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Don’t Quit Your Job Just Yet

June 28, 2021 By Nagesh Belludi Leave a Comment

As the pandemic subsides, many people are quitting their jobs after being summoned back to the office. A common motive is a life and career reorientation.

During the pandemic, many people started examining work in the context of meaning in life. Isolated from co-workers and customers, they started to feel like their jobs became just the work itself. Some are burned out and dread retreating to the daily life of distractions, commutes, and long office hours—often at the expense of flexibility and family and personal wellbeing.

Overall, people have used the space and time to reflect upon their lives and explore their life priorities. They’ve aspired to take some time off and figure out what they really want to do. Now, they feel like they can afford to take risks and try something new. The money they’ve saved up from lower everyday expenditures during the pandemic can tide them through the transition time.

If you’re thinking of taking a break from work now, don’t quit your job just yet. Give your employer a chance to address your concerns and preferences. Discuss your ambitions for change. Most managers are willing to make the necessary changes and explore hybrid work alternatives. Even if your current situation doesn’t fully jibe with your life’s goals, you could find a suitable sweet spot.

Idea for Impact: Don’t quit until you’ve established yourself in the future path. If you want to take some time off, have a plan ready. If you have the itch to become an entrepreneur, first get your stakes on a side hustle.

Don’t sacrifice that steady paycheck until you’re well positioned for what you want to do next. It usually takes you a lot longer than you think to find a new job, become self-employed, or prepare for a meaningful sabbatical.

Wondering what to read next?

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  3. How to … Jazz Up Life This Summer
  4. Beyond Money’s Grasp: A Deeper Drive to Success
  5. The Truth About Work-Life Balance

Filed Under: Career Development, Living the Good Life, Personal Finance Tagged With: Balance, Personal Growth, Work-Life

The Truth about Being a Young Entrepreneur

May 24, 2021 By Nagesh Belludi Leave a Comment

I think we should start telling our young people that getting into business is hard.

Let’s stop pumping them up, “Go for it, kid. This is awesome. This is going to be the best thing you’ve ever done. If X can do it, you can do it too. You’re going to smash it.”

Entrepreneurs have a tendency to over-confidence, and the over-confident tend to be socially and culturally primed for entrepreneurship.

Fact is, most first-time entrepreneurs wish that someone had told them how hard it was going to be. Ideas are a dime a dozen. When real-life replaces daydreams, researching, experimenting, taking on customers, building a team, gaining wisdom, and getting cash in the door are all awfully difficult. Most self-employed people put in very long hours and worry about their work, even outside of work. Entrepreneurship simply isn’t for everyone.

America is fascinated by entrepreneurs. But the successful-young-entrepreneur narrative has generated a false affirmation that sets up people for disappointment when they encounter reality.

In recent years, we’ve seen more young people diving into the startup realm. Yes, young entrepreneurs have lower opportunity costs and a better sense of the new generation’s needs. But they don’t have the network, mature frame of mind, industry insight, and adequate financial resources vital to success. Indeed these factors are why older entrepreneurs tend to have a substantially higher success rate.

Let’s stop creating false hopes for young people who don’t realize how difficult business—even a one-person-shop—is. Yes, encouragement is essential, and it can go a long way in helping people succeed. However, let’s lend support to reality and not a myth.

Idea for Impact: If you have the entrepreneurial itch, don’t become quickly sold on tales of grandeur.

Don’t build a startup to become a trend.

Don’t quit your day job yet—especially if your business idea is a spin-off from your present occupation or you intend to turn a hobby or a particular interest into a thriving business.

Don’t give up that steady paycheck until after you’ve built a side hustle.

Don’t listen to the superstars.

Wondering what to read next?

