Everyone wants to live “the good life” – right? I know I do. Of course what constitutes the “good life” for one person can be very different from another. And even for the same person that definition can change over time. Let’s talk about some ways to live that good life, without misery but also without going broke.
The Diderot Effect
Have you heard of Denis Diderot? He was a French philosopher who lived in the 1700s. Diderot spent most of his life poor but in his later ages he came into quite a lot of money. Once he had this new found financial freedom, he decided to buy something nice for himself. Who can blame him, right?
With this new fancy item (a “robe” or “dressing gown”) in his possession he started to feel that perhaps it was out of place. It was nicer than everything else he owned. So he decided he should buy a couple more items so he wouldn’t look and feel out of place. Once he had those other new items he realized the older possessions really looked out of place. Guess what he did? Yeah, he kept buying and upgrading until he found himself in debt.
Mr. Diderot wrote an essay titled Regrets on Parting with My Old Dressing Gown, in which he wrote:
“I was absolute master of my old dressing gown, but I have become a slave to my new one … Beware of the contamination of sudden wealth. The poor man may take his ease without thinking of appearances, but the rich man is always under a strain.” – Diderot
Perhaps you have heard the stories of the large number of lottery winners that wind up broke and in debt? Same situation. It’s the Diderot Effect. In striving to live what these people think is the good life, they actually wind up bringing a lot of misery upon themselves. Are you thinking “But that would never happen to me”? I’m sure they thought the same thing, so be careful.
A personal story
I can’t help but think of how silly it sounds that people with high wealth could blow it so easily. But all money does is amplify who we are and how we act. If we struggle with this in any fashion right now, chances are that it would only get worse if we had a lot of money thrust upon us.
A few years ago my family and I lived in our dream house. It was around the bottom of the housing crash and we found a beautiful waterfront house that was selling for way less than it cost to build. Even discounted it was a lot of money, but we could afford it fairly comfortably (as long as our income didn’t drop).
It was a beautiful three story house with five bedrooms, four and a half baths, about 4,000 square feet with an elevator and whole-house generator. Now look out the back window to the dock on the deep water waterfront property. It was awesome, so we bought it.
Within a short period of time we realized we were not only short on furniture because this house was bigger than our last, but also the furniture we had didn’t “look right” in the new place. So we bought some new couches. Then we needed a coffee table to compliment the couches. Of course we needed some area rugs. Spare bedrooms can’t sit empty, so we furnished those.
That dock on the beautiful water had a great boat lift. I absolutely love fishing. I spent a lot of time when I was young fishing with my grandfather and this reminded me of those great times. So we bought a boat. Then some new fishing rods and reels (which had to be high quality, so were expensive). Cast net, crab traps, lures, GPS, etc..
Things really started to add up. Thankfully that story didn’t end horribly for us as it does for many. After a few years we looked around and realized we had a lot of stuff that was fun but really wasn’t making us any happier. We wound up selling almost everything we owned, including the house, boat, and some furniture then downsizing into a house that was only about half the size. From the sale of the big waterfront place we were able to pay cash for the smaller place. We’re just as happy now – honestly even more so than before. I’m glad we got out when we did.
The good life for me
Everyone has different priorities and I encourage you to take time to figure out – and even write down – those priorities for yourself. For our family some top priorities were, and still are:
- Spending time together. A big part of achieving this goal is not working 60 hours per week to pay for a bunch of things that aren’t as important as family time. We wanted to be available for dinners together. If our daughter had an athletic event, we wanted to be sure we could attend. Spending quality time together is a big focus for us.
- Travel and experiences. My wife, daughter, and I have been on a lot of great trips together. We’re always smart and look for ways to save money, but sometimes we have also spent quite a lot. The spending is always within our means and defined in advance as part of our budget though. Since “vacations” are a priority, it is one of the largest items in our budget. We will cut back on new cars, jewelry, etc. to make sure we can experience travel together.
- Doing what we want, not what we have to do. No one in my family wants to work in a job that they don’t like just to make ends meet. That’s a big part of why we worked to become 100% debt free and acted on our downsizing agenda. With less outflow, we need less inflow. That gives is a LOT of flexibility in what we do vocationally to earn money.
