I have a general theory of happiness that can be roughly summarized as follows:
“Human beings find happiness by finding affirmation in their existence.”
Basically we are all wandering through life knowing we have a limited amount of time here hoping there might be somewhere else we all go when we die, but really hoping this isn’t all for nothing. And in the case that this is all for nothing we seek affirmation from other humans that our time here was meaningful and important, even if fleeting.
In short, we’re all just trying to do things that generate an affirmative response from other people. For instance, I write this blog, in part, because I seek the affirmative responses from readers that show me that I am providing value to other people’s lives. You presumably read the website because you might accumulate some knowledge that will help you reinforce and construct a better affirmative response mechanism in your life by making better and more informed financial decisions. You get the point.
Now, what has the highest ROI in terms of an affirmation response? The obvious answer is taking care of other people and making yourself valuable to them. Making a lot of money is a clear path to a high ROI on affirmation because money gives you the ability to do things that multiply your ability to take care of other people.
The problem for the median household in a country like the USA is that the supposed happiness of other people appears to be rising fast while the median income stagnates and fails to supply you with enough money to sufficiently multiply your ability to generate a high affirmation response level. But this is oftentimes truer of very wealthy people. Many wealthy people are seeking a very high affirmation response level to satisfy their own desire to be seen as very valuable to others. But wealthy people often get this backwards. The wealthy are seeking a high affirmation response level, but often do that by satisfying their own egos. But the key point here is that the highest affirmation response ROIs come from displaying a selflessness that proves that we want to make a lot of money because that gives us a better ability to take care of other people.
The failure to implement this is most apparent among people who own a lot of “stuff”. For instance, a fancy car has a low affirmation response ROI because it’s not actually doing anything for anyone other than showing that the driver can spend a lot of money. It satisfies the driver’s ego, but doesn’t provide much of anything for anyone else. A fancy car doesn’t help your family get to point B any better than a less expensive car. But what a fancy car does do is burden you with the need to upkeep an asset that is unusually expensive relative to the same car that can get you to point B with far lower expenses. In the aggregate fancy cars are a net detractor from your ability to generate a higher affirmation response level because they reallocate assets from potential consumption with a higher affirmation response ROI.
The key to happiness, in my view, is having a high affirmation response level in your life. Money can definitely increase your ability to do that, but you have to be careful about how you go about doing that. After all, if you’re trying to generate a high affirmation response level by making money then your goal is to make a lot of money with the express purpose of making OTHER people happy. And in making other people happy you will make yourself happy. When you seek wealth in the interest of becoming more valuable to other people with the sole purpose of making yourself happy you reduce your ability to make other people happy and indirectly make yourself less happy.
Marcus Aurelius supposedly said:
“The only wealth you’ll keep forever is the wealth you give away”
NB – Thanks to Mike Batnick who wrote this wonderful piece sparking my thoughts on this.
NB 2 – I jokingly said on Twitter that the key to happiness is owning dogs. Which is only a partial joke. Dogs are actually a great example of what I am talking about here because dogs have a very high affirmation response ROI. A dog is an animal that will love you for being you as long as you feed it, watch it poop and let it sleep in your house. That’s all. From a consumption perspective the dog is a pure drag, but its affirmation responses to you are consistently high. So yeah, go buy a whole bunch of dogs and be happy.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.