The Journey Towards Minimalism

Living Large for Less

At some point in the last few months, I came to the realization that I simply had too many things. It did not surprise anyone who knew me when I was able to fill two walk in closets in my new apartment with all of my clothes. I had so many clothes that nothing else would even fit in the closets! I live alone in an apartment with about 1,000 square feet, but I felt like I was drowning in my things. So I began the very sad task of adding up the quantities of everything that I owned. Some of the highlights: about 300 T shirts, 12 jackets, 10 bathing suits and about 40 pairs of jeans. And yet despite all of this, I kept routinely jaunting off to the mall and returning with new bags of stuff. Something had to change. 

First night in my new place!

Where to Start...

I knew that Step One was just realizing that I had too many things, but that was as far as I got for a while. I was onto something, I just didn't know what. And then one day I found this finance and general life blog and I realized where I was supposed to go.

I looked at all of my things and slowly started to ask myself if any of them added any meaning or value to my life. At first I thought that they did. For example, I could hold up one bathing suit and imagine myself wearing it on some tropical island, while another I would envision wearing to a family pool party. And so on until I got to 10 different occasions and color combinations "requiring" different outfits. Step Two: realizing how ridiculous this was. 

I suddenly understood that I did not in fact need 10 bathing suits. This may seem insignificant, but to me it was huge. For the first time ever I realized that my life would be no different if I bought one more article of clothing; and in fact, my life might actually be easier if I had a bit less. I didn't actually want to get rid of anything at this point, but I convinced myself that I could sell some of my stuff and make some quick money on eBay. So I did.

Reduce, Reduce, Reduce

In the first week of "reducing" as I'll call it, I listed close to 100 articles of clothing on eBay. Not everything sold, but I still made about $100. The first time I went to the post office to send my beloved items away, I felt very sad. I thought about all of the money that I had spent on everything and all of the times I had worn these things and I was angry that for less than $100 I was giving it all away.

But after a few more rounds of this, something started to change inside of me. I started to feel happy when someone would pay me $.99 for an old T Shirt that I hadn't worn in years. I started realizing that I actually didn't need it at all, and I didn't even want it. Slowly, my closet started emptying and a few dollars would enter my bank account here and there. And better yet, I stopped buying new things. For the first time in my life, I felt happy with what I already had! 

Budding Minimalism

It was amazing: I suddenly cut my spending, got rid of extra stuff I didn't need, saved money for a downpayment on a house and felt happy at the same time. But the best part of all was that I could see an immediate reduction in future consumption. I knew looking forward that I could save even more because I would continue not to need the things that I realized I didn't need today. The entire facade of our culture of materialism and consumption began to fall apart right before my eyes. In essence, I had discovered minimalism. 

To be fair, I have only just begun this journey, and I have no idea where it will take me, but I do know that I have made a substantial change in my present life to the benefit of my future self. I hope that as I move forward, I will continue moving in this very new and very positive direction. 

Why Americans Are Bad With Money

Americans Are Not Taught To Care About Money

Every once and a while, our economy goes through a period of contraction or recession. Many of the repercussions of these natural economic shifts are out of our control; some people lose their jobs, others see the values of their homes decline. But all too often, Americans fail to acknowledge what they can do differently to help manage financial stress. Unfortunately, as a society, we do not teach children to value financial literacy, which can contribute to irresponsible financial choices later in life.

An Education Problem

Children tend to learn about money from their parents. In America, most public schools do not offer personal finance classes and so children have to learn through observation. Parents do not always teach their children about the importance of budgeting and saving, perhaps because they themselves are not aware. As a result, many children enter the "real world" unprepared for how to make life decisions about money.

In high school, many students take loans for colleges in the tens of thousands of dollars, not really understanding what it will take to pay that money back. Upon graduation, many of these students are stuck with payments that are upwards of $400 or $500 per month and the graduates are in many cases unprepared to deal with this type of stress. By their early or mid 20s, many people have made important financial choices without fully understanding the consequences of their decisions. We need to start educating people younger.

In America, about $17 billion is spent per year marketing financial products such as credit cards and mortgages to consumers, but only $670 million is spent educating people about financial management. This leads to a huge imbalance in information. As a society, we need to do more to make sure that we teach young people how to manage money so that they can manage the ups and downs of the economy more readily. 

 

The Paradox of Wealth

Very Rich, but Very Poor

Money, assets, wealth, rich, poor, destitute: all of these are in some ways less tangible than they may seem. Sure, today we have a world full of have's and have not's. Some are suffering in extreme poverty while others lounge on Caribbean beaches. This may seem to reflect some sort of natural arrangement, but in fact it does not. Wealth is really just a socially constructed system to distribute society's resources.

Imagine for example that you are Bill Gates; you have more money than you could ever dream of. Now imagine that you are in a desert with a low-income person. Nobody else is around. You are both walking through the desert alone together and you happen to find a pitcher of water. What would happen? I suspect that you would simply split the water between the two of you. Outside of market system of society, Bill Gates and any other person suddenly become equals. If something cannot be bought or sold, wealth becomes meaningless.

