3 Myths on money
Myth #1: If I had more money, I would act differently than I do now.
We tend to think that if we made more, we would save more. In reality, this is unlikely.
Have you ever heard of the frog in the pot analogy? A frog dropped in a pot of boiling water will try to jump out. But a frog put in cold water and slowly brought to a boil will stay in until it’s too late. So, if you increase in wealth little by little, chances are your expenses will increase too.
If you are up to your eyeballs in debt on $4,000 a month of income (the average American’s income and debt situation), you’ll most likely just have more significant debt if you get to $40,000 a month of income.
The best indicator of future financial success is your current situation. There is no reason to think that your money-related behavior will change just because you earn or inherit more money.
Myth #2: If I had more money, I’d be more generous in my giving while spending about the same.
Do you think you would give more if you had more? This may be true, but the stats aren’t in your favor. Research shows that, percentage-wise, the more people make, the smaller percentage of their income they give.
Statistically, those who make between $45,000 and $50,000 give 4% of their income. Yet those making between $200,000 and $250,000 give only 2.4%. This trend does slightly reverse when income rises above $250,000 to look like an inverse “U.” Yet giving by percent (outside of those on the very top, making over $10M) is highest among those earning the least.
Parkinson’s law states, “Work expands so as to fill the time available for its completion.” Here’s how it plays out financially: “As income rises, expenses rise.”
The truth is, spending money is an appetite that grows the more we feed it. I agree with Thomas Fuller, who said, “Riches enlarge rather than satisfy appetites.”
The problem with spending is that the more you spend, the more you will want to spend. There is no final purchase to end the desire to spend, just like there is no meal to end all meals.
Spending can creep amazingly silently into places you didn’t plan. I’m sure you can give an example or two here. It starts out small, like buying slightly more expensive wine or a higher quality shirt. Then that one nice shirt makes the other shirts you own feel cheap, so you enter a new shirt level. Then there will be one event where you feel the need to upgrade the shoes, since “the shirt never really went with cheap shoes anyway.” Then, soon enough, you’ll find you call yourself “a bit of a shoe girl.” Or maybe you will be “a bit of a car guy” or “sort of a watch person” or “a bit of a purse gal.”
I’ve heard the same phrase uttered so many times to justify purchase upgrades in certain areas. Notice that we rarely say, “I’m an aficionado,” because we know someone else who is really an aficionado.
Once you enter the new level, going back is not easy.
Myth #3: Money provides happiness and contentment.
Contrary to most of our expectations, contentment doesn’t come from money. Pastor Chip Ingram has it right when he says, “Contentment is a learned attitude.” More money often leads the affluent into discontentment, not contentment.
The big lie here is that standard of living equals quality of life. But really, these two are not directly connected. If they were, then those with the highest incomes would be the happiest and have the best quality of life. Is that true? If you need to be convinced, re-read the quotes at the beginning of the chapter.
More money may equal more choices, but after a certain point, having more choices leads us away from, not toward, contentment and peace of mind. Peter Huizenga, by any measure, is a successful businessman. From his early days of being one of the first officers of Waste Management to now running a hedge fund, he has stayed fully engaged with business.
Describing his experience, Huizenga says, “There’s an indescribable urge to think that money provides happiness and joy, an emotional high. But it’s temporary—fleeting.”
According to Malcolm Gladwell’s book David and Goliath, psychologist James Grubman argues that happiness decreases once you reach income over $75,000. And a recent CNN/ORC International poll, conducted from May 29 to June 1, 2014, found that “most people know in their hearts that … money can’t guarantee true happiness.” That dovetails with a 2010 Princeton study that found emotional wellbeing rose with income, but not much beyond an annual income of $75,000.
To see an indicator of this, look at the changes in luxury cars over the last few decades. What were considered luxury features in the 1990s versus today? When did power windows become standard, not optional? When did every car need a GPS? How about heated seats (even in the south)? Or, now, air-conditioned seats and auto-driving cars, right? I’m not against nice cars or new inventions. But why are we letting marketing ploys and envy drive our view of need? How have our expectations about a “nice” versus a “basic” or “adequate” car changed, and why?
What was yesterday’s luxury often becomes today’s need?
Action Step:
1) You are living on a percent of your total income now. I bet you don’t know what percent it is. Why not grab your tax return and see what percent you are living on. You may be surprised.
2) Find a friend to talk to about this article.