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  3. Beware of Advice from the Superstars
  4. Writing Clearly and Concisely
  5. How to Buy a Small Business // Book Summary of Richard Ruback’s HBR Guide

Filed Under: Career Development, Personal Finance Tagged With: Entrepreneurs, Learning, Personal Finance, Personal Growth, Personality, Persuasion, Role Models, Skills for Success

Here’s the #1 Lesson from Secret Millionaires

January 11, 2021 By Nagesh Belludi Leave a Comment

Ronald Read (1921–2014) of Brattleboro, Vermont, worked as a gas station assistant and a custodian at a J. C. Penney store. He was a thrifty man, and he even held his coat together using safety pins. Upon his death, he left $2 million to his stepchildren, caregivers, and friends, and another $6 million to the local library and a hospital. Read had built up a secret wealth by starting small, studying businesses that he understood, buying their stock, and holding them for the rest of his life.

Grace Groner (1909–2010) of Lake Forest, Illinois, lived a frugal life in a small one-bedroom cottage near Chicago. She got her clothes at hand-me-down sales, didn’t own a car, and worked most of her life as a clerk for Abbott Laboratories. Groner willed a $7 million scholarship endowment at Lake Forest College. The money came from three Abbott shares she had purchased in 1935 and let grow, reinvesting the dividends.

Agnes Plumb (1905–95) of Los Angeles left a $98 million estate to four hospitals. Plumb had amassed that fortune after liking cornflakes when they were first marketed and having her dad buy her Kellogg’s shares during the company’s early days. She allowed her investment to compound, and by the time she died, she had accumulated 1.3 million shares of the Kellogg Company. She was collecting some $437,000 just in dividends every three months.

Jack MacDonald (1915–2013) was a coupon-clipping, bargain-hunting Seattle lawyer. He even wore sweaters with holes in them, and people assumed that he was broke. When he died at age 98, he left a surprising fortune worth $187 million to various causes, including Seattle Children’s Hospital.

Kathleen and Robert Magowan (1925–2011, 1925–2010) of Simsbury, Connecticut, died within a year of each other. These twins lived as hermits throughout their lives and built up a fortune through wise stock market investments. They left $10 million worth to various civic institutions.

Curt Degerman (1948–2008) was a can-collecting street bum living in Skelleftea in northern Sweden. For three decades, “Burk-Curt” (‘Tin-Can Curt,’) as he was called, roamed the streets of his town in tattered clothes. In between collecting cans, Degerman spent much time in the town library studying business media and examining the stock market. He used his tin-can incomes to buy mutual funds and gold. When he died, he left more than $1.4 million to his cousin.

Time in the Market is a Great Compounder.

There’s one thing not apparent in these live-modestly-and-invest-prudently anecdotes. The fortunes of these seemingly ordinary, generous folks became so big due in no small part to their age.

With time, money has the chance for a heck of a lot of compounding. Money grows 10.83 times every 25 years if you consider a 10% historical mean return on equities. To take a prominent example, Warren Buffett, who’s now 90 years old, has made 99.7% of his fortune after 52.

Idea for Impact: Time in the stock market is infinitely more important than timing the market. Start investing early. Watch over your health. Live a long life. Grow your money. A long time horizon will enable your investments to grow through the “magic” of compounding.

Wondering what to read next?

  1. The Extra Salary You Can Negotiate Ain’t Gonna Make You Happy
  2. The Problem with Modern Consumer Culture
  3. Yes, Money Can Buy Happiness
  4. Never Enough
  5. Wealth and Status Are False Gods

Filed Under: Living the Good Life, Personal Finance Tagged With: Getting Rich, Materialism, Money, Personal Finance, Simple Living

The Extra Salary You Can Negotiate Ain’t Gonna Make You Happy

October 13, 2020 By Nagesh Belludi Leave a Comment

This well-cited study shows that people with high incomes aren’t actually that much happier than their less-earning brethren. This is something many people know empirically. Never mind that subjective happiness is a nebulous condition that’s not easy to measure.

The belief that high income is associated with good mood is widespread but mostly illusory … People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.

Of course, there’re situations wherein more money can make a real difference in your well-being: nirvana from living paycheck-to-paycheck, freedom from debt, and adequate savings for retirement. Yes, being poor makes people miserable.

