8 Feb 2013, 1:27am
personal finance
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  • Money can’t buy you love, but it can buy you happiness

    A few papers challenging the Easterlin Paradox seem to counter the original thesis which runs roughly like this

    after basic needs are met (food, shelter, environment) there seems to be little correlation between GDP per capita and happiness.

    I like the summary of this one in the torygraph – The Fact is, the Richer you are, the happier you are. Well, D’oh. Curiously enough, whenever I thought about this, I thought in terms of income, and for sure, in many ways the guys doing manual work (when there was such a thing in Britain) usually were the source of more raucous laughter than the suits. However, I usually assumed that the suits were happier.

    Let’s first get the Gore Vidal part out of the way.

    It is not enough to succeed. Others must fail

    Humans are social creatures, and what really makes peo0ple happy is having more money that the people immediately around them. That is why comparisons between countries aren’t that great. It’s comparison with your neighbours, your street, your town your county that matters. An Ermine in Ipswich is richer than an Ermine in London. Also there needs to be some sense of proportion, there’s no fun in seeing your fellow humans dying in the gutter, everybody should be basically OK, you just want to be more OK than they are ;)

    So I have a low income now, a pale reflection of what it was while I was working. But I’m happier than when I had a higher income. When I looked at this as a wage-slave I got the wrong end of the stick – I assumed a higher income was meant to make you happy.

    It’s bollocks. It is agency that matters – and agency goes with wealth, not with income. You don’t need a high income to have wealth, though it sure as hell helps if you are building wealth. If you have a high income, and you spend all of it, you are rich but not wealthy. If you are poorly paid, but you have saved several years of salary, you are poor but wealthy.

    The Ermine is poor. But also wealthy, relatively speaking. One of the most difficult things about the adjustment after ceasing work is when I look at my accounts I see multiples of what my annual salary was when I was working. These scare the hell out of me, I think of the empty years, and some part of me weeps. But I have to live as if they are a tenth of the figures on the screen 1

    I recall making this point about income to one of my colleagues, who was moaning that he wasn’t paid enough and he felt poor. I pointed him at this wikipedia entry – he was in the top 3% of UK household income, higher than mine because his household had two incomes and mine had one. If you’re in the top 3% of incomes then you should STFU about feeling poor, because you aren’t. If you are feeling poor then you are overspending.

    The same entry has a piece about wealth. It’s outdated, and they perversely count house ownership in net worth which I don’t. Even given that I discount house equity as wealth because you have to live somewhere, I was surprised at the time just how little accumulated wealth people had in the UK.  I was never in any danger of paying 50% tax ever in my career. I don’t know what people do with their income, but clearly not that many of us save much of it. This University of Birmingham paper (PDF) contains more recent data. Since the time of that wikipedia entry things have skewed in favour of the ultra-rich.

    Yup. Parsi Hilton looks fab. But her shit till stinks like mine and she will get older and her flessh will droop faster thanmine ;)

    Paris Hilton looks fab. But her shit till stinks like mine
    and she will get older faster than me ;)

     

    Earn More or Spend Less?

    If wealth = income – outgoings, then it’s simple. You either earn more, spend less, or some combination. Intuitively earning more is the obvious way to go, after all the upside is unlimited, whereas once you’ve cut your spending to zero you will never do better, huh?

    The trouble is that only works up to a point. If you’re working minimum wage, it’s a no brainer, try and earn more. If you are earning more than twice the UK median wage, however. strange factors seem to kick in. For one thing ,you are working harder for the taxman above about £42,000, so ideally you save anything above that figure in a pension. The trouble is that you have to put up with more crap and demands are higher as you earn more. You have to pay more for goods and services to make life easier. You interact with more spendy people all round. You get airs and graces like having to send your kids to public schools 2.

    happy_2473042b

    Sally Hawkins in ‘Happy Go lucky’ She didn’t go the earn more route

    Earning more would seem to be the logical thing to do – but it doesn’t always work out that way. People get wealthy by practising frugality, in my experience. They don’t usually suddenly sit up in middle age and think ‘crap, I haven’t got enough of a nest egg, let’s go and get a job paying 50% more’ and then save the extra.

    If a rat wants to leave the rat-race, he downshifts, not upshifts

    By the time you get to want to leave the rat race, you probably don’t have the energy or inclination to become King Rat for a while. Some people get wealthy, of course, by never overspending. They don’t have to change anything, they just accumulate cash because they have always lived below their means. It’s easier to live below your means if you have a high income right off the bat. There aren’t many Tesco shelf-stackers in the Forbes rich list. But someone who comes to the conclusion that they want out of the rat-race and wants to build wealth?

