Don’t forget it: he has most who needs least. Don’t create needs for yourself. -Josemaría Escrivá
Where are satisfaction and fulfillment found? Answering that question is beyond the scope of this blog, but my goal in today’s post is to offer a simple framework for thinking about and measuring one's level of satisfaction, financial and otherwise.
I was inspired to delve into this topic after listening to a lecture by Arthur Brooks, in which he enumerated several key findings from the social sciences about the variables that underlie our happiness and flourishing. Among them is our level of satisfaction, which Brooks formulates as an equation:
Satisfaction = What You Have ÷ What You Want
He goes on to suggest that our culture tends to place a greater emphasis on increasing the numerator (what you have) than on decreasing the denominator (what you want). In his view, this approach is misguided, since accumulating more and more stuff doesn't ultimately lead to happiness. Furthermore, the less we need/want, the more satisfied we generally become, and the less prone we are to dissatisfaction when our circumstances change.
Since these components – what we have and what we want – are constantly in flux, I found it helpful to reformulate Brooks’s equation as a matrix (see below). The quadrants help identify varying levels of satisfaction, depending on the ratio between our haves and our wants.
Strictly from a financial standpoint, the relationship between our haves (income/assets) and our wants (expenses/liabilities) is obvious, and essentially determines how financially secure or vulnerable we are. This cannot be measured in absolute terms, but is relative to each individual. For example, the 67-year-old retiree who has $500,000 and spends $12,000/year (2.4% of their principal) is more financially secure than the 50-year-old retiree who has $50,000,000 and spends $5,000,000/year (10% of their principal).
Having worked with clients across a variety of life stages, I’ve also found that there tends to be a chronological progression around this matrix:
- When you’re young and still in school, you don’t have much to your name, and your material wants tend to be limited. (Quadrant 1)
- Once you graduate from school and enter the workforce, you still don’t have much to your name – you might even be saddled with debt – but your needs and wants begin to increase as you become financially self-reliant. (Quadrant 2)
- Over time, your income and assets tend to grow. Simultaneously, you might start a family, or experience lifestyle creep: buying a bigger home, a nicer car, etc. (Quadrant 3)
- Eventually, your wants begin to stabilize, your kids leave home and are no longer on your payroll, and you accumulate enough assets to comfortably support yourself. (Quadrant 4)
Of course, some people might stay in the same quadrant their whole lives, while others might jump around in no particular order as their haves and their wants shift unexpectedly. Some may progress from Quadrant 1 to Quadrant 3, but never reach Quadrant 4 because their wants continue to grow in tandem with their haves. Nevertheless, most of us can likely point to a general, if uneven, progression around this matrix, and relate to the accompanying feelings of satisfaction/security or dissatisfaction/vulnerability.
The question of how to achieve satisfaction is, at its core, a philosophical one, and cannot be answered merely in financial terms. That said, I do think there is a loose correlation between financial security and life satisfaction, and that Brooks is right about the importance of revisiting and reducing what we want rather than focusing too much on increasing what we have. I would encourage you to give this exercise a try: to divide your haves by your wants, and locate your current position within the satisfaction matrix. Are you in Quadrant 4? If not, what will it take to get there?
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