But, beyond a reasonably upper-middle-class living (better health care, lavish-enough vacations and celebrations, affording one partner who could stay at home, the ability to buy conveniences, and so on,) additional income doesn’t create enough incremental happiness to justify all the compromises the extra income entails.

Even people who had big wins in the lottery winded up no happier than those who had bought lottery tickets but didn’t win. Sure, these people will be more content with their new toys for a short time, but that delight typically fades away quickly. After that, they’ll seek out yet another indulgence. Soon, that’ll wear off too, at which point they’re already on the hedonic treadmill.

Idea for Impact: Be mindful of what you’re trading away in the pursuit of a higher salary. Wealth and status are false gods.

Wondering what to read next?

  1. The Problem with Modern Consumer Culture
  2. Yes, Money Can Buy Happiness
  3. Here’s the #1 Lesson from Secret Millionaires
  4. Wealth and Status Are False Gods
  5. The Easier Way to Build Wealth

Filed Under: Living the Good Life, Personal Finance Tagged With: Balance, Career Planning, Getting Rich, Materialism, Money, Personal Finance, Simple Living

Never Enough

February 10, 2020 By Nagesh Belludi Leave a Comment

In Enough: True Measures of Money, Business, and Life (2008,) mutual fund pioneer John C. Bogle puts emphasis on the virtue of contentment:

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have … enough.”

Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails …

We chase the false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal. That message, I think, is what Joseph Heller captured in that powerful single word, enough.

American entrepreneur Seth Godin describes the never-ending ratchet of consumption:

It used to be that a well-tended lawn of 50 by 100 feet was wasteful indeed. Today, it’s in the by-laws of the local housing association. You could impress the neighbors with a new Cadillac, now you not only need a Tesla, but you need a new Tesla. And you could show off by flying first class, but then you needed to charter a plane, then charter a jet, then charter a bigger jet, then buy a fractional share, then own the whole thing, then get a bigger one and on and on.

Conspicuous consumption is not absolute, it’s relative.

It’s sort of a selfish potlatch, in which each person seeks to demonstrate status, at whatever the personal or societal cost, by out-consuming the others.

It’s a lousy game, because if you lose, you lose, and if you win, you also lose.

The only way to do well is to refuse to play.

In times of yore, the Roman stoic philosopher Seneca the Younger counseled about the excesses of desire in his Ad Lucilium epistulae morales (Moral Letters to Lucilius; tr. Richard M. Gummere; 1917):

It is not the man who has too little, but the man who craves more, that is poor. What does it matter how much a man has laid up in his safe, or in his warehouse, how large are his flocks and how fat his dividends, if he covets his neighbour’s property, and reckons, not his past gains, but his hopes of gains to come? Do you ask what is the proper limit to wealth? It is, first, to have what is necessary, and, second, to have what is enough.

Our consumerist society encourages us not to be grateful for what we have.

Consumerism encompasses dissatisfaction—if people are happy with what they’ve got, then they are less concerned about getting more.

Idea for Impact: Why is more and more always better if it can never be enough?

Wondering what to read next?

  1. Here’s the #1 Lesson from Secret Millionaires
  2. What the Stoics Taught: Shunning the Materialistic Frenzy of Greed
  3. The Problem with Modern Consumer Culture
  4. How Ads Turn Us into Dreamers
  5. Why I’m Frugal

Filed Under: Living the Good Life, Personal Finance Tagged With: Materialism, Money, Personal Finance, Philosophy, Simple Living

Yes, Money Can Buy Happiness

October 7, 2019 By Nagesh Belludi Leave a Comment

This HBR article considers why the pursuit of money isn’t bringing you joy.

Even though, as a society, we really have more time to spend than in previous societies as a result of convenience and mechanization, we tend to use free time to work yet more and expand our bank accounts, rather than invest that time in things that can provide us with more happiness—meaningful relationships, for example.

The article (and the related podcast) explains how to value your time over money, in particular by hiring help. Here is a précis:

You might not be able to change how many hours you work in a week, but you might be able to change how much of those non-work hours you’re spending on chores.

