Should your standard of living rise?
Studies show that a high standard of living doesn't make people happier. People who live in mansions and penthouses aren't any happier than people who live in suburban houses, small apartments, or even shacks. An increase in standard of living does make people happier, but only temporarily. That has implications for managing your standard of living.
Rising standards of living
A gradually rising standard of living tends to happen automatically. There are three powerful trends driving that:
- Durable items (bed, chair, pots and pans, TV) can be purchased once and then add to your standard of living for years to come.
- Capital, once invested, can produce income indefinitely.
- Wages and salaries tend to rise, as you become more skilled at your job and demonstrate that you're a dependable worker.
It used to be that these automatic trends played out in most people's lives. You'd come out of school broke, you'd get a job, you'd accumulate the things you needed, get a home when you could afford it, and so on. Certain social structures (hope chests, housewarming parties, wedding and baby showers) existed to ease some of the tougher transitions.
Once you got past those early tough stages, things got pretty good. By the time your kids reached college age, your income was reaching its peak and (if you'd managed to save and invest at least a little money right from the start) you also had a substantial investment portfolio. If you didn't have too many kids, you were done paying college expenses with many years of earning ahead of you, giving you a good chance to accumulate some real wealth, with the attendant opportunities to enjoy a moderate level of luxury, donate money to charity, leave an estate to your children, and so on.
Level standards of living
Debt has made another path possible--it potentially lets you "level-out" your standard of living. In your early years--as a student and then as an entry-level worker--you borrow money to boost your standard of living. Then, as your income rises towards its peak, you reach a cross-over point, where you no longer have to borrow to support your standard of living. As your income rises still more, you have a surplus to pay off the accumulated debt. The implication of taking this path, though, is that your standard of living doesn't rise--it jumps to a moderately high level right at the start, and then stays there for the rest of your life.
Anybody who's been reading what I've been writing will know that I think this is a terrible idea.
- It's risky--any glitch in earning before the end of your career could send you into bankruptcy.
- It's expensive--the interest paid on all that debt will add up to a fortune over a lifetime.
- It's inflexible--once you incur all that debt, you're stuck working to pay it off, even if you decide the exchange (high debt for high standard of living) was a poor one.
However, I find myself in a quandary about one possible reason why it would be a bad idea: It locks you in to a level standard of living. Maybe that's not a bad thing.
Happy with a stable standard of living?
See, although we know that people are made temporarily happier by increases in their standard of living, even an ideal version of the old traditional "rising standard of living" path doesn't make you permanently happier with those increases--they just don't happen frequently enough.
Maybe in the first year or two they come fast enough--first job, first apartment, first piece of furniture, first raise. Pretty quickly, though, your standard of living settles down to long periods of stability punctuated with small increases that make you happier for only a little while.
I think that's a really good basis from which to start thinking seriously about enough. If your standard of living can't rise fast enough to keep you permanently happier than your baseline level of happiness--if you're going to be at the baseline most of the time anyway--maybe there's no good reason to have a rising standard of living. At least, no good reason to persist with a rising standard of living, once you're past the burst of early growth in the year that ends about the time you get your first raise.
Take control of your standard of living
Most people let their standard of living drift up as their income rises, without really giving it much thought. I suggest being more deliberate about it than that.
Look back over your spending from six months to a year ago and find two things:
- Some one-time expenses that were intended to improve your standard of living (a new car, a new TV, a new sofa)
- Some new recurring expenses that were intended to improve your standard of living (a phone plan with more minutes, lawn care service, a fitness-center membership)
For each of those, think about whether that purchase made you happier; if it did, think about whether it still makes you happier. Note that this is not the same question as whether you'd be miserable if you had to go back to life without a bread machine and a weekly cleaning service. Just like a rising standard of living makes people temporarily happy, a falling standard of living makes people temporarily unhappy. Don't be fooled by that. The question is, does that purchase or expense make you happier now than you were six months or a year ago?
Unless you're quite unlucky, many of your purchases will still make you happier. I bought a bicycle in 1984 that I remain delighted with. We got some living room furniture that gives me pleasure every day. I get enormous satisfaction from our high-speed internet service. There are plenty of items, though, that gave me great pleasure initially, but don't any more--a guitar and keyboard that I never play, some computer games that I've finished, some books that I bought rather than getting out of the library, a membership a sportsman's club that I scarcely use.
Because a falling standard of living makes people unhappy, raising your standard of living tends to be a one-way street--it's tough to choose to lower your standard of living. That makes it all the more important to take control. Don't increase your standard of living just because you can. Be strategic about any expense that's intended to make you happier. Do you need to raise your standard of living? Or can you be just as happy at your current standard of living?