Hedonic Adaptation to Savings?

Only-Saved-3k

Another one from Mr PoP!

If you take a look at some of our recent income statement posts, you’ll see that months like June are what we consider to be “mediocre” months for our savings goals. This means that we managed to put about $3K into after tax savings; either by paying down debt or increasing our after tax savings.  July and August were a little better, but still in the same ballpark.

Over the course of a year this would mean we increase our net worth by about $36K per year in addition to the whatever the markets do with our investment portfolio and real estate values and what we (and our employers) put into our 401Ks.

The dirty secret to this Financial Independence game is that it gets a little boring sometimes, and you can still fall victim to Hedonic Adaptation.  And since we realize this is the definition of a “first world problem”, don’t have any pity on us.

But we’ll start with the boredom…

No, really, becoming wealthy by spending less than you earn is so easy it gets boring… 

But its not like Mrs. PoP or I feel the need to start partying on the weekends. Ohhh no, when we get bored we start looking into exotic asset allocations, buying local small businesses and learning about buying stocks in emerging markets like Brazil and China. The truth is that all of these things offer some upside in exchange for risk that we just don’t need to take; we’re accomplishing our goals just fine in our own time.

…but you still have to watch out for Hedonic Adaptation.

Hedonic Adaptation is the very human ability to become completely accustomed to the ridiculous luxuries in our lives, and then want to upgrade into something “better.” This can lead to a lifestyle of consumption and possibly consumer debt as somebody can upgrade again and again but never achieve happiness with their various purchases. A good example of this is watches; I splurged on a Seiko watch a few years back, but now I want a Rolex even though nothing is wrong with the Seiko.

So what does this have to do with saving large amounts of money every month? The problem is that after a while $3K of savings doesn’t seem large. In fact, it seems normal, boring, and really something that needs an upgrade. So the cycle begins; we are unhappy with something that is really quite amazing, feel empty inside and struggle to figure out how we can raise that figure. Talk about First World Problems!

So what are we going to do about it?

Damned if I know. Every now and then its nice to sit back and see how far we have come in the past two years, and it’s nice to know we are ahead of many of our peer group as well.  But that doesn’t mean we need to be taking a lot of unnecessary risks.

 

Note From Mrs PoP – I have mixed feelings about this.  We set our $3K per month goal when Mr PoP was just starting out in his current sales job and we based that on what was quoted as his targeted pay (since his pay is largely commission based).  Though he’s outperformed his targets, raising that goal feels (to me) like putting a lot of pressure on him, and that’s just not the kind of wife I want to be.  So $3K might be boring sometimes, but I’m trying my hardest not to get desensitized when big bonus checks come in every once in a while.

 

Anybody else out there have this problem with getting bored with their savings program?

50 comments to Hedonic Adaptation to Savings?

  • Interesting post. We set our goals on our current position and therefore, naturally, we always strive for more. And this is a good thing. This is progress.

    Imagine that 3 years ago, we were $50k in debt and we tried to save $200 each month. If we were now not in debt, keeping that $200 target each month would take us nowhere.

    Personally, I change my financial goals (my budgeted “saving amount” every few months as circumstances change – always ensuring that it goes up!! :) ).
    moneystepper.com recently posted..Tips to stop spending and save moreMy Profile

  • Sometimes we have to step back and realize that at a certain point buying more won’t make us any happier :) Hedonic Adaptation can be dangerous because it could lead to rampant lifestyle inflation if one is not careful 😕 Personally I haven’t ran into this dilemma yet. My savings goal a couple years ago was $1000 a month. Today it is $2000 a month. By next year I will aim for $2500. I’m fortunate that my income has been steadily increasing over time, so I get to increase my savings goal before it gets too boring at the same level. I still have a long way to go before catching up to your guy’s level of savings though 😉
    Liquid recently posted..Living The Dream at WorkMy Profile

  • “Doing the right thing will sometimes stop being exciting, but it never stops being the right thing.” I’m not sure if that is a famous quote – it sure sounds like it came from someone smarter than me – but if not I lay claim to it.