If you are having a really busy weekend and you have four or five hours of chores to do at home, that means you’re going to have four or five less hours to spend in any other way that could promote meaning and happiness.

When considering how we can use money to increase our happiness, most of us think of investing it in positive experiences like Hawaiian vacations. But it’s also important to think about how to eliminate negative experiences from our day. Take small actions—don’t do anything too drastic, but just sit down and think about whether there’s anything you can outsource that you really don’t like, that stresses you out a lot, that you can afford.

Idea for Impact: Use your hard-earned money to buy time, reduce stress, and increase happiness

If you feel increasingly strapped for time, consider (think opportunity costs) earmarking a fraction of your discretionary income to hire a personal assistant and buy get yourself some more of that most valuable of life’s supplies, free time.

Start by asking your friends for referrals for a reliable assistant. Outsource your housework, shopping, errands, and other tasks that you dislike. Use the salvaged time to seek activities that bring you joy—recreation, relationships, spiritual and intellectual nurturance, or even productive work.

However, farm out personal chores in moderation. There’s some evidence to suggest that people who outsource too much have the lowest levels of happiness, perhaps as a consequence of indolence.

Wondering what to read next?

  1. The Simple Life, The Good Life // Book Summary of Greg McKeown’s ‘Essentialism’
  2. The Extra Salary You Can Negotiate Ain’t Gonna Make You Happy
  3. The Problem with Modern Consumer Culture
  4. Wealth and Status Are False Gods
  5. The Easier Way to Build Wealth

Filed Under: Living the Good Life, Personal Finance, Sharpening Your Skills Tagged With: Balance, Delegation, Getting Rich, Getting Things Done, Happiness, Materialism, Personal Finance, Productivity, Simple Living, Time Management, Work-Life

The Simple Life, The Good Life // Book Summary of Greg McKeown’s ‘Essentialism’

August 21, 2019 By Nagesh Belludi Leave a Comment

One of the great struggles of modern life is the intense complexity, chaos, and exhaustion of activity and reactivity. We have a tendency to take on too much, become accountable to too many people, and say ‘yes’ to too many demands on our time and our energy.

As I mentioned in my world’s shortest course on time management, the merits of ignoring the trivial many and focusing on the vital few is often overlooked. The need for essentialism—less responsibility, less fame, less money, fewer possessions, less mess—is something that’s easy to identify with, but requires abundant self-discipline to put into consistent action.

Business consultant Greg McKeown’s Essentialism: The Disciplined Pursuit of Less (2014) is an excellent reminder that a rich, meaningful life entails the elimination of the non-essential:

Essentialism is more than a time-management strategy or a productivity technique. It is a systematic discipline for discerning what is absolutely essential, then eliminating everything that is not, so we can make the highest possible contribution toward the things that really matter.

'Essentialism - The Disciplined Pursuit of Less' by Greg McKeown (ISBN 0753555166) McKeown’s wide-ranging discussion covers insightful get-a-hold-of-your-life principles—frugality, sufficiency, moderation, restraint, minimalism, and mindfulness—reframed in the essential-avoidable dichotomy. Here are prominent insights from Essentialism:

  • Get to grips with selectivity—whenever you can, judiciously select which priorities, tasks, meetings, customers, ideas or steps to undertake and which to let go. “The basic value proposition of Essentialism [is,] only once you give yourself permission to stop trying to do it all, to stop saying yes to everyone, can you make your highest contribution towards the things that really matter.”
  • Most top performers have one thing in common: they accept fewer tasks and then fixate on getting them right. “Essentialism is not about how to get more things done; it’s about how to get the right things done. It doesn’t mean just doing less for the sake of less either. It is about making the wisest possible investment of your time and energy in order to operate at our highest point of contribution by doing only what is essential.”
  • If you don’t arrange your life, someone else will. “When we forget our ability to choose, we learn to be helpless. Drip by drip we allow our power to be taken away until we end up becoming a function of other people’s choices-or even a function of our own past choices. In turn, we surrender our power to choose. That is the path of the Nonessentialist. … The Essentialist doesn’t just recognize the power of choice, he celebrates it. The Essentialist knows that when we surrender our right to choose, we give others not just the power but also the explicit permission to choose for us.”
  • Pop out at least once a year to reflect and ask questions about what you’re doing and why. “The faster and busier things get, the more we need to build thinking time into our schedule. And the noisier things get, the more we need to build quiet reflection spaces in which we can truly focus.”
  • Pursue a well-lived, joyful, meaningful life. “The life of an Essentialist is a life lived without regret. If you have correctly identified what really matters, if you invest your time and energy in it, then it is difficult to regret the choices you make. You become proud of the life you have chosen to live.”

