Financial Goalposts

I saw a tweet the other day that caused me to pause and think:

Morgan Housel @morganhousel

Will Smith writes in his biography that: - Becoming famous is amazing. - Being famous is a mixed bag. - Losing any amount of fame is miserable. Same with money. I think for a lot of people the process of becoming wealthier feels better than having wealth.

The process of becoming wealthier feels better than having wealth.

Why is that?

Well, I think “that’s how dopamine works” is a fairly good answer. We get a hit every time we anticipate having more than we do now. The process of making more and more money provides validation, self-worth, and security.

This is why many prospective retirees shudder at the thought of turning off the income tap. They’ve spent decades watching their bank and investment account balances grow and the idea of spending down some of those assets is depressing. Voluntarily opting out of the dopamine-inducing money accumulation game can be difficult.

If it’s just wealth we are after, most of us should feel great because we are far wealthier than we were a generation or two ago. Median hourly wages adjusted for inflation are nearly 50% higher today than in 1955. The homeownership rate is 12% higher than it was in 1950 and homes now are more than a third bigger. Around 47% of men age 65+ were still working in 1950 compared to just 23% today.

U.S. household net worth is $80 trillion higher today than it was only ten years ago. That’s a massive number. But people care far more about the numbers going up than the size of the numbers. What feels great is being on the upward path. That’s when the dopamine takes over.

The classic quote, “It’s the journey, not the destination, that matters,” is solid advice and good mental framing for a lot of life’s experiences. However, it can be a detrimental mindset to have with money.

An obsession with the process of making money is a version of never having enough and never being satiated. It’s a game that offers the illusion of a finish line right around the corner, but in reality, can never be won.

Walt Disney’s granddaughter, Abigail Disney, discussed this issue in an interview a few years ago:

“They did a study at the Chronicle of Philanthropy years ago where they asked people who inherited money, ‘What amount of money would you need to feel totally secure?’ And every single one of them, no matter what they had, named a number that was roughly twice what they inherited. So that’s what you need to know about money, right? If that is your primary measure of success or value in life, then good luck with that, because it will never feel good.”

One of the most important financial skills is getting the proverbial goalpost to stop moving. It’s also one of the hardest. In a game that can’t be won, you have to define what winning means for you.

On one hand, it’s a good thing to be driven to improve your place in life. This drive to get better is what fuels innovation, growth, and progress. But those same attributes can drive you mad if you never feel satisfied with your accomplishments.

“Making as much money as possible” is not a financial plan and an attitude that usually leads to regret.

I think it’s important to note that managing expectations around money doesn’t mean you’re unambitious. It’s just realizing that an insatiable appetite for more will always push you to the point of disappointment. Having some ability to deny an extra dollar from work, or a potential investment opportunity, a bigger house, or a nicer car, is a crucial financial skill for a better life.

I like this analogy from Morgan Housel:

“Money buys happiness in the same way drugs bring pleasure: Incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is ever enough.”

Thanks for reading!