    All tomfoolery aside, this is just something all us early-retiree wannabees are going to have to ‘power through.’ If we can’t get through the doldrums when everything is going according to plan, we don’t have a chance when adversity strikes (stock market meltdown, job loss, etc).

    I recommend that you set up a ‘count-down’ to your anticipated FI date on some sticki-notes. When we set a goal to pay off our mortgage we made one of these for every week of mortgage payments we had left. Make a big pricipal-payment, peel off 12-14 of them. That way you feel like you are still getting somewhere fast even on the months when things are just progressing normally.

    Keep fighting the good fight!
    Mr. & Mrs. FWTWO recently posted..Everyone Thinks I’m Crazy (for thinking I can retire early)My Profile

  • A way to make the desensitization go away is to have one partner quit a job. Instant realization that 3k was a lot. Actually our Monday post is kind of on this topic, but with 500 instead of 3k.
    Nicoleandmaggie recently posted..Google, Show me the way!My Profile

  • Funny you mention this because I was just looking at my portfolio this week and feeling a bit disappointed that it’s not up more. This is despite the fact that we’re all having a really incredible year. Stupid brain!!

    Really though, we can’t escape out programming. Maybe this is why old billionaires like Carl Icahn can’t throw in the towel?
    Mr. 1500 recently posted..Thursday Rant: We live in Butt Crack CityMy Profile

  • I think it’s pretty natural to get a little bored. There’s a lot of newness and excitement when you’re first kind of figuring things out and making adjustments as you learn along the way. But eventually you find something that works for you and that’s kind of it, at least until the next big life change comes. If it helps you stay on track with the big picture, I don’t think there’s much harm with taking a very small amount of your money and trying something exotic. It could be fun and you wouldn’t be risking much.
    Matt Becker recently posted..Disputing Credit Card Fees Really Works!My Profile

  • Pretty natural, but so is the solution.

    Try saving more than $3,000 a month to get things exciting again. I’ve got a game to save all of my passive income a month as I try and bootstrap my online business. It’s fun and keeps motivation up.

    Can you try saving $4,000 or $5,000/month?
    Financial Samurai recently posted..How To Build Passive Income For Financial IndependenceMy Profile

  • Jonathan

    I can relate – our “baseline” month – with no unusual expenses or income – is around $5k, but we’ve had months nearly three times that. The past year averaged significantly higher for various reasons, and as a result a typical month seems like stagnation. Then there’s this month, when a large donation is going to basically wipe out our savings surplus entirely.

    While Sam makes the point that you can solve this “problem” by just increasing your savings targets, I don’t think that’s a workable solution for you or me (you and I seem to have similar attitudes about saving vs. spending – correct me if I’m wrong). In a nutshell, I make a good income and save a good amount and see rapid growth of my net worth, especially compared to my peers. Rather than sweat every penny of spending, I simply try to avoid unnecessary expenses or expenses on things that don’t really increase my happiness, and don’t worry too much about spending on things that are necessary or I’ve identified as priorities. As a result, I have a comfortable balance of saving vs. spending, and to try to intentionally disrupt that balance just to speed things along would go against my goals and strategy.

  • My wife and I are getting into a similar rut. Ever since becoming debt free earlier this year, we’ve been able to put away a good chunk of money every month and keep our spending down. As you said, it just becomes boring. I think we have to figure out what exactly we’re saving for so that we get excited each time we get closer to the goal.
    Jake @ Ca$h Funny recently posted..Fancy Free Friday: Make Me Laugh – 4th EditionMy Profile

  • ha ha I wish! :) I think when you’re freelancing and your income is all over the place, it never gets boring because you just hope you CAN save. I do agree with the fact that when we have something, we want something better though!
    Budget and the Beach recently posted..Link Love/Week in Review 9/27/13My Profile

  • This is really interesting, and I admit I’m guilty of hedonistic adaptation when it comes to saving, too! I just never thought of my periodic (and manic) must-save-more-money phases that way, but that’s exactly what’s happening. I think you did touch upon the solution to warding off that mindset, though – whenever we feel it coming on, we just gotta put the brakes on and take a look at how far we’ve come and how great we’re doing to be on track for our goals. Nothing like a little appreciation and gratitude to put everything back into perspective! :)
    Kali @CommonSenseMillennial recently posted..Frugal Living & Pet Ownership: Mutually Exclusive or Harmonious Concepts?My Profile