    They don’t commonly achieve it by increasing their income. Wanting out of the rat-race is not a career-enhancing decision. That’s not to say folk who increase their income don’t have a great time, for sure they do. But I’ve never seen someone get wealthy from a position of non-wealth by increasing their income and then quitting. I’ve seen people get wealthy by screwing down their expenses, and I’ve followed the same path. And I’ve seen people have a lot of fun by increasing their income.  But it just doesn’t seem to stick to the sides for some reason, so they have to keep that income flowing. There’s nothing wrong in that. These people get to use their passports more often than I do. They drink better wine than I do. That’s great, each to ther own. But they aren’t wealthy if they are six months away from bankruptcy. I am ten years away if future income sources all dry up – as long as I eat only ramen ;)

    That’s what wealth gives you. It gives me the option to eat ramen for ten years, but nobody owns my ass. If you’re poor and not wealthy, you don’t get the option to eat ramen. You do it because you have to. I haven’t actually eaten ramen, because DW doesn’t let me. but I would if I had to, rather than work for The Man again.

    I was shooting some pics for a magazine today, and I heard a chaffinch give some song. In a couple of month’s time I will be sick of chaffinch song, but this time I stopped a while, parked my bike by the side of the road, and listened up, because the cheerful song of a chaffinch is something I haven’t heard for nine long months.

    I heard the chaffinch because I sold my car, so the only way I can get anywhere is by bike 3. If I were in the car, I wouldn’t have heard the chaffinch, and I wouldn’t have been able to stop the car, because it would have made me late for work. That’s what wealth does for you- you get to stop your bike to listen to a bird ;) If I am lucky, I have forty springs that will turn to summer. I aim to listen up if I hear a finch tell me one of those springs is coming up. I’ve missed too many of the last thirty of them…

     

    Notes:

    1. strictly speaking 1/20th but I do not have to preserve the entire capital value as I have future income streams in the 5 year timeframe
    2. to bemused and logical Americans, in the UK public schools are in fact private, fee-charging schools
    3. On leaving work I sold my car, so we are a now one-car household

    Why do the scales not fall from our eyes until late in life? Are we conditioned from school? We’ve only had 24/7 digital intrusion telling us to buy, buy, buy for a few years so there must have been some other driver.

    I curse the wasted years when I could have built some capital instead of well, to be honest I can’t see where it all went, probably lost it by changing houses at the wrong moment in the cycle.

    Least I have a chance to make a difference with my own son. He already loves playing Monopoly and sends me to the cleaners every game. Right little junior capitalist in the making!!

    Yep agency is the key, although I like to call it pottering. On my infrequent forays into work to replenish the coffers, people look faintly discomforted when I tell them what I do with myself when I’m not working.

    However I’d have to confess I don’t really do anything most of the time when I’m at work, and neither to my sensitive eye do they. Sitting there just hurts, it offends my sense of human dignity.

    Thanks Ermine a timely reminder that you don’t necessarily need to accumulate a bazzillion pounds to enjoy agency / dignity / pottering.

    “It gives me the option to eat ramen for ten years, but nobody owns my ass. ”

    Indeed, I look forward to the T shirts though would prefer mine with a “r” in it and ramen spelt “pot noodle”.

    8 Feb 2013, 1:48pm
    by ermine


    @Nathan your wish is my command ;)

    @MarkyMark There are lifecycle issues that mean money is shorter in your 20s and 30s than later. Stuff just matters less to me now than it did before. Good to hear MM junior is on the case. He’ll also have the benefit of the new personal finance GCSE too, so here’s to a future generation of Britons turning the tables on The Man!

    @Marky Mark — Why? t’s simple but not commonly understood.

    It’s because Young people are already rich.”

    You were rich once. We all were. But few of us are again.

    @Monevator There’s another T-shirt in that catchphrase ;)

    […] Money, work, wealth, and wisdom – Simple Living in Suffolk […]

    If I don’t count my home in my net worth then my net worth is -$10,000.

    I have to bundle up to try and get through the 20cm of snow we got yesterday in my part of Canada because I must work. At least you have given my a lot of things more interesting than my work to think about on the 8 hours that I must put in today.

    I found you at Monevator and I will be back.

    9 Feb 2013, 8:19pm
    by Nathan


    @ermine

    Nice, can I suggest one custom T Shirt for yourself ?

    Suit you, sir!

    @Jane hope it goes ok with the blizzards from that storm!

    I don’t count my home as part of my financial networth because it isn’t a financial asset, but it does of course save me paying rent. So it does add value, but more in terms of the function it provides than as capital value.

    @Nathan – nice, soon we’ll be able to have the e-ink version with an active countdown ;)

    I have seriously considered doing a bit of CafePress merchandising. Maybe this will push me to it! :)

     

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