Recommendation: Speedread Greg McKeown’s Essentialism: The Disciplined Pursuit of Less. It will remind you of the wisdom to think through—and act upon—what really matters. Essentialism is chockfull of useful instructions on how to say ‘no’ gracefully, exercise your freedom to set boundaries, discover the power of small wins, and harness the power of routines to evade the pull of nonessential distractions that can subsume you easily.

Wondering what to read next?

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  2. Yes, Money Can Buy Happiness
  3. Marie Kondo is No Cure for Our Wasteful and Over-consuming Culture
  4. Everything in Life Has an Opportunity Cost
  5. Mottainai: The Japanese Idea That’s Bringing More Balance to Busy Lives Everywhere

Filed Under: Living the Good Life, Personal Finance, Sharpening Your Skills Tagged With: Balance, Decision-Making, Discipline, Getting Things Done, Goals, Happiness, Materialism, Mindfulness, Perfectionism, Philosophy, Productivity, Simple Living, Time Management, Wisdom

Why I’m Frugal

October 1, 2018 By Nagesh Belludi Leave a Comment

Frugality Over the Ages: Frugality as a Virtue

Frugality Over the Ages

From Socrates to Thoreau, from Franklin to Gandhi, philosophers, moralists, and spiritual leaders have identified frugality as a virtue and associated simple living with wisdom, integrity, and happiness. The Cynics were the first to reject wealth, power, sex, fame, and other desires in favor of a simple life free of all possessions. Diogenes the Cynic (portrayed in image) famously lived in a wine barrel and had no worldly goods.

For the Puritans, the love of material consumption was an evil; their spiritual doctrine stressed, in the words of the American historian Edmund Morgan,

A man was but the steward of the possessions he accumulated. If he indulged himself in luxurious living, he would have that much less with which to support church and society. If he needlessly consumed his substance, either from carelessness or from sensuality, he failed to honor the God who furnished him with it.

Founding Father Benjamin Franklin, a doyen of the self-improvement movement, listed frugality as one of the 13 virtues he followed as a young man. Between 1732 and 1757, Franklin published such famous aphorisms in his Poor Richard’s Almanack as “be industrious and frugal, and you will be rich,” “beware of little expenses; a small leak will sink a great ship,” and “he that goes a-borrowing goes a-sorrowing.”

For the American philosophers Ralph Waldo Emerson and Henry David Thoreau, frugality or “transcendental simplicity” was a means to a higher end. In Man the Reformer (1841,) Emerson wrote, “Economy is a high, humane office, a sacrament, when its aim is grand; when it is the prudence of simple tastes, when it is practiced for freedom, or love, or devotion.” For Thoreau, “high thinking was preferable to high living;” he wrote in Walden (1854,) “Most of the luxuries, and many of the so called comforts of life, are not only not indispensable, but positive hindrances to the elevation of mankind. With respect to luxuries and comforts, the wisest have ever lived a more simple and meager life than the poor”.

Thoreau inspired the Russian novelist Leo Tolstoy. After suffering a mental breakdown in the late 1870s, Tolstoy, who was born into Russian nobility, rejected his family’s estate and serfdom. He renounced his decadent, racy lifestyle and engaged in a revolutionary brand of Christianity based on spiritual and material austerity.