It's important to remember that in the natural world, money does not divide humanity into those who are worthy of something and those who are not. Society simply has needs and wealth is in a very general sense a reward to those who fill some of these needs. So what happens then when society determines that certain individuals should be given a huge share of total wealth, relative to other people? 

I think it depends.

Money alone really is empty. It really takes meaning when it represents something else. For example, for some people money can come with achievement and the fulfillment of ambitions. These people may feel happy earning more and more money because it represents their own accomplishments. On the other hand, some people seem to happen upon money for seemingly no reason, and in these situations it may generate other feelings.

The Rich Can Feel Poor

I know that often times nobody really wants to hear about the problems of the rich. People may think that they have nothing to worry about because they have all the money that they need. But money is not always a solution and I believe that all life problems can really only be in perspective of one's own life. That being said, I truly want to examine the perhaps sad lives of some extremely wealthy individuals.

If someone becomes rich upon accomplishing a major life goal, reaching some milestone or just by chance, they may feel discontent. If money was a motivating force in someone's life and they suddenly have more of it than they will ever need, it could create a sense of being finished in some way. The sense of achievement and abruptness that could come with wealth may leave some rich wondering "What now?" Money alone might have the effect of interrupting a sense of purpose in the world. 

The Rich Can Also Feel Rich

Perhaps if instead we examine a rich person, or a set of rich people who earn wealth over time, we may find a different outcome. If wealth becomes a part of the journey rather than a destination, it may not conjure the same feelings of a sort of existential dread associated with fulfilling a life goal. Those who are able to come into wealth and adjust their life goals to seek new passions and ambitions, rather than just more money, may feel quite happy with their wealth.

Tension Between Rich and Poor

For some reason, there seems to be a theme in our society of being obsessed with knowing who has money and who doesn't and of creating some sort of judgment as a result. If you are rich, you are taught, probably subconsciously, to look down upon those who earn less than you. On the other hand, if you are poor or even middle class, you may resent those who have more money than you do. 

I believe that no matter the direction of the scorn that it is in many ways quite foolish. There is really no point in disliking an individual or a group of individuals just because they fall into a different financial class than you do. Thinking back to the desert example, after extracting the social construct of wealth from the equation, it's easy to see that everyone is really equal to one another in their intrinsic human value. 

Wealth is just the way that society determines the allocation of resources. Individuals really cannot determine how much society will value their contribution; market forces set wage rates for different industries, companies and individuals. Therefore nobody should judge somebody else simply for a difference in income. 

We are all humans and we are all equal. We should stop letting ourselves believe that a person's financial status is at all indicative of their human value. 

Netflix Psychological Price Increases

Netflix May Be About to Raise Prices

For years, Netflix has charged $7.99 per month for it's online streaming subscription and by all accounts the company is doing quite well. In an attempt to bring in more money each month from subscribers, Netflix appears ready to use some psychology to entice you into paying more!

Middle Price Trick

Many consumers are unaware of the middle price trick, sometimes called reference pricing. This is the practice of using tiered pricing for similar goods to entice the consumer to choose the middle option. There are a variety of examples of this.

Take Starbucks for instance. On menus, coffees are typically offered in three sizes: tall, grande and venti. When choosing to purchase a coffee you may think, consciously or subconsciously, that the venti would be too much, but that the tall would not be enough. You are psychologically enticed to choose the size in the middle, the grande, because you perceive it as average. But Starbucks also has a fourth option that is not advertised, a short, which is even smaller than the tall. If you walked into a Starbucks and saw "short" "tall" or "grande" on the menu, you would be more likely to choose a "tall" because again, you would think to be making the middle of the road choice.

Netflix

This past year, Netflix moved in a similar direction by offering a lower priced option. There is some speculation that Netflix may introduce a tiered system by which the low end service is $7.99 per month, while a premium option is $8.99 and a super-premium option is $9.99. This move would not really be about offering more choice to customers; the purpose here would be to make you feel "cheap" with your $7.99 subscription and move over to the $8.99.

Subtle eh?

I'm not arguing that companies are somehow evil for charging prices in this way. It is up to the consumer to really think about what their needs are when making a purchase. It is my hope that learning a bit about this type of pricing strategy will stop some of you from being fooled into buying more than you really want or need.

America's Broken Dream

Chasing Money and Getting Lost

Once there was a dream. A dream of raising our children with more than we had, a dream of houses on cul-de-sacs, a dream of consumption: The American Dream. Anyone could be anyone; society preached of upward social mobility. For decades, we believed in this dream. We moved our families to the suburbs, worked long hours at work and expected that we could create our own idealized life. 

But did this make us any happier?

It appears not. 

