As we see from the oversimplified diagram below that as we increase our spending to a point where we exceed our income we achieve a higher “standard” of living proportional to the area of the red triangle. AKA greater debt, we can buy more “stuff” ergo standard of living increases.
Standard of living – the degree of material comfort available to a person or community.
As we preserve income (spend less than we bring in) we create margin for ourselves. This results in a higher quality of life but can decrease of standard of living as defined above.
Quality of life – the degree of health, comfort and happiness experienced by an individual or community.
Which do we want and which do we chase? The household debt to income ratio in 2018 for Canada was 171%. ($171 dollars in spending for $100 earned and on a steep rise.)
If we think about it, most of us don’t want to be rich (high standard of living)—we want to be happy (high quality of life). Our mindsets in this regard have been heavily influenced by marketers, media and movies - many of us would surmise that a high standard of living (money) leads to happiness. For sure, greater income can certainly support your goal achievement, provide for your future, and make life more enjoyable, but having ‘stuff’ does not guarantee a sense of fulfillment, peace or happiness.
The challenge with money is that once we have enough to satisfy our needs we move to overconsumption. At this point money and stuff does not add to our quality of life, in fact it negatively impacts it.
Material possession and the pursuit of them start to take control of your life. Buying a big-screen TV made you happy, so you buy the high-end speakers and amp to go with it. Your vacations go from family camping trips to luxury cruises, and you and your kids now wear only designer brands. You have so much stuff that you have to build a bigger house. For some reason, this does not make you any happier or healthier or build better relationships. In fact you have to work harder as does your spouse so you can service the debt you have taken on to live the “lifestyle” (standard of living) you have become accustomed to. With the extra hours you are working you spend less time with your family, you have no time to exercise and eat less than healthy meals – no time to cook. You spend much of your time worrying and stressed about your financial situation, afraid of what would happen if you could not maintain your current situation or miss the next boat payment. Quality of life seems to drop with every $ of debt you take on – a vicious cycle also known by psychologists as the hedonic treadmill, we more often call it the rat race.
If money really brought happiness then why is there such a thing as the lottery curse. Greed takes over! Lottery winners are more likely to go bankrupt within three to five years than the average American. What's more, studies have shown that winning the lottery does not necessarily make you happier or healthier. Evidence shows that most people who make it to the top one percent of income earners usually don't stay at the top for very long.
If you don’t know why you’re earning and spending money, then you can’t say when you have enough. Take time to truly understand what having enough means to you. (need v. want) Reduce your risk of racing with the rats, learn to create margin for yourself – reduce your stress.
That’s all good – so what do we do to increase quality of life? Studies show that about:
Things you can do to capitalize on the 40% include:
Keep in mind, happiness is a function of your mindset, shift your way of thinking to focus on your primary purpose or goals in life then take steps from there to increase your quality of life.
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