Money Has a Very High Diminishing Marginal Return on Happiness
There is a principal in economics called diminishing marginal returns and I think it is a topic that needs to be talked about. Basically diminishing marginal returns in layman’s terms is the idea that the benefit from something gets smaller the more that you have of it. A simple example is, you might love chocolate bars, so the first one you eat makes you happy, the second one you eat also makes you happy, but a little bit less happy but by the time you have your 6th chocolate bar, you might feel sick and the benefit from it is actually a negative one.
Most things in the real world have a diminishing marginal return, but just how much usually depends on the object. However I would claim that money itself has a diminishing return, in fact a very high one past a certain point if we want to look at things in the form of happiness. There have been studies done that show that people making more than 70k a year start to get a lower and lower benefit from a higher salary. Perhaps this is because of more responsibilities at work or a more stressful life, but the idea is that people making 100k might not really be much better off than those making 70k.
However, I want to look at the extremes and play devils advocate for people who are making millions a year versus those that are making 70k a year. It may seem like they have the perfect life and they are as happy as can be, but happiness is relative to every person and having more things doesn’t actually make someone happier for a long time. In addition if we look at the things they can actually buy, there isn’t much difference in what you are able to buy. There is a point where items start to go up in price a lot not because they are better quality, but because they are purely a luxury name or brand, this doesn’t make them better in many ways.
I read an article from another bitcoiner and he made a very good point which was, in all likelihood the richest people in the world are probably using the same cellphone as you, the same computers as you and most of the same everyday objects that you do. Having all the money in the world can buy you more of an item, but most things are made for a consumer market, so the quality is going to be the same. Yeah you can buy all the cool gadgets and stuff you want, but like I have written before, this doesn’t mean it will make you happy.
There is definitely a benefit to having more money, but the reality is, that benefit shrinks really really quickly. This is actually a good thing because it means that for many of us, the quality of life that we have the potential to achieve is at a point that is semi relative to one someone with millions of dollars might achieve. This perhaps has been one of the greatest advancements in human history because in the middle ages the average person might starve and having money was the difference between you living or dying, today economics has made life better for everyone. Those who might earn millions a year might end up working it away and have a worse life experience than you.
Thanks to @Elyaque for the badges
Money is amazing when you have enough to pay to have life's inconveniences fixed - car breaks down, new furnace, college fund - without having to worry about it. Above and beyond reducing hassle/stress there is very little happiness to be found in material things. You think you want the Lambo, right up until you can actually buy it and then, suddenly, you cease to care about Lambos. On and on until you're left with family, friends and a cause that makes you get out of bed. A lot of money helps free up time and emotional space, but little else.
Nicely put, husband of Jane Doe
Anything you acquire, you are prone to hedonically adjust to. As a result, you'll always trend harshly towards whatever "baseline" happiness your life philosophy dictates.
Your philosophy of life is probably important too. If the money 'owns' you, more money equals more stress. People like Warren Buffet that lives modestly can handle a lot of millions. If I was extremely rich, I guess I would have lived almost the same as I do today. I am above the 70k, but that is just an average salary in Norway.
On this same note, many people who have built tremendous wealth have done so by living frugally. This is best evidenced in Thomas Stanley's The Millionaire Next Door, which is a book I'd encourage anyone interested in the topic of this post to read.
I saw something online recently that said, "Rich people stay rich by living like they're broke, and broke people stay broke by living like they're rich." There's a lot of truth to that, and once you can figure out that money can't solve all of your problems, it can make your life less stressful.
This is true, I've noticed that many rich people enjoy the process of creating wealth far more than the spending of that wealth.
Is this a good example of diminishing marginal returns? ;)
Hahaha! Brilliant.
I think that there is a major difference between pleasure and hapiness. Pleasure is temporary and is mostly connected with the physical world (property, sexual satisfaction, drugs etc) while hapiness is a continuous condition as a result of the correct fullfilment of physical,mental and emotional needs.
When it comes to money, as a result of the monetary system and an imaginery story which connected everyone through their common belief in it, we have to recognize the importance of it since it is possibly the most effective way to aquire the necessary services in the modern society. So having money allows you to purchase the physical objects needed to satisfy your needs. So the real question is how can you define the needs of every different individual? You cant. Every person has his own thoughts, experiences and desires (except the biological ones). But what you can do is to bombard them with thousands of messages in a daily basis affecting their subconscious (not the conscious part, otherwise we would just choose not to see). In that way you can indirectly connect the physical world with specific emotions, experiences etc. This is how you get people thinking about Love as a materialistic circus with chocolate, flowers, expensive honey moon trips and so on.
So in the end I would pressume that money is an essential tool to accomplish some of your needs and experience pleasure while your conscious rejection of them and the focus on other amazing spiritual searches will eventually lead into hapiness.
The trick is to find the golden ratio (Χρυσή Τομή aka Φ as we call it in Greek) between the time needed to aquire the necessary money/resources and the time spent relaxing without worrying about numbers printed in dirty papers ;)
The best way of being happy I know is by surrendering to the present moment.
Happiness is internal rather than external. The problem is that a lot of people who are extremely wealthy are going in the completely wrong direction and looking externally.
If you are constantly looking externally to solve your problems, or your looking to 'achieve' you are missing the point of what happiness and joy is about.
Saying that, earning a good amount of money very much helps with giving you freedom to live the exact life you want to live based on yoru values and allows you to help the world in your own way. :)
Great post! Very enjoyable to read.
Thank u for sharing ur thoughts about this, I have a similar opinion, I don't think one should be sad that he don't have as much money as the richest man for happiness and living securely is what counts, however that does not mean I don't believe that people should work more , better if the work he does he makes it into a hobby or passion to earn money .
Life is weird having too much money encourages it being spent buying things that will not make one happy or even just the workload to keep it up is stressful.
Excellent post. When it boils down to it, it's really our character and how we treat others that determines our happiness after our needs are met and we live comfortably.
That's good we are looking for every day day and night only money