We have now reached a time in this country where our traditional American dream is broken, and economic signs seem to indicate that there may not be a way of resurrecting it, at least not anytime soon. We could take this as a sign that our country is falling apart, but I think that it could provide a wonderful opportunity for us all. Rather than focusing on consuming more than our parents and living in a bigger house, why not focus on being happier versions of ourselves? Why not ask ourselves what really makes us happy? If we focus less on changing our socioeconomic group, maybe we could really all be a bit happier. Most of us have somewhere around 80 or so years to live, why not make the most of our time here?

I realize that this may seem counterintuitive. Doesn't an increasing standard of living make us feel more satisfied? Perhaps it could, but it often comes with sacrifices that we tend to overlook. I want to explore happiness in our society.

Seriously, there are several reasons that the American Dream is worth giving up. 

What Makes Us Unhappy

There are a variety of things that could contribute to happiness in a persons life. Surprisingly, money is less of a factor than many people think. Once we reach a certain middling level of income, money does little to increase our happiness. And sometimes chasing money can actually contribute to our unhappiness. At some point, the cons of more money often outweigh the pros. 

Commuting

One of the biggest factors influencing well being is commute time. People with longer commutes are more likely to be unhappy. The American Dream which has encouraged suburban home building has increased commutes for many americans over time. 

Commutes Over Time

Commuting and Happiness

Taken together, these graphs show exactly that. Over time commutes have increased for Americans despite the facts that commuting further tends to reduce satisfaction. 

Stress and Loneliness

When people are extremely stressed out, they are less likely to find time to nurture themselves. Whether due to full schedules or lack of energy, this also tends to lead to lack of social activity. People who spend less time socializing and more time stressing tend to be less happy.

This chart shows that as social time increases, so does feelings of happiness. People who work long hours in pursuit of larger and larger paychecks inevitably are left with less time to spend with others. The stress from extra work and the isolation from other people is certainly not a positive addition to one's life.

Now What?

So there you have it. Perhaps the American Dream is dead. Perhaps many Americans are dealing with stagnating wages and lifestyles and perhaps the homes that we raise our children in will be smaller than those we ourselves grew up in. 

But so what? Having more possessions cannot make us happier and I have pointed out a few ways that the dream that our society subscribed to actually may have reduced our collective well being. I urge you to reject the American Dream. Manage the money that you do have well, but do not let money become your biggest motivation in life.

Search instead for happiness and your world may become brighter even if your wallet becomes lighter.

What Price Would You Pay For Fun?

Cities are Fun

Yesterday I mentioned that one of the downsides to living in a city is that there are often more restrictions than when living in rural areas, but on the flip side, cities tend to be much more fun as well. Most large cities offer a variety of different services that appeal to almost anyone. Things to do could be visiting parks, museums, shopping, trying new restaurants and cafes, exploring different neighborhoods or enjoying nightlife.

For the past decade or so, cities have increased their "fun" offerings in hopes of appealing to younger crowds of people. In general this has worked in many areas and young people really want to move downtown after graduating from college. 

One of the problems with this is the cost. Cities are extremely expensive. Adding more and more fun activities to one's day only increases prices further. What is interesting to me is that people in their 20s are the most likely to want to engage in many of the activities that cities offer, but they are the least likely to be able to afford these things. It seems that there is a disconnect between desires and abilities. The older you get, the more money you are likely to have but the less you will be enthralled with the idea of living close to the urban core. 

My next post will examine the phenomena behind the disconnect between age and money. 

How Money Can Buy Happiness.. Sort Of

Sometimes used as a way to persuade children into following a career that they love rather than one that will ensure wealth, parents say money will never buy you happiness. Adults tell this to other adults as well, usually friends who seem very unhappy despite boatloads of money. In these situations, the advice-givers are probably correct. Being wealthy does not bring happiness; no matter how fat the paycheck, work takes up a significant amount of time and if you hate it, the money probably does not matter.

But, there is more to it than that. Sometimes, money really does make us happy.

Imagine for a moment someone on the other side of the coin, someone who struggles to eat every week and never knows how they will pay their rent. They have no money in the bank and if their car were to break down they would have no way of fixing it. These people struggle along always wishing that they had just a few more dollars to fend off their financial anxiety. Money really would make them happier.

In reality, most people do not truly fall at either end of this spectrum; most lie somewhere in between. We know that more money does not satisfy the rich, but money brings great joy to the poor, but what of the middle? It turns out, money can buy happiness up to a salary of about $70,000. Nationwide, this is the approximate income level where people stop feeling anxiety about money. A person making $70,000 can expect to afford their basic expenses including car payments, mortgage payments and bills while still having some money left over each month and having some retirement savings. Effectively, people making this much money have their needs met and any further increases in wage would likely go towards "extra" unnecessary purchases such as for example buying a bigger house or nicer car. These types of extras do not actually add any happiness.

While $70,000 is still more than the average American pulls in each year, the median hovers around $50,000, it is still not an unimaginable level of income. It does not take extreme wealth to achieve this financial independence. Of course, in certain areas such as New York City or Boston, $70,000 would not be enough to achieve this standard of living, but it is a generally good fit for most of the country. Next time someone says that money will make them happier, think about their current lifestyle before responding!