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By Dr. Leif Dahleen of Physician on Fire, WCI Network Partner
Spend less. Live more. Are these commands compatible or does one suggestion override the other?
Alexander Hamilton learned to talk less and smile more. It worked for him. I think my ideas might work for you.
The YOLO (You Only Live Once) crowd mistakenly equates spend to live and live to spend as one and the same. I’m here to tell you that they are not the same at all: when you reduce expenses, you will be able to live longer.
It is true that you only live once and you want to make the most of the life that is granted to you. It’s all the more reason to spend wisely and get the most out of your hard-earned cash, allowing freedom that much faster.
No one likes being told to spend less. It may look like an assault on his current way of life. If lifestyle is important to you, this might be the message you need to hear.
Ideally, this message of relative frugality comes to you before you’ve increased your standard of living to a level that requires spending the vast majority of your income. It’s much easier to stay off the hedonic treadmill or keep it at a slow speed than to get off once it’s reached a ridiculous speed.
My version of relative frugality for the high-income professional doesn’t have to feel like a student or resident life. You can swap Top Ramen, Rice and Beans for Arugula, Steak and Potatoes, or Sushi or whatever you want.
Most doctors can afford to live on half their take-home pay while spending slightly more than the average American household. The majority can both save and spend six figures a year. It’s harder when you make less, but we’ve learned that even a single primary care physician with a salary of less than $200,000 a year can create real wealth in a short time.
Think about some of the best times of your day. How much does it cost to quietly enjoy a cup of coffee or play a game with your kids or nieces and nephews? A hike through the mountains or a walk along the beach?
The good life
I had the opportunity to taste this beautiful life that most people, including a younger me, often dream of. The pampered life with all the good things. Yes, I drank Dom Pérignon from the bottle like a boss, sipped Opus One with a raised little finger, and stayed in my share of four- and five-star hotels and resorts.
I’m not going to argue that these things aren’t better than three-star experiences and more modestly priced booze. However, I’m not convinced that staying at the top of the Four Seasons for $1000 a night gives you 10 times the value of the 3.5 star Hilton at $100 a night.
The value of wine is much more questionable. There is fascinating research that our perceived experience with Cabernets and Chardonnays is flavored far more by what we are told it costs than by the actual quality of the wine. Even better, when a white wine is dyed red, winemakers will describe it as having all the characteristics of a true red wine.
I’m not saying we can’t have nice things. If you cut back anywhere and everywhere you can, you might find that you don’t enjoy life, no matter how much progress you make financially.
Ramit Sethi recommends that you “spend extravagantly on the things you like and ruthlessly cut back on the things you don’t like.”
Similarly, the Physician Philosopher’s “backwards budgeting” goes something like this: (1) set your overall financial goals, (2) pay for your future first, (3) automate your financial goals, and (4) spend money generously. money that is left.
Dine at the French Laundry. Take this trip to Tahoe with the ski-in ski-out townhouse. Upgrade to the VIP tent during the Oktoberfest.
Do not take the most expensive option at every turn of your life. Make it fun and you can still achieve your financial goals.
The loose correlation between spending and happiness
Don’t take my word for it. Like a good scientist, look at the data.
We’ll start with a review of the 2020 Global Happiness Index, an annual survey that measures the reported happiness of people in different countries based on a variety of variables.
Overall, rich countries tend to have happier people and poor countries tend to have fewer satisfied people. However, the wealthiest nations and cities are not the happiest, and some places where people earn much less have much happier people than the most developed nations. For example, residents of Mexico City reported a higher “Current Life Rating” score than residents of places like Paris, Dubai, and Barcelona in the 2020 World Happiness Report.
In the United States, we don’t seem to be any happier despite substantial wealth gains over the past decade. The decline is most pronounced among children and teens, and the role of social media has been questioned as driving this unfortunate trend.
It’s been more than a decade since Daniel Kahneman and Angus Deaton published the article “High income improves life evaluation but not emotional well-being”, establishing the loose link between income and happiness. The conclusion was that “high income buys life satisfaction but not happiness, and low income is associated with both low life valuation and low emotional well-being.”
