Part of the reason why money buys happiness is that money buys *absence of financial stress.* That means that strategies that involve increasing stress in order to get more money are not necessarily going to increase your happiness. This consideration weighs in favor of:
1) More traditional, low-risk, low-effort investment strategies, like your bog-standard automatic investment into index funds. They’re more likely to get 7% than your theoretical 18-24%, but they require very little effort. Strategies like flipping houses, building a real estate empire, or startups *might* get you a higher return, but they also take significant time and effort and come with a high risk of loss or bankruptcy. (I personally have met a number of people who tried real estate and wound up bankrupt.) Maybe risk-loving people like Trump can sail through bankruptcy with no stress, but I sure couldn’t!
2) Considering financial stress also weighs in favor of reducing expenses, especially fixed costs that are hard to alter, such as debt payments, mortgages, and car loans. The person with a $5000/month income and $1000 rent is safer and feels richer than the person with a $7000/month income and $3000 rent.
I also think you leap a little too fast from “$75k income associated with happiness” to “therefore, you need $75k income.” The person with 75k income isn’t spending 75k, they’re likely paying ~20% in tax and saving some amount too.
I will have more to say about this in the next post.
bog-standard automatic investment into index funds
Definitely preferable to not investing at all. You should at least be doing that much for now. But I think you can do a lot better than that, for less effort than you think. (And better still with more effort, if you’re in a hurry.) Which I will be explaining how to do later in the sequence.
in favor of reducing expenses
This is part of the poor-person mindset you need to break away from. Reducing expenses is not necessarily wrongper se. But you need to focus on acquiring resources instead. Think 20% conservation, and 80% acquisition, not the other way around. It’s one of the things covered in that Douglas Kruger talk I linked to. Particularly that story about the buffalo.
from “$75k income associated with happiness” to “therefore, you need $75k
It was $90k in today’s dollars, but I did suggest settling for $45k to start, and this is an oversimplification, because the exact numbers are not my point. These numbers will vary with time and place. But I want to emphasize that I am not suggesting you settle for $90k, or $45k, but that that an income is the bare minimum to be doing OK, and we will need a lot more than that to hope to afford some critically important goals that a hypothetical more enlightened culture would consider the very basic of needs: you are not immortal!
I wasn’t asking for advice, and I would appreciate it if you would avoid the lecturing tone. Assume that people you are talking to know about as much as you do about this subject.
Tone policing is a violation of my commenting guidelines.
This is a public forum with multiple readers. Don’t assume that everything I say is directed to you personally, even if it’s in a reply to your comment, unless I PM you. It’s not about you.
If I believed everybody knew as much as I do about the subject, I would not be writing the sequence at all.
It’s not about me, but you should know that many people will be less willing to listen if you take a lecturing, dictatorial tone. You can teach without doing so, and you will be a more effective teacher if you teach with emotional intelligence.
Part of the reason why money buys happiness is that money buys *absence of financial stress.* That means that strategies that involve increasing stress in order to get more money are not necessarily going to increase your happiness. This consideration weighs in favor of:
1) More traditional, low-risk, low-effort investment strategies, like your bog-standard automatic investment into index funds. They’re more likely to get 7% than your theoretical 18-24%, but they require very little effort. Strategies like flipping houses, building a real estate empire, or startups *might* get you a higher return, but they also take significant time and effort and come with a high risk of loss or bankruptcy. (I personally have met a number of people who tried real estate and wound up bankrupt.) Maybe risk-loving people like Trump can sail through bankruptcy with no stress, but I sure couldn’t!
2) Considering financial stress also weighs in favor of reducing expenses, especially fixed costs that are hard to alter, such as debt payments, mortgages, and car loans. The person with a $5000/month income and $1000 rent is safer and feels richer than the person with a $7000/month income and $3000 rent.
I also think you leap a little too fast from “$75k income associated with happiness” to “therefore, you need $75k income.” The person with 75k income isn’t spending 75k, they’re likely paying ~20% in tax and saving some amount too.
I will have more to say about this in the next post.
Definitely preferable to not investing at all. You should at least be doing that much for now. But I think you can do a lot better than that, for less effort than you think. (And better still with more effort, if you’re in a hurry.) Which I will be explaining how to do later in the sequence.
This is part of the poor-person mindset you need to break away from. Reducing expenses is not necessarily wrong per se. But you need to focus on acquiring resources instead. Think 20% conservation, and 80% acquisition, not the other way around. It’s one of the things covered in that Douglas Kruger talk I linked to. Particularly that story about the buffalo.
It was $90k in today’s dollars, but I did suggest settling for $45k to start, and this is an oversimplification, because the exact numbers are not my point. These numbers will vary with time and place. But I want to emphasize that I am not suggesting you settle for $90k, or $45k, but that that an income is the bare minimum to be doing OK, and we will need a lot more than that to hope to afford some critically important goals that a hypothetical more enlightened culture would consider the very basic of needs: you are not immortal!
I wasn’t asking for advice, and I would appreciate it if you would avoid the lecturing tone. Assume that people you are talking to know about as much as you do about this subject.
Tone policing is a violation of my commenting guidelines.
This is a public forum with multiple readers. Don’t assume that everything I say is directed to you personally, even if it’s in a reply to your comment, unless I PM you. It’s not about you.
If I believed everybody knew as much as I do about the subject, I would not be writing the sequence at all.
It’s not about me, but you should know that many people will be less willing to listen if you take a lecturing, dictatorial tone. You can teach without doing so, and you will be a more effective teacher if you teach with emotional intelligence.