Is the Hedonic Treadmill Leading Your Finances Astray?
(Why More Stuff Won’t Make You Happy)
According to the hedonic treadmill theory (also known as hedonic adaptation), people always return to their baseline level of happiness regardless of what great thing happens to them. With your income, it is whereby, as you make more money and acquire more things, your expectations also continuously rise. Therefore, an increase in income does not result in lasting happiness.
Do you remember how you felt before you bought your first phone or your first car? The excitement, the anticipation and then the sheer bliss when you finally got it. But after a few months, you got used to it and could hardly remember why you wanted it so badly. Soon, you replace that excitement with the desire for something else – often something worth slightly more. That is the hedonic adaptation in action.
We continuously feel like we are within arms-reach from complete happiness, but as we get closer to achieving it, the goal post shifts and we need something additional. This affects every part of your life including how you spend and invest your money. Let’s look at how, and what you can do about it.
· Hedonic Adaptation and Spending
Consumerism exists, at least in part, because of hedonic adaptation. Our constant need to buy more things is fueled by the feeling we get when we are acquiring stuff. And since the feeling doesn’t last, we find ourselves stuck in a cycle of purchasing, happiness, reduced happiness, purchasing again.
We then up the ante by attempting to purchase happiness via experiences such as holidays, getaways, activities etc. We are constantly trying to “live our best life” and have everyone see it to boot. Eventually, we wake up one day, surrounded by things, sometimes even in debt and not any happier than at the beginning of our careers. To quote the American actor and columnist Will Roger, “Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.”
· Hedonic Adaptation and Investing
Hedonic adaptation may affect your investing decisions by impacting how long you feel satisfied with the investments you have selected. Have you ever invested in something but when you heard about a different investment option you had the urge to move your money there instead? That’s the hedonic adaptation in play. We love the feeling of a new decision and are always on the lookout for something more – something better. This is not a sound investment strategy as not only is it costly to withdraw investments, it also negates the effects of compounding. Prudent investing requires patience. To quote one of the richest men in the world, Warren Buffet, “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
So how can you prevent or minimize the effects of the hedonic treadmill on your finances? Here are some ways:
- Be aware of the fact that happiness achieved through external means will always be temporary. When something external brings you joy, savor it; but keep in mind that the feeling will not last. Having said this, don’t go too far with this stoic approach. I personally suffer from sometimes being so aware of the temporariness of external happiness, that I miss out on fully enjoying experiences. For example, when I plan a holiday, I often get so excited before the vacation, but as soon as I get there, I start counting down the days to the end of the fun. Don’t be like this! Enjoy the moments, but also be aware of the temporary nature of externally sourced happiness.
- Keep track of your spending. Be vigilant so that you notice whether you are buying something because you genuinely need and want it or just for the temporary high it gives you. Once you notice a pattern of spending that seems to be as a result of hedonic adaptation, slowly wean yourself off of it.
- Make your investments choices wisely, and stick to them. Do copious amounts of research on the investment options you select such that once you have selected them, you have no cause to second guess yourself. In the same breath, keep your portfolio diversified to stave off the fear of loss that may lead you to want to switch investments often. You should review your investments at regular intervals, say once a year, just to confirm that they are still in line with your goals, and are meeting expectations.
- Learn to appreciate the things you have. Adopting an attitude of gratitude for all the things you do have should help you slow down your hunger for more. In the words of Jim Rohn, “Learn how to be happy with what you have while you pursue all that you want.”
- Cultivate inner happiness. I’ve put this here in one small bullet point knowing full well that this is a huge ask. It’s a task that takes people whole lifetimes to achieve, but once done, you become free of the need for the consistent search for more. A good place to start with this is to try taking up a meditation practice.
In conclusion, while we all experience hedonic adaptation, we are not doomed to stay on the treadmill. You can keep it at bay by being aware of it, and adjusting your actions accordingly. By all means, be happy -but remember to plan such that the future you will be happy too!
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