Tolstoy’s philosophy showed the way for the creation of utopian communities of simple, self-sufficient living—the most famous example being the “Tolstoy Farm” ashram that Mahatma Gandhi established in South Africa. Gandhi was the quintessence of simplicity and sported austere homespun clothing. He famously said, “you may have occasion to possess or use material things, but the secret of life lies in never missing them,” and “our civilization, our culture, our [nation] depend not upon multiplying our wants—self-indulgence, but upon restricting our wants—self-denial.”

Frugality is a Moral Virtue

The distinguished career coach Marty Nemko once wrote, “I even take care to tear-off single sheets of toilet paper. Because I’m cheap? No. Because it’ll help the environment? No. I just think wasting is wrong.” That, in a nutshell, is why I’m frugal.

For me, frugality suggests an appropriate limit on individual and collective desires; it denies the materialistic expectations that the modern society imposes upon us.

Frugality is not some form of world-denying asceticism or austerity. It is a part of principled stewardship of not only the resources I’ve been blessed with but also of myself.

Frugality is about forgoing a subset of desires—as part of a quest for an abundant life. In other words, frugality restricts my indulgence of materialistic appetite, with the intention that I leave space for the cultivation of diverse forms of pleasure.

When I started to work while still in college, frugality was an element of my quest for financial independence. It became the lynchpin of a deliberate set of lifestyle choices and values. But my focus on achieving financial freedom never let me pining for the pleasures I might have had.

Six years ago, I gave up a corporate job and significant earnings in favor of a simpler life with plenty of discretionary time and money for world travel, leisure, learning, culture, and meaning.

Idea for Impact: Enjoying a rich life is more important than zealously stewarding one’s savings and investments.

Living frugally, with the particular intention of achieving financial freedom, requires a good measure of renunciation. This renunciation is easiest when one regards it not as deprivation, but as a deliberate choice in a trade-off for an enriched life.

Wondering what to read next?

  1. I’ll Be Happy When …
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  3. What the Stoics Taught: Shunning the Materialistic Frenzy of Greed
  4. Never Enough
  5. The Problem with Modern Consumer Culture

Filed Under: Living the Good Life, Personal Finance Tagged With: Attitudes, Balance, Giving, Materialism, Money, Philosophy, Simple Living

Investing is Saying “No” 99% of the Time

September 22, 2018 By Nagesh Belludi Leave a Comment

As an investor in high-quality public companies and startup ventures, I spend very little time each on a lot of investment opportunities and a lot of time each on a very few opportunities. Over seven-tenths of the returns I’ve ever produced have been with just four companies.

I try to learn of as many ideas and opportunities as possible, especially in companies led by first-class entrepreneurs and businesspeople. From time to time, I spend hours at the community library flicking through one-page summaries in the Value Line Investment Survey, arguably the best investment product available on the market.

Exposing myself to many opportunities makes me a better investor. Even if my stock-filtering method quickly guides me to say “no” commonly, my goal is to find a kernel of usable information to add to my “mental attic.” I can’t predict when something might come in handy to help make sound investment choices in the future. As the great investor Charlie Munger said at the 1996 Wesco Financial annual meeting,

Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly at scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime.

A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then, all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.

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Filed Under: Personal Finance, Sharpening Your Skills Tagged With: Decision-Making, Problem Solving, Thought Process

Conspicuous Consumption and The Era of Excess // Book Summary of ‘Luxury Fever’

July 3, 2018 By Nagesh Belludi Leave a Comment

The Superrich Influence the Standards for Desirability in Consumer Goods: The Less Rich Emulate Them

'Luxury Fever' by Robert Frank (ISBN 0691146934) The core argument of Cornell economist Robert Frank’s Luxury Fever: Why Money Fails to Satisfy in an Era of Excess (1999) is that the extravagant consumption of the most affluent in our society has a ripple effect on everyone’s spending.

According to Frank, the desire for many to indulge in luxury “possessions” is motivated less by the gratification they may bring than by what others are buying or want to buy. We try to achieve happiness by improving our relative social status. For example, if your neighbor didn’t buy his new Mercedes Benz, you wouldn’t probably feel the need for the latest-and-greatest Jaguar, and you’d both work less, and spend more time with your loved ones and invest in meaningful experiences that bring you joy.

