told you about the better, brighter side!”
“And what’s that?” he asked, now with a disturbed look on his face.
“Well, it’s that this extra saving has helped me…
- Repay the small loan on my small car
- Repay the big loan on my big-enough house
- Erase the constant fear of having someone else deciding my financial future with words like “You are promoted” or “You are fired”
- Create the confidence to pursue my passion in life
- Create great amount of time to spend with my family
- Invest extra towards my future financial goals
“So even as you continue to pay the banks 60% of your income as EMIs,” I teased him, “I don’t pay a rupee, and instead make my money work for me!
“Plus, given that I earn lesser than what I was earning on my job (while saving more), I have become even more careful in spending money. So now I don’t waste money purchasing stuff. Rather, I purchase experiences like travelling the country and enjoying time out with my family.”
“You are living a perfect life, huh!” he said, this time seemingly jealous.
“Not perfect dear, for I have my own anxieties, fears, downtimes, pains, and emotional sufferings…but then someone said that perfectionism is slow death!
“So my life is not perfect, but I surely am financially free (well almost, as I still work an hour a day for money)! And that’s a great starting point for solving a lot of a man’s problems!
“Hmm!” said Rohan while packing away the mobile handset in its box.
“Let me tell you one final secret Rohan,” I said.
“Well, since I don’t need to spend a lot of money to enjoy life, I don’t need to spend a lot of time getting a lot of money. And that’s why you can come home anytime to discuss how you would plan to come off your own hedonic treadmill.”
I then shared with him a flowchart that has helped me a lot in saving a lot of money by leading me to NOT spend a lot of money on things I now consider frivolous.
Click here or on the image below to download the flowchart. It may not be a perfect one that solves your spending problems, but it has helped me a lot in saving those “extra” Rs 25 lac over the past six years.
In the chart, start reading from “Should I spend big money?”
(Want to save the full image? Click on the image above, then right-click, then click “Save image as…”)
Let me know what you think of this flowchart, and let me also know what you are doing to NOT spend money on things you DON’T really need.
If not yet, I would love to see you get off that hedonic treadmill as fast as possible. 🙂