Why become rich if you’ll end up feeling just as poor as before?
Many of you probably heard about the statistic that says happiness does not improve above a yearly income limit. That is usually mentioned around $75k in the US, but of course can vary based on location. The recent inflation probably had an effect as well, so this number can be different now. Anyway, if we believe the stats, a good upper-middle class income is usually enough to maximise happiness. That’s the level when you don’t have daily struggles with money, you have basic financial security.
If you get seriously rich though, you might get problems you never had before: making sure that you keep your wealth, or just simply entertain yourself with something, as you probably don't really need to work anymore. All these could negatively affect your general well-being.
Let's say we accept this happiness peak as fact.
You probably also heard about the saying that people will end up friends / spouses with people similar to them. That is true for educational background, wealth level and even looks. Rich mate with the rich, beautiful with the beautiful, poor with the poor, ugly with ugly and so on. If you are poorer than your friends you cannot do a lot of things with them because they want to spend more money than you can. The same is true when you are the rich one: you could afford experiences which cost more money than what your friends are willing to pay. Same applies to education or intelligence. Wouldn't you be a little tired by the company of somebody who had a lot less education than yourself?
Richness is relative. There's no absolute scale to define being rich. Extremes can be defined though. We can say that whoever is starving is poor and that Elon Musk is rich, financially speaking. But what happens in between?
If you want to decide whether you are rich or not, you could ask yourself a few questions: can I afford buying the latest iPhone, the biggest Audi, a 6 bedroom house etc.? Why are these the metrics in the first place? Because consumer society suggests them or your friends / peers have these products already. Also, these are visible symbols of your wealth, whereas your bank account isn’t. So, the ability to buy these goods gives you a relative richness compared to your friends or the social expectations. If your car/phone/house is more expensive than most of your friends', we can say you are rich relative to them.
I can safely state that richness is relative and we feel it relative to our peers and surroundings.
So, what happens when somebody gets rich? Let’s imagine Bob, who bought 100 Bitcoins back in 2013 and managed to keep it safe ever since. So now Bob is comfortably rich, can afford to retire early, buy luxury cars, go on a trip around the world and so on. His friends (who he met in high school and college) are still having standard 9 to 5 jobs, so they cannot do these things.
Bob also has a new group of fellow crypto investors he met and who have similar portfolios. He starts to spend more and more time with them, simply because they are into similar activities than what he can afford himself. This also means Bob does not spend time with his old friends, simply because he spends that with the new ones. Bob has new friends now.
We can safely say that most people will eventually hang out with others who spend in a similar way and similar amounts. If spending habits change for somebody, because they got a huge increase in income, that eventually will change that person’s social circle as well.
But richness is measured relative to your surroundings, right? Therefore our imaginary hero, Bob, is now back to the baseline, he is “poor” again because he is not richer than his newly made crypto friends.
You could argue that when you are wealthier, you get to have better quality products, thus it improves your well being. Not so fast, says the luxury paradox. That is, when you acquire a better product or start using a better service, you enjoy it for a short time, then simply get used to it. It will become the new norm for you. After that you can feel just as poor as before, since all you have is now part of the new baseline, no matter how expensive or great those things are.
With Bob’s example again: after he got more wealthy, he bought a better car, started to fly to remote destinations often, stayed in 5 star hotels and resorts etc. He quickly looked down on his old car, 3 star hotels because he got used to the better alternatives.
Bob, after becoming richer, replaced his friends with rich friends. He adjusted his lifestyle to his new opportunities, which quickly became a new norm for him. So, after a short period of time, he became average-rich relative to his friends and can barely afford the goods he is craving for. The same state where he started from.
I believe it is a valid question to ask: why become rich if you’ll end up feeling just as poor as before?
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