It is not just the rich who have gone on a spending spree. Middle- and lower-income earners have been spending more as well. The prime mover in this change may have been the increased spending of the superrich but their higher spending level has set a new standard for the near-rich to emulate, and so on down the income ladder. But although middle- and lower-income families are spending much more than in the recent past, the incomes of these families have not been growing.

While the rich have the money to indulge their whims, the rest of us tend to finance our wasteful spending through reduced personal savings or through increasing debt. To substantiate this trend, Frank describes burgeoning household debt and a remarkable increase in personal bankruptcies.

Luxury Fever summarizes persuasive biological and psychological evidence that suggests how human nature is such that we measure our success in relation to what others have. In other words, we tend to spend money on luxuries to appear to be more successful than others are. Frank concludes, “Evidence from the large scientific literature on the determinants of subjective well-being consistently suggests that we have strong concerns about relative position.”

Relative Consumption, Not Absolute Consumption, Affects Consumers’ Happiness

Much of the increased luxury spending is wasteful, given that consumers could get the same benefits by consuming non-luxuries with lower price tags. Research has proven that money doesn’t buy happiness,

Behavioral scientists find that once a threshold level of affluence is reached, the average level of human well-being in a country is almost completely independent of its stock of material consumption goods.

Frank’s thesis on runaway consumption and extravagant luxuries seems as valid now as it was in 1999, when his book was published at the height of the dot-com boom. The era of excess has now proliferated to India, China, Russia, and other developing countries that are facing not only widening economic inequalities between their rich and poor, but also mushrooming appetites for luxury goods among their affluent middle classes.

Can a Progressive Consumption Tax Challenge the “Luxury Arms Race”?

Based on the solid evidence he provides, Frank’s thesis on runaway consumption of extravagant luxuries and this era of excess is hard to dispute. Consumers have indeed been saving less, working longer hours, and spending more per capita on luxury goods. However, his claim that the spending patterns of the super wealthy has incited luxury fever among the non-wealthy lacks substantial evidence.

The Luxury Fever‘s solution to this problem is to come down hard on lavish consumption and to encourage more savings. To this end, Frank presents policy proposals that are reasonable in the abstract, but will face serious political and cultural hurdles. Frank promotes a tax exemption for savings and a steeply progressive consumption-based tax as a substitute for income and sales taxes. If Americans expend less on luxury goods, he argues, we’d collectively work less, and make more money available “to restore our long neglected public infrastructure and repair our tattered social safety net.” However, economists have argued that a progressive consumption tax would burden the non-wealthy more than the wealthy because the latter tend to save much larger percentages of their incomes.

The Good and Bad Sides of Consumerism: How to Clamp Down on Conspicuous Consumption and Encourage More Saving

Despite its flaws, Robert Frank’s Luxury Fever is a valuable read in behavioral psychology and behavioral economics. Luxury Fever offers an appealing compendium of interesting case studies, anecdotal evidence, and statistics on society’s current “wants-not-needs” and “more is better” materialistic way of life, and its harmful impact on our lives, relationships, and societies.

Complement with The Millionaire Next Door (1996, read my summary,) a bestselling exposition on the surprising secrets of America’s wealthy.

Wondering what to read next?

  1. How Ads Turn Us into Dreamers
  2. Never Enough
  3. Here’s the #1 Lesson from Secret Millionaires
  4. What the Stoics Taught: Shunning the Materialistic Frenzy of Greed
  5. The Problem with Modern Consumer Culture

Filed Under: Living the Good Life, Personal Finance Tagged With: Marketing, Materialism, Money, Simple Living

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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RECOMMENDED BOOK:
When Things Fall Apart

When Things Fall Apart: Pema Chödrön

Buddhist nun Pema Chodron's treasury of wisdom for overcoming life's pain and difficulties, and ways for creating effective social action.

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Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!