This journey would ultimately lead me from being worth less than a baby to ownership of a six-figure portfolionow spitting out thousands of dollars in passive dividend income. So it’s an understatement to say I’m pleased with my progress thus far.
But let’s back it up a bit…
Who Wants To Take Over The World?
I believe many people find themselves in ruts similar to the one I was in for most of my adulthood. You grow up with all these dreams, graduate school, and set out to take over the world. Except it’s a lot harder to do that in reality than it is in your own head. So you end up with a decent job with some decent pay, and you’re generally happy.
Once you get this regular paycheck you start to realize that while you can’t take over the world, you can definitely afford a bitchin’ pad, a nice car, regular visits to all the hot spots in town, fancy vacations during the two weeks your master lets you out of your cubicle, and a big television, among other trinkets.
And before you know it, you’ve got more stuff than you know what to do with, along with the kind of bills that accompany all that stuff. And guess what bills require? Cash.
So how do you get the cash? You go to work. And you keep going to work while simultaneously building up more bills until all of the sudden you’re old and gray.
But it doesn’t have to be this way.
More Stuff Won’t Make You Happy
First, one needs to master the concept of the law of diminishing marginal utility. This law, based in economics, basically states that the first unit of consumption of a good or service yields more utility than subsequent units of consumption.
Say what? Let’s break that down a bit.
Think of pizza. I don’t know about you, but I consider myself a bit of a pizza aficionado. So I might find myself hungry on a Saturday night and decide to order a barbecue chicken pizza from Matador’s (a shout-out for a great local pizza spot).
So I get this piping hot pizza and I eat the first slice. It tastes great and I can already feel my hunger subsiding. I grab a second slice, and it still tastes great, but being not quite as hungry as I was when I ate the first slice the satisfaction declines just slightly. And this phenomenon repeats itself during the third and fourth slices to greater degrees. Finally, a fifth slice wouldn’t only not be enjoyable, but would probably make me sick.
And this is true with everything in life.
You can go from a 1,000 square foot house to a 2,000 square foot house, and guess what? You won’t be twice as happy. You’ll actually more likely be 1/2 as happy.
Because a house that’s twice as big still provides you the basic shelter the 1,000 square foot house does, but you now have twice the space to heat and cool, furnish, clean, maintain, and fix. That means twice the money, twice the work, twice the headaches.
Imagine you have a car. Now double it - you now have two cars. Will that make you any happier? You’ve now got two cars to pay for, insure, fuel, and worry about. How does that improve your life?
And this translates into the marginal utility of money. You gain quite a bit of happiness going from $0 in annual income to, say, $30,000 per year in income. At $0, you live outside, have no shelter, eat what society discards, and security is non-existent. But at $30 grand per year, you can afford decent shelter, plenty of food, transportation, electricity, running water, etc. That’s a big jump! So going from $30,000/year to $300,000/year would be even more fantastic, right?
Whenever I think of the marginal utility of money, I’m reminded of Warren Buffett (Trades, Portfolio)’s explanation as to why he still lives in the house he purchased back in 1958 for $31,500. In an interview with BBC in 2011, he stated:
I’m happy there. I’d move if I thought I’d be happier somewhere else. How would I improve my life by having 10 houses around the globe? If I wanted to become a superintendent of housing. I could have as a profession, but I don’t want to manage 10 houses and I don’t want somebody else doing it for me and I don’t know why the hell I’d be happier.
If a guy who can afford to purchase the entire city I live in still lives in a modest house he bought more than 50 years ago, why should I be chasing some big luxurious home?
No Need To Keep Up With The Joneses
Once you realize that more won’t make you any happier you can look at the Joneses and heartily laugh at the comedy of it all. Like rats in a wheel, chasing more and more cheese won’t get you anywhere. You’ll just end up exhausted. And that’s why the rat race is a no-win proposition. In the end, you’re still just a rat like everyone else.
Getting out of the rut is easy. Just say no to excess.
I’ve found that all I really need in life to be happy is basic shelter, decent food and drink in my belly, loved ones, a little sunshine here and there, good health, and plenty of time to enjoy the many free activities I like to partake in, like: writing, reading, relaxing, and staying active.
It just doesn’t take that much money to live a fulfilling life. I have found time to be far more beneficial to my happiness than money, and since money is limited I decided to start buying time with my money rather than more stuff.
I often think of Maslow’s hierarchy of needs and note that there’s not a new Corvette anywhere in there. Once you have the basics in life covered, like: shelter, running water, electricity, access to food, love, security, warmth, freedom, and the ability to express yourself, your happiness level is already pretty much maxed out. Trying to eke out a bit more with a big house, nice car, and more clothes than you know what to do with will likely only lead to the exact opposite of what you seek. Instead of material goods, I would recommend thinking about independence.
I found myself stuck in a rut more than four years ago. And I decided to take a good look around me and focus on what made me really happy. The rest had to go, and go it did. Since then I’ve funneled all of my excess capital into income-producing investments so that the rat wheel eventually turns without me running my legs off. This leads to the freedom and independence in life that I so aggressively crave. Once your basic expenses are covered for you without any work on your part you’re free to pursue passions with reckless abandon. And you won’t be exhausted any more from running on the wheel all day long. That means more energy to spend on things that you genuinely enjoy. That may be raising your children, traveling, reading, programming, building, or just thinking. It’s about finding value in your life, and making sure your spending is aligned with that. Spending money on things that do not build value for your life is just a waste of money that could otherwise be quite productive.
You might be stuck in a rut too. But you get out of it by realizing that more stuff won’t buy you happiness. Once you have the basics in life covered your happiness will come from within. And maybe some people are scared to look within themselves for fear of what they might see. But I found someone who has a passion for writing, inspiring, and investing when I looked within myself. I challenge you to do the same. Find yourself and embrace that person. Cut the rest loose. Only then will the rut be behind you.
How about you? Ever find yourself stuck in a rut? Did you find a way out?
Thanks for reading.
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