Is It Worth It? (Why I Save So Much, Part 4)

Over the last couple weeks I’ve run through a lot of my philosophy behind saving and investing. I discussed that I invest at least as much as I spend every month because I want to buy options for my life, because I see the value of labor declining over time, and because I don’t want to need to start a new career path if mine gets automated out of existence.

The big question for most people at this point is: “Is it worth it?”

Saving that much money is unusual in our modern culture. That means I must be living differently. I must be skipping out on spending that my peers are doing. I must be making sacrifices.

So are they worth it?

For sure. 

I’ll tell you why.

Understanding Happiness

Before I ever studied finances and investing, I studied happiness.

I wanted to understand it. I was in college and recognized that a lot of the things I thought would make me happy didn’t. Or made me quite happy for an evening and then left me with a headache the whole next day.

I thought I was a pretty smart guy. So why couldn’t I figure out how to be happier?

So I did what I always do when I see a problem that needs to be solved. I read. A lot.

I started with the pop self-help books. There were a lot of them. Most of them were useless. They provided some feel-good quotes and motivation, but no scientific backing.

So I moved on to psychology. I read books and studies from Dr. Sonja Lyubomirsky, Dr. Martin Seligman, Dr. Mihaly Csikszentmihaly, and many others.

I expanded into neurobiology studies on happiness and learned more about the brain. (I still struggle with a lot of the drier, more technical studies, but I also have a neurobiologist friend that I ask asinine questions of when I need help.)

I learned a lot, both about happiness and about my own decision making.

Money and Happiness

I learned that I was not alone. That we all suck at knowing what will make us happy.

And we waste a lot of money on things that we think will make us happy, but don’t. Happiness isn’t nearly as expensive as we think it is.

Let’s start with a ceiling.

As we’ve discussed before, a 2010 Daniel Kahneman study found that for the average person, happiness increases with household income up to $75,000. After $75,000 in household income, there is no longer a benefit to happiness.

(For the more nuanced take and a discussion of the different types of happiness, see the original article. I’m going with shorthand here.)

So $75,000 for a household of 2.5 people is our ceiling for how much happiness costs. After taking out around 5% for the average savings rate and subtracting federal income tax, state income tax, social security tax, and Medicare tax, the happy family is spending around $50,000. Spending beyond that doesn’t contribute to happiness.

(“But I live in a city, Matt! Things are more expensive here!” I thought the same thing. Turns out, though, that $75,000 number holds in high cost-of-living places like New York City.)

But that number is based on the average family’s spending. And the average person hasn’t spent enough time learning about happiness.

Hedonic Adaptation

Humans are great at adapting to new situations.

This is great when something bad happens to us. We adapt and go on to live happy lives. One study found that end-stage kidney disease patients had the same level of happiness as healthy people. This despite having to adhere to a strict diet and undergo nine hours per week of hemodialysis.

They got used to it and their happiness bounced back.

The downside is that we adapt to positive changes, too. This is why another study found that lottery winners returned to their previous level of happiness after only a year.

They got used to it and their happiness fell back.

Hedonic adaptation affects pretty much everything we do. We love that new couch when we first buy it, but eventually it becomes just another couch. We love our new phone when we first buy it, but soon we take it for granted.

The biggest areas of expenditure for the average American are housing and transportation. And housing and cars are some of the biggest hedonic adaptation risks.

When you first move into that bigger, more modern house, you love it. Eventually you end up liking it just the same as your old house.

When you upgrade to that new car, you love it. But eventually your happiness falls back to where it was with your old car.

Delayed Gratification

There is a short-term happiness boost when you upgrade. When you get that new car. When you get that bigger house.

The question is: what is it worth to you?

Since my wife and I got together seven years ago, we have shared one car and made zero car payments. We missed out on the happiness boosts that come from updating our car. But we also saved the money that others would have been spending on those upgrades.