Think about what is important to you and your family and make sure your actions are inline with those priorities. If you are doing things that aren’t working toward those goals – and are maybe even pushing you farther away – consider some adjustments.
Keeping the Diderot Effect in check
There are a few purposeful things you can do to help keep the Diderot Effect in check while still living the good life. Here are a couple of big ones that can really be a big help. The goal is to live the good life without feeling financial misery but also without going broke.
1. (Don’t) watch out for the Jones’
Hopefully we can agree at this point that “stuff” doesn’t make us happy. When most of us really take time to think about what is important to them, its rarely the acquisition of fancy possessions.
I didn’t realize it until after our move from the waterfront house, but that community was having a toxic effect on us. I remember when the new Corvettes came out and suddenly a half dozen people on our street were driving in these brand-new $100,000+ cars. My 17′ center-console fishing boat was by far the smallest boat on the block. Many of our neighbors had boats that cost 10x as much as ours. The women were constantly talking about cosmetic enhancements – and most took action after the discussions. All around us was an unspoken competition. Who has the nicest boat, the fastest car, the best body, or throws the best parties? It’s easy to get wrapped up in that without realizing it is detracting from the good life rather than enhancing it.
Maybe you’ve heard that you are likely to become more and more like your ten closest friends? I think it’s true. So along those lines, seek out people with similar principles and priorities as yourself. Is family important to you? Then seek our people who model attractive family interactions. If you want to retire early by saving more than you spend, seek our frugal people who are happy with their current situation versus constantly striving for more.
2. Beware the media
I like marketing – I actually have a business degree with a concentration in marketing. I’ve never worked in the field, but I respect it’s original intent. In modern times though a lot of marketing has gotten out of hand. When was the last time you saw a car commercial that actually mentioned the cost of the car? Smaller numbers are more attractive so they tend to only mention monthly payments rather that what the car costs.
Marketing isn’t bad. Good marketing can convey a product’s benefits to people who would genuinely benefit from them – a win-win situation. But, sometimes we’re fully content with something in life until we see a marketing message. Then all of a sudden we feel like we’re behind the times, or missing out on something. People in commercials are always happy, so that “stuff” should make us happy, right? I honestly believe that if we weren’t exposed to new product advertising so aggressively through TV and the Internet, we’d likely be quite content with what we have.
When you are in need of something, seek out information to make an informed decision. But be wary of things that are marketed to you when you aren’t in need. It is easy to start believing that you do need something just because you saw it – or saw it a thousand times in different ways.
3. Prioritize your budgeting
Far too many people avoid budgeting because they feel it is too restrictive and limits fun. All budgeting is though is an exercise in prioritization. A financial planner friend of mine actually calls it “ruthless prioritization”. The reality is that you have limited income – that’s the restriction. Budgeting is expressing your priorities by allocating amounts to the things that are important to you. Whatever it is that you feel can help you live the good life, those are the priorities.
Maybe you are spending $800/month at restaurants (which is easier to do than some people realize). We like dining out sometimes too! It’s nice to not have to cook and clean, and it is great personal time together. But if travel is a priority like it is for us, that item might limit options. Just cutting that one area back to $400/month adds almost $5,000 each year to the travel fund. You can do some nice vacations for $5k!
That’s just one example, and it may be totally off-base for you. Again, it’s about your personal priorities. It’s about how YOU define the good life. You tell your money where to go each month, so put it in writing and make sure it aligns with your goals.
Are you on FIRE?
There is a movement you may have heard of: FIRE. It stands for Financial Independence and Retire Early. People like Mr Money Mustache, who can afford whatever he wants, have shifted their priorities toward their good life goals versus material things. Some of the people in this movement are “too frugal” for me. But if it works with their priorities, then it is perfect for them.
Prioritization and adjustments can be made whether your income is $20k/year or $200k/year. People in both ranges face similar Diderot challenges. I really encourage you to spend some time on this topic. Call a family meeting and talk about it. Clarify priorities and write them down. Once defined, make adjustments as necessary. You CAN live the good life, without financial misery and without going broke.
What do you think about the Diderot Effect? Have you felt it’s pull? Have you seen it in action? Let us know in the comments below.