Monday, July 4, 2011

Spending vs. Fulfillment

We all know how great it is to go out and purchase something we've always wanted. It makes us feel great to finally bring home something that we've been eying in the mall display for months. But how many times have you ended up bringing something home only to find that your purchase wasn't as great as you though or that once you owned this object you ended up not using it at all. In many cases you may have been ecstatic at first, but psychological studies have shown that our happiness quickly fades after most discretionary purchases. Eventually the widgets we purchased may not be used and end up in storage where it collects dusts until next year's garage sale.

Not all purchases are created equal and this article is about how we must separate our wants from our needs in order to live a more fulfilling life. Knowing the difference will also help us reach our financial goals faster. Here is an excerpt from the book “Your Money: The Missing Manual” by J.D. Roth.

Two writers are at a party thrown by a billionaire when one jokes “How does it feel to know that our host makes more in a day than your best known work has made in its entire history?” The other writer responds, “I’ve got something he can never have. I’ve got Enough.”

Tthe relationship between spending and happiness is non-linear, meaning that every dollar you spend brings you a little less happiness than the one before it.

More spending does lead to more fulfillment – to a point. But spending too much can actually have a negative impact on your quality of life. The authors suggest that personal fulfillment, that is being content with your life can be expressed graphically like this:

Survival: A little money brings a large gain in happiness. If you have nothing, buying things really does contribute to your well-being. You’re much happier when your basic needs-food, clothing, and shelter – are provided for than when they’re not.

Comforts: After the basics, you begin to spend on comforts: a nice chair or extra pair of pants. These purchases also bring increased fulfillment, but not as happy as the items that satisfied your survival needs. This part is still positive but not as steep.

Luxuries: Eventually your spending extends from comforts to outright luxuries. You move from a small apartment to a home in the suburbs, and have an entire wardrobe. You drink hot chocolate in the winter and sit on a new sofa with a library of DVD’s. These things are more than comforts they’re luxuries, and they make you happy pushing you to the peak.

Overconsumption: Beyond the peak, Stuff starts to take control of your life. Buying a sofa made you happy, so you buy recliners to match. Your DVD collection grows from 20 titles to 200, and you drink expensive hot chocolate made from Peruvian cocoa beans. Soon your house is so full of Stuff that you need to buy a bigger home and rent a storage unit. But none of this makes you happier. In fact, all of your Stuff becomes a burden. Rather than adding to your fulfillment new Stuff actually detracts from it.

The sweet spot on the Fulfillment Curve is in the Luxuries section, where money gives you the most happiness: You’ve provided for your survival needs, you have some creature comforts, and you even have a few luxuries. Life is grand. Your spending and your happiness are perfectly balance. You have enough.

Here is a video from MSNBC about how spending on experiences is more valuable than most widgets you could be wasting your hard earned money on:

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  1. Excellent article!!
    This is great advise sssoooooooo many people should consider including myself.

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