The average car payment in the US is right around $500/month for 68 months. Over seven years, that is $42,000. Plus, we invested that money, so that $42,000 over seven years becomes over $56,000.

You could go on some pretty baller vacations for $56,000. You could put a down payment on a house. You could let it grow in investments and use it to retire early and free up more time to do things that truly make you happy. Investing that $500/month for 20 years, assuming an 8% return, nets you almost $300,000.

If you decide you don’t want to retire early, then you can buy a boat. Or a Tesla. Or whatever else you want to spend it on.

Or, you could get the short-term happiness boost from the new car every 5.5 years. Your choice.

Finding Happiness

So what does make us happy?

I’ve spent a good deal of time talking about how we are bad at finding happiness, and no time on how to correct that.

There is a lot of research and a lot of different findings. Far too much to cover here today, but I’ll give you a few ideas.

(And if you’re interested in happiness research, check out past articles on happiness)

  • If you want to buy happiness, one great way is to pay for experiences.
  • Another good use of money is spending it on others. Acts of kindness and donating to charity both provide really high happiness returns on investment.
  • Practicing gratitude. It sounds simple and is easy to ignore, but studies have shown that it is actually a massively powerful tool in living our happiest lives.
  • Overcoming challenges. When we are able to find a challenge that is just slightly beyond our current capabilities, we hit a state called “flow” and are able to reach a surprisingly high level of happiness.

The Real Challenges

While I recognize that there are many families simply scraping by, I hope this showed you that many of us can cut back our spending without sacrificing happiness.

Instead, the biggest challenge in saving this much is breaking away from the default.

We live in a consumerist culture. It is assumed that you will spend most of your paycheck. If you contribute enough to a 401(k) to get the company match, then most people will say you are saving enough. With an average savings rate of 5%, the mere suggestion of saving 50% gets you weird looks.

You need to be confident and comfortable being different.

You also need to recognize that comparison is the thief of joy. We have a tendency to self-segregate into groups of people like ourselves. This means that we end up with a lot of friends that have similar incomes to us.

It’s hard to get used to the truth that newer toys don’t make people happier. We get jealous when we see our friend’s new car. We long for the beach house that we see on Instagram. We instinctively want to keep up with the Joneses.

But we need to recognize that those things would not make us happier in the long run. That our brains our tricking us into a mindset of more more more.

And that is the real challenge of saving a lot.

We know intellectually that spending more won’t make us happier, but it is easy give into the emotional drive for more.

Is It Worth It?

That brings us back to the question that we started with: Is it worth it?

I believe it is. At least for me at this point in my life.

Ultimately what it comes down to is trading in those small boosts to present happiness that come from extra spending for much larger boosts in the future.

It is passing on smaller, shorter-term pleasures for consistent, long-lasting happiness and security.

I think this trade-off would be worth it simply for the happiness trade-offs. (But then, I am the type of person that would have dominated the marshmallow test when I was a kid.)

When you throw in the stability and security that this type of lifestyle buys for my family, it becomes a no-brainer.

What about you? Do you think it’s worth it? Do you disagree with me? Let’s talk in the comments!

21 thoughts on “Is It Worth It? (Why I Save So Much, Part 4)”

  1. Interesting post. When I read the study about $75k household income I also always assumed they needed to make a cost of living adjustment for more expensive cities. But my wife and I have lived on that amount in the past in NYC and were pretty happy…though that was 2 people not 2.5. Adding a child, I do see a need to adjust higher mainly for child care.
    The “is it worth it to save so much” question is something I’ve been thinking a lot about recently. My wife and I have always been frugal and saving is absolutely worth it. However, part of me is unsure whether I can reach FI at an early age which is one goal that has motivated me to save so much. If I don’t reach FI early, sometimes I think I should just loosen the purse strings. We will definitely still save…but not save as much. I’d retire around 55 anyway which isn’t bad, but I wouldn’t want to get rid of the dream of FI earlier than that.
    Andrew@LivingRichCheaply recently posted…The Pension: My Golden HandcuffsMy Profile

    1. I would be really interested to get into more detailed data on happiness and spending in cities. Specifically I’d want to see housing costs/neighborhoods and daycare situation. Around here a two-bedroom apartment near a subway station and daycare costs for one child could easily push you up to that $50,000 spending number before adding any other costs.

