Got a raise? I know this advice is going to suck… but, you’ll be convinced. Most people including most financial planners will at best tell you to save some part of it for investing and use the rest to spend as you like. Not good advice.
The Trap of Social Comparison (Keeping up with the Joneses)
We’re caught in a trap. It’s an illusion. Think of it as a mirage of sorts. When asked, people consistently report that all they need is a little more income to be happy. Once they get that raise, they raise the amount they need to be happy. The goalpost keeps moving. The target only moves up. Never down. Essentially what happens is that due to the phenomenon of social comparison (or what you might better know as keeping up with the Joneses) we continue to feel the need to consume more. Don’t fall for it.
The Equation for Financial Freedom
Here’s the problem. Once you raise the amount of your monthly spending, you’ve raised the amount you will need to become financially independent of your employer. By keeping your wants for material goods and services in check, you’ll be able to invest far more of your income and become financially independent much sooner. As I mentioned in Health in Flames, you need between 25 to 30X your monthly expenses to get the point where you are financially independent:
Monthly expenses * 25 to 30X = Financial Independence
There is only one variable in the equation above and that is monthly expenses. That variable is something you have a lot of control over. Keep your expenses low and you can realistically get to financial independence far sooner than even most financial experts think possible. Will you be missing out? Not according to the science of wellbeing.
Lifestyle Creep vs The Science of Wellbeing
So, when you get that raise, don’t fall victim to lifestyle creep. Don’t give in to mindlessly increasing your monthly spending. Instead, put 100% of that raise into investments. The only exception is if you’ve not yet met your basic needs: food, water, and security. Short of that, the prospect of financial independence is a much better deal than increasing spending and tying yourself to hazardous modern day working conditions for decades on end leading to disease and health problems.
Second, the science of wellbeing tells us that once our basic needs are met, the best things in life are free of cost. Among those things is gaining a sense of agency – or the ability to control your actions. Rather than being told how to live your life from 8-5pm for the large majority of our lives by a boss, once financially independent, you get to decide how you want to live your life. Life gets to be so much more interesting when you get to this point.
Yes, Celebrate! No, Don’t Increase Monthly Spend
I didn’t say you shouldn’t celebrate. Maybe you got a raise and want to celebrate that with you friends and family. Ok. The problem comes when you increase your standard of living. It’s a problem when you add more spending on a monthly basis. Spending once to celebrate or reward yourself in some way is different since you will not have increased your month to month spending.
BOTTOM LINE: THERE IS A BETTER WAY!
- As John Maynard Keynes said a century ago, people of our time ought to be largely independent of our employers for our income – unfortunately, due to “mindless consumerism”, we are not.
- Mindless consumerism is the underlying reason leading to the rise of chronic disease for 3 major reasons:
- It ties us to dependence on our employers and modern day employment is a health hazard for most (in part due to the sedentary nature of most jobs).
- It has led to environmental changes toxic to our wellbeing:
- (a). We evolved in and are best suited to natural environments and instead we live in increasingly artificial environments.
- (b). Overconsumption has lead us to engineer out the need for meaningful use of our legs for ambulation.
- Finally, it transforms workers to work with blinders on – instead of working for the product or service and receiving money as a side effect, workers focus on making money and the product or service is instead the side effect. The results (with respect to health) is that “food” is no longer food but changed to maximize pleasure and extract profit in spite of the toxicity to our health.
- Based on the science of wellbeing one can derive the philosophy that once basic needs are met, “The best things in life are free” therefore —>
- Most people can live far below their means without sacrificing happiness AND by investing the rest, they can become financially independent of their employers enabling them to be —>
- Happier. Healthier. Wealthier. More engaged. Simply better.