  • I know what you mean…kind’ve. Greg’s been off work (kind’ve) for basically the whole summer. And while he did get paid some money for training at one job, it didn’t amount to much. I covered our bills just fine during that time but we didn’t save as much as we had before. Even though we were still saving money, it still felt like a financial failure to only save $1,000 or so per month. A few years ago, I would have been thrilled to save 1K per month!
    Holly@ClubThrifty recently posted..Preparing Your Finances for a Freelance CareerMy Profile

  • I’m hesitant to say the solution is to continually increase savings. That seems like the equivalent of suggesting that a consumer on the hedonistic treadmill ought to continually spend more. It’s a short term fix, because the new amount will just be adjusted too as well. You save more, sure, but you’re likely not any more satisfied.

    It seems another solution is to find a way to regain perspective on a regular basis. $3000 saved a month is, as you noted, an awesome amount. Raising it to $4000 is good but perhaps there is a way to put it into a different perspective (e.g. – regularly researching what the average American saves per month, comparing yourself to other PF bloggers & noticing that you might be doing as well (or better) than some worthy peers, or objectively seeing how many days of freedom $3000 buys you, etc.)

    It’s a complicated issue that probably doesn’t have any quick fix. But my guess is that if the problem is between our ears, so is the solution. I wouldn’t try to fix it with ever increasing savings.
    Done by Forty recently posted..How Should FIRE Timeline Affect Asset Allocation?My Profile

  • This is very insightful. I was working on a post yesterday with a similar theme but more about how it’s easy to fit in with the masses when you have debt and are broke, but it get’s harder as you develop net worth and I don’t really talk about my finances with others outside of my blog anymore because everyone else is still broke.

    Since we don’t have that much debt anymore, I somehow keep waiting for the other shoe to drop, but I don’t think it’s going to at this point. I don’t think socking a away $3500 a month will ever get boring because we lived essentially paycheck to paycheck for so long.

    A huge questions I also have about society is why on earth can’t people save more money? I get the basic premise that they spend more than they earn, but it really is not impossible to turn that around. Even if you only make $25K a year, saving $500 a month, which I’m convinced anyone can do, would be like saving $3K to a higher income earner. I just want to yell that to the masses but would probably get sent to the looney bin. That really went off topic, but I’m allowed on Friday, right?
    Kim@Eyesonthedollar recently posted..My Trip to the Food BankMy Profile

    • Thanks Kim-Mrs. PoP and I were both worried it would come off as obnoxious! We don’t talk about finances outside the blogger circle either-although that may change if we decide to make more connections to the local business community.

      Its not that people can’t save more money, its that they just don’t see the need! Freedom is an abstract concept, and planning for a 5 year time horizon (required to reach even ERE FI) just isn’t something that most people can do.
      Mr PoP recently posted..Hedonic Adaptation to Savings?My Profile

    • I live/work at a boarding school where most of our expenses are paid for (housing, utilities, internet, and food are all covered if you’re willing to eat in the cafeteria). Still, I have some friends here who will constantly say that money is tight.

      What I finally figured out is that many of them are paying for choices that they made before they came here. Car payments, students loans, and credit card debt adds up. Also, our health insurance only covers the working person, so paying that cost for a spouse & kids adds up.

      Some people might also complain of being broke because they ARE saving but don’t want to talk about that. I just remind myself that I can’t ever see someone else’s bank account, so I try not to judge.
      Leah recently posted..Why I support SNAPMy Profile

  • RezdentGoddess

    I agree with Done by Forty. Constantly raising the bar just to get the adrenaline rush wouldn’t be sustainable and could even derail someone.
    I’m trying to focus on the bigger picture instead of the landmarks. Otherwise I would be on a rollercoaster ride.
    I’m still trying to consistently meet our goal every month. Sometimes I exceed it which feels great but sometimes something unexpected will keep us from hitting the target.
    Focusing on the big picture keeps me from getting bored when things are on an even pace plus prevents highs and lows.