      When I first learned about FI I was saving at a ridiculous clip. Ultimately I decided that it is better to be looser with the purse strings, even if it means some extra time required in the workforce. I think it’s all about conscious spending and knowing what actually makes you happy. I wouldn’t want to cut things that make me happy to hit a higher savings rate. You never know what tomorrow brings, or whether you’ll even have a tomorrow, so it’s important to enjoy the journey.

      Thanks for the thoughtful comment, Andrew!
      Matt recently posted…Respond. Don’t React.My Profile

  2. I just got a promotion at work and now am figuring out what to do with the additional money… I’m not going to increase my expenses, because that’s not in my dna, but it’s figuring out the following…. do I add to my 401k contribution? Pay off some additional mortgage? IRA? taxable account? I don’t know! Too many options 🙂

    At the end of the day, any of those will be a good and better choice than spending it.

    Thanks for sharing Matt
    Erik @ The Mastermind Within recently posted…How Can You Set, Prioritize and Track Financial Goals Like a Pro?My Profile

  3. I think that it’s definitely worth it to trade or delay a little of your current needs and wants to get the freedom to choose what you want to do years earlier. At my current savings rate, I can retire by the age of 48. That is 17 years earlier than the average retirement. A little sacrifice to gain 17 years of freedom, I am more than happy to do that.
    Leo T. Ly @ isaved5k.com recently posted…Who’s The Real Leo T. Ly?My Profile

  4. I think your statement about the “default” says it all. There’s a norm most people fall back to, and it’s not a good one. They need a “reset” button.

    It’s the strangest and most serene feeling when you can think about money and realize there is nothing RIGHT NOW you feel you are missing out on. It’s amazing, actually. So yes, I totally agree the sacrifices are worth it. But if you get your mindset right from the beginning about happiness, the sacrifices don’t even feel like sacrifices.
    Mrs. Groovy recently posted…How Much Crap Is Hiding Behind Your Walls?My Profile

  5. I’m like you and would have crushed the marshmallow test. I had a ton of self discipline when I was younger. It’s quite as good as it once was but I do pretty well when it comes to having the long view on things. Although I still need to eat better 🙁 Still have some work to do in that area to reap some of the long term rewards associated with that 🙂
    Mustard Seed Money recently posted…When Gratitude Requires HindsightMy Profile

    1. I’m with you on all fronts. Eating healthy is still a struggle for me. I think it is easier to see the long-term benefits of saving when the numbers keep growing in your accounts. Eating healthy doesn’t really have any visible metrics.

      Thanks for the comment!
      Matt recently posted…Respond. Don’t React.My Profile

  6. For me, it is worth the sacrifice. As you wrote, buying new things just gives you a short-term boost in happiness. I am much more happy because I have financial security. In my experience, a strange thing happened. Now that I can afford many material upgrades, I have made very few.

  7. I think it’s worth it too, Matt! But a thought did just pop in my head while reading this…If we are chasing FI/RE because we think it will make us happy, are we really making progress on this whole thing?

    1. I think there are two parts to that. One, we need to be working to live our happiest lives now. If people are miserable now and think FIRE will make them happy, then I think they are in for a rough surprise.

      But two, I don’t think it is wrong to believe that you can be happier when you have more control over your time. It’s not going to make an unhappy person happy, but I think that dedicating more time to relationships and generosity can make a happy person happier.

      Thanks for stopping by, Amy!
      Matt recently posted…Not Making a Decision is Making a DecisionMy Profile

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