The number at which happiness did not increase with higher income was $75,000 in 2010. Inflation pushed that figure closer to $100,000 in the 2020s, but you’ll still hear the $75,000 quoted often enough. If you read the study, you’ll notice that life satisfaction, as measured by the study, continued to increase with increasing income, but we see diminishing returns with small increases progressive, even with large increases in income.
A challenge in interpreting a study like this is the fact that it is based on income and not expenses or net worth. I believe – and this is sort of based on my own experience and that of people I’ve come to know in the FIRE community – that increases in net worth can increase happiness and life satisfaction as much or more than income or expenses.
Note that spending and net worth gains are inversely correlated, especially in the accumulation phase of wealth creation. A dollar spent is a dollar not saved or invested.
If you have studied physiology, you may remember the Frank-Starling curve demonstrating the relationship between preload (the patient’s volume state) and cardiac output. As preload, as measured by LVEDP, increases, cardiac output increases to a point. There comes a time when production plateaus and then begins to decline as the heart becomes overloaded and slides into (systolic?) heart failure.
Replace preload with spend and cardiac output with happiness, and I think you get an almost identical curve.
When your baseline is not spending much at all, when you open your wallet, you can truly improve your life and your life experiences in a meaningful way. Once you spend most of your salary, assuming it’s a six-figure sum for a high-income professional, you start to see diminishing returns.
When your spending level, the equivalent of the preload, reaches a tipping point, you may not be saving for retirement at all. You could incur credit card debt. You can commit financial infidelity by hiding your true financial situation from those close to you. This is the downward slope of the curve where more spending leads to more stress and less happiness. A radical change is needed here. It could mean earning more or spending less. A combination is probably best.
When you spend less, you can live more. How?
First, when you create a wide gap between what you earn and what you spend, it’s actually much easier to say yes to one-time spending. If you take that impromptu trip to bocce and your savings rate goes from 50% to 45%, the consequences are relatively inconsequential compared to halving your savings rate from 10% to 5% when you live within your means.
More important is what happens after a decade or two of living well while spending less. For more details, see The Tale of 4 Physicians. In summary, one can achieve financial independence, that is to say the ability to live one’s life as one sees fit without the need to earn money indefinitely, in about 15 years.
At this point, you might choose to cut back on your expenses and work part-time. You can work at universities or spend more time volunteering. You could try a completely different career, start a business, or retire completely. If you’ve wanted to travel the world and never found the time, you have all the time in the world. To take advantage of. Live more.
Own less; Live more?
I’ve been more of a maximalist than a minimalist most of my life, but after moving more times than I care to admit, I’ve begun to appreciate the benefits of minimalism. A few years ago, before our last move, I got rid of half my clothes. I haven’t missed a garment.
I am not averse to owning things, and I have more than my share of things. But I recognize that possessions can be demanding. They require storage, and many items require maintenance or at least cleaning. The more things you have, the more things you have that can break down, get damaged, lost, or stolen.
I don’t like to spend my free time troubleshooting, fixing, cleaning or organizing my things. Maybe you’re different, but I prefer a life without chains.
How to spend less
If you’re okay with the idea of spending less but aren’t sure where to start, I can share some tips.
You can borrow some of my quirky frugal tendencies. Track your spending with Personal Capital or Mint to establish a starting point. Learn how to budget with apps, like the hugely popular You Need a Budget (YNAB), or try Dr. James Turner’s Anti-Budget.
Buy fewer things. Make longer, more affordable trips. Get flight alerts from Scott’s Cheap Flights and fly to Mexico for $200 or Europe for $400 roundtrip like we did. Use credit cards wisely. Always pay the balance in full and easily earn free flights, hotel nights or direct cash back.
If you need more suggestions or want to share your own tips for spending less, come find me at the Physician Wellness and Financial Literacy Conference (WCICON23) in March, where I will be participating in some retirement planning projects. workshops and panels. I’m always open to hearing more ideas on how to increase our happiness.
If your goal is to live longer, you’ll find what works best for you and your family.
What do you think? Could spending less actually make you more fulfilled? Have you found that earning more money makes you happier? Comments below!
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