  • LOL, we’re still in the “paying off massive amounts of debt” stage, so, no Hedonic Adaptation to savings for us yet, but at this point, it sounds pretty awesome to us. :-)
    Laurie @thefrugalfarmer recently posted..Is Preserving Your Own Food Worth the Effort?My Profile

  • Are you maximizing your retirement accounts first then have $3000 in after tax savings? I enjoy individual stocks so any excess funds are used to buy certain stocks I have been following. The bulk of my investments are in index funds.
    Charles@Gettingarichlife recently posted..Tales Of A 77 Year Old Burger Flipper And Not Being Able To Live On $100,000 A YearMy Profile

    • You are correct-we’re putting about 16% into 401k, and then saving 3k a month on top of that, 10k of which will go into a Roth every year. We’re not smart enough to by individual stocks and come out ahead of the S&P, so we just buy the market through one of vanguard’s targeted retirement funds.
      Mr PoP recently posted..Hedonic Adaptation to Savings?My Profile

  • I think it is pretty crazy how accustomed to your monthly savings you can become. If something comes up, I find myself trying to re balance the budget while keeping the savings the same. These are times I try to remind myself that it is okay in an emergency to let the savings dip a bit and that it beats the old way of having to put things on credit.
    Micro recently posted..GTA V and delayed gratificationMy Profile

  • I run into the same issue. I’m not saving quite as much as you guys are, but I’m still exceeding my savings goals, and the wealth building process it becoming a bit boring. I wonder if more aggressive would pull you out of your rut?

  • I know exactly how you both feel and it’s true. After a while it gets boring and doesn’t seem like much or enough but others would slap me if I said that. We just did the computer upgrades that will kill our Net worth this month and we don’t look forward to it but maybe that blip in the system is what we needed to get out of that boredom stage.
    canadianbudgetbinder recently posted..The Saturday weekend review #39: New Blog Design Meet Greg at Engine1MediaMy Profile

  • The opinions expressed seem to be unanimous, the savings game does get boring at times. It is for most things I guess, once the novelty and feeling of challenge wears off we hit plateaus. How to deal with it? I doubt there is a single fix-it-all to the problem but
    a) Be grateful you can save that much
    b) You can up the savings bar and set a new challenge
    c) As you said, look for other ways your money could be working for you.
    d) Embark on a project/business that will require you to up your savings.
    Simon @ Modest Money recently posted..EverBank Review – Exclusive Review of EverBank Online BankingMy Profile

  • Yes, I have! I don’t save as much as you guys but I am trying to get through the savings burnout by adding additional sources of income so that I can increase my savings and set other savings goals. I haven’t started yet so wish me luck!
    Karla Twomey
    latest blog post Kids & Money:Plus 5 Awesome resources
    http://nomorecreditcards.com/teaching-kids-about-money-bonus-5-awesome-resources-for-you-and-your-kids/

  • The hedonic adaptation gets worse over time. Part of it is due to the constant decrease in the wealth fraction it represents and investment fluctuations.

    For example, if you have 1000 in savings and are saving 1000/mo, your monthly increase will basically be 100% no matter what happens to your investments. But if you have 1,000,000 in savings and are saving 1000/mo, your random fluctuations in savings will dominate your monthly increase. If your investments gain 1% you will be up 1.1% but if your investments drop 1% you will be down 0.9%.

    In both cases you are saving 1K, but in the beginning you have a great increase but in the second case your results are essentially out of your control. So in addition to getting used to your savings rate it also matters less over time.

    The market is great these days, but just think how it will feel with a 20% correction. It will come. And then we will all fondly remember the days when a 3K increase felt normal and expected due to hedonic adaptation.

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  • We definitely relate to your feelings here. We’re also on the “boring” savings train and it’s been steady going for the last few years. It does seem like there is a financial lull in our lives but we are looking forward to having our house paid off next year. That’ll be a big event.

    Let us know if you find a solution to this first world problem of ours.
    GamingYourFinances recently posted..When Is It Time to Quit My Job?My Profile

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