New Research and a Dirty Truth: Read This Before Chasing the Dollar

“You’re nobody here at $10 million,” said Gary Kremen, the 43-year old founder of Match.com, of Silicon Valley.

In the August 5th New York Times article titled, “In Silicon Valley, Millionaires Who Don’t Feel Rich,” he and others in the nation’s wealthiest 1/2 of 1 percent admitted to feeling compelled to work 60-80-hour work weeks just to keep up. Hal Steger, who’s banked more than $2 million and has a net worth of $3.5 million, echoes the sentiments of these “working-class millionaires” when he says, “…a few million doesn’t go as far as it used to. Maybe in the ’70s, a few million bucks meant ‘Lifestyles of the Rich and Famous,’ or Richie Rich living in a big house with a butler. But not anymore…

C’mon now.

I live in a nice part of Silicon Valley, and I do whatever I want for less than $5,000 per month. There are more metrics to consider. More important, I’m “happy” by all conventional measurements. But I’ll be the first to admit… it hasn’t been this way for long. Only in the last three years have I really come to understand the concepts of time as currency and positional economics. Before I explain how you can use both to exit the rat race and dramatically upgrade your Lifestyle Quotient, let’s look at some numbers… According to polls on this blog:

46.88% of Americans say they would need to make more than $200K a year to be happy

63.41% of Americans, assuming prices remained the same, would rather earn $50K in a world of $25K earners than earn $100K in a world of $200K earners

74.64% of Americans would rather get Fridays off vs. a 20% raise

Would you be happier if you were richer? A recent study published in Science by a group including Princeton professors Alan Krueger and Daniel Kahneman, winner of the 2002 Nobel Prize for his work in behavioral economics, indicates that annual income is less important than anyone could have guessed. In fact, it gets less important as the per-capita average continues to grow. Here are a few highlights that foreshadow where we’re headed:

-The ways in which people with high incomes spend their time tend to make them more tense and stressed than their less-affluent counterparts.

-If personal wealth does not necessarily lead to personal happiness, then how well does gross national income reflect a nation’s well-being? Not well at all.

-Economists can add another dimension to their measurements by examining an alternative currency: time, “the coin of life,” as poet Carl Sandburg called it. The study of income and happiness featured in the Science paper suggests that time-use — how one uses one’s time — plays an important role in personal well-being, so national measures of time-use might aid our understanding of well-being on a national scale.

In the study itself, they move into positional economics and answer the question: why does income have such a weak effect on subjective well-being? Here’s the science-speak, skip it if you want, and I’ll translate it below:

…a permanent increase in an individual’s income has a transitory effect on her well-being, [even though] relative standing would increase. …The increase in relative standing can be offset by changes in the reference group: After a promotion, the new peers increasingly serve as a reference point, making the improvement relative to one’s previous peers less influential. (24) Second, Easterlin (1,2) argues that individuals adapt to material goods, and Scitovsky (25) argues that material goods yield little joy for most individuals. Thus, increases in income, which are expected to raise well-being by raising consumption opportunities, may in fact have little lasting effect because the consumption of material goods has little effect on well-being above a certain level of consumption or because of hedonic adaptation. (26) Moreover, people’s aspirations adapt to their possibilities and the income that people say they need to get along rises with income, both in a cross-section and over time. (27)

Basically, even permanent increases in income have little effect on perceived happiness, as we compare ourselves to those above us, no matter how much progress we make. Material goods give us a short-lived happiness sugar high, and we seem committed to making ourselves miserable. That sucks.

What to do? There are a few ways to use the currency of time, and awareness of positional economics, to your advantage to beat the Joneses on new terms:

1. Focus on “relative income” — defined as hourly income — instead of “absolute income,” misleading annual income that doesn’t factor in time. If you assume a 40-hour work week and 2 weeks of vacation per year, estimate per-hour income by cutting off the last three zeros and dividing in half. Thus: $50,000 per year –> $50 divided by 2 = $25 per hour. Relative income can be increased by increasing total income for the same hours, getting the same income for fewer hours, or some combination thereof. More options with more life.

2. Determine your precise Target Monthly Income (TMI) for your ideal lifestyle — the goal of most rat-race income competition — and focus on structuring mini-retirements to redistribute retirement throughout life. There’s an excellent Excel spreadsheet here for calculations.

3. Determine your “where” of happiness. It’s not necessary to permanently move to a country with depressed currency, but even temporary relocation to a domestic (check out Forbes’ publisher Rich Karlgaard’s Life 2.0) or international location with a lower cost-of-living resets your peer group and positional economics barometer. Being perceived as rich often translates into perceiving yourself as rich. Neat trick and a hell of a lot of fun. Two of my top picks for positional resets are Argentina (see “How to Live Like a Rock Star (or Tango Star) in Buenos Aires”) and Thailand.

4. Develop appreciation in tandem with achievement. Subjective happiness depends on appreciating what you get as much as getting what you want. The first step to true appreciation is perception: cultivating present-awareness. I recommend experimenting with lucid dreaming as tested at Stanford University, in particular the “reality check” exercises of Dr. Stephen Laberge.

5. Develop competitive social groups outside of work. Participate in games outside of income mongering. Train or compete in a sport where income is a non-factor. That dude makes $1,000,000 a day as a hedge fund manager? I don’t care–his golf swing sucks and he has love handles. Here, it counts for nothing. Oh, and her? I know she just got promoted to national manager for IBM, but so what? I just scored 5 goals on her. In this world, I rule.

Don’t let rat racing be the only game you play against the Joneses. There is always someone willing to sacrifice it all to earn more, so let them. Just remember: it is entirely possible — in fact, common — to be a success in business and a failure in life. Take the red pill and think different.

###

Odds and Ends:

Winner of the Planet Earth DVDs: Will W. of “death of unions” suggestion, you are the winner! Please e-mail your mailing address to amy-at-fourhourworkweek.com and point her to this blog post so she doesn’t think you’re nuts. Congratulations!

Where did I end up sending the 200 books to change the world? Based on your suggestions, I actually mailed out well over 300 to the following organizations: The Robertson Scholars Program at Duke, The Entrepreneurs’ Organization (EO) Accelerator program, the AERO experimental education center, The Kauffman Foundation, The Public Forum Institute, Vistage International, the YPO, and several women’s entrepreneurial organizations both here and in the US. Thank you for the recommendations!

https://altfarm.mediaplex.com/ad/js/6548-34460-19174-0?mpt=%5BCACHEBUSTER%5D&mpvc=

<a href=”http://altfarm.mediaplex.com/ad/ck/6548-34460-19174-0?mpt=[CACHEBUSTER]”><br /> <img src=”http://altfarm.mediaplex.com/ad/bn/6548-34460-19174-0?mpt=[CACHEBUSTER]” alt=”Try It Free” border=”0″/><br /> </a><br />

The Tim Ferriss Show is one of the most popular podcasts in the world with more than one billion downloads. It has been selected for "Best of Apple Podcasts" three times, it is often the #1 interview podcast across all of Apple Podcasts, and it's been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.