عَنْ أَسْمَاءَ، قَالَتْ قَالَ رَسُولُ اللَّهِ صلى الله عليه وسلم "انْفَحِي - أَوِ انْضَحِي أَوْ أَنْفِقِي - وَلاَ تُحْصِي فَيُحْصِيَ اللَّهُ عَلَيْكِ وَلاَ تُوعِي فَيُوعِيَ اللَّهُ عَلَيْكِ".
Asma' reported Allah's Messenger (may peace be upon him) as saying (to her): Spend and do not calculate, (for) Allah would calculate in your case; and do not hoard, otherwise Allah would be withholding from you.
Sahih Muslim 1029b
In this article, I briefly discuss the purpose of earning money. I then use two academic studies to explore the popular misconception of the $75,000 income happiness plateau. I then discuss how increasing affluence gives individuals increasing influence, and why the "mo' money mo' problems" effect exists. I put forward the monetary distribution of values (MDoV) money management framework to combat this. To conclude, I showcase why implementing MDoV is an avenue to evolving your self, supporting your loved ones, and growing your communities.
Money is to be Spent
Money is a means, not an end. It is a conception that has been reiterated time and time again. The nature of money makes this clear. Money is an instrumental technology that allows for economic activity without the need for trade and barter. The purpose of money is for it to be spent. Money that isn't spent is purposeless and unreasonable.
Money is a means. The difficulty, however, is in determining what money is a means for. In other words, what does more money allow us to do more effectively? If we go back to the purpose of money, the answer is deceptively simple, the point of having more money is to be able to spend more money.
Money is a means to an end. But to what end? If obtaining more money allows us to spend more money, what should we be spending more on? Oftentimes, we find that "lifestyle creep" is what happens to those with more money. Lifestyle creep or lifestyle inflation is when an increased income is offset by increased expenditure. You have more money, so you spend more money. Imagine you get a new job that pays $20,000 more than your previous job. The first thing that comes to mind is, "what will I buy now that I have more money?" We spend because we can.
Moreover, we spend because we have to. The money we have will need to go somewhere after we die. There is no point in taking our money with us to the grave. This is why we write wills; even death won't stop our money from being spent. Yet knowing this, many of us structure our lives to make more money. In other words, we structure our lives to spend more money.
"I'm studying computer science so I can spend more out of graduation."
"Yeah I took the new job. I don't really like my team, but it's fine since I can spend more money now."
"I'm looking for a husband who can finance me spending $100,000 a year."
Isn't that a weird way of looking at money? Yet that's the clearer and more truthful way of thinking about money. But why do we care about spending more money? Some will argue that it is not about spending more money, but rather about being able to spend more money if needed. For example, having enough income to comfortably pay for living expenses allows for a better life than not having enough. While that is a fair point, it is only true up until the point where you have enough income to cover your necessary living expenses (rent, food, medical bills, transportation, etc.). After that, more income is not about survival, it is about happiness and fulfillment.
The $75,000 Plateau?
Many of us are aware of the 2010 study by Daniel Kahneman and Angus Deaton that explored the relationship between life evaluation and emotional well-being with income. The study provides the following conclusion:
When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.
However, 11 years later, Matthew A. Killingsworth conducted his own study to investigate the relationship between income and well-being because:
"Current evidence, including the original study finding a $75,000/y plateau in experienced well-being, tells us what the relationship is between income and remembered feelings, which may or may not be indicative of the association between income and actual emotional experience."
In short, the methodology of the 2010 study was insufficient to accurately represent actual emotional experience since it asked about the respondent's feelings of yesterday. Here is an excerpt from Kahneman and Deaton's methodology:
"Questions about emotional well-being had yes/no response options and were worded as follows: 'Did you experience the following feelings during a lot of the day yesterday? How about _____?' Each of several emotions (e.g., enjoyment, stress) was reported separately. The positive affect score was the average of the reports of enjoyment and happiness and of a dichotomous question about the frequency of smiling: 'Did you smile or laugh a lot yesterday?' The blue affect score was the average of worry and sadness."
While their study only asked each participant once about remembered feelings (which Killingsworth points out isn't indicative of actual experience), Killingsworth utilizes a more comprehensive methodology to track well-being over time for the same participant. By using randomly timed push-notifications asking how the participant felt at the current moment, Killingsworth could identify well-being across income as well as across time for the same participant. In short, Killingsworth's methodology was more complete in that it had a longitudinal aspect as well as real-time reporting. In shorter, Killingsworth study was an upgrade from Kahneman and Deaton's.
While Kahneman and Deaton's study concluded that "when plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000," Killingsworth's study attacks the conclusion:
"There was no evidence for an experienced well-being plateau above $75,000/y, contrary to some influential past research. There was also no evidence of an income threshold at which experienced and evaluative well-being diverged, suggesting that higher incomes are associated with both feeling better day-to-day and being more satisfied with life overall."
In Killingsworth's study, both life satisfaction and emotional well-being continue to increase after $75,000, as seen below. It is important to note, however, that while both are positively correlated to income, life satisfaction is more highly correlated than experienced well-being. This difference in correlation, or how it manifests in our lives, is what some may incorrectly conclude to be "money can't buy happiness".
The below figure from Killingsworth looks at well-being across income as well, but plots negative feelings against positive feelings. This is where Killingsworth goes for the... kill:
"Multilevel regression results found a significant three-way interaction (P = 0.0015) between income, income category (above vs. below $80,000), and feeling valence (positive vs. negative), indicating that differences in income below $80,000 were comparatively stronger in reducing negative feelings, while differences in income above $80,000 were comparatively stronger in increasing positive feelings."
In everyday language, this means that pay raises that keep your salary below $80,000 have a stronger effect on reducing negative feelings than pay raises you get above $80,000. On the other hand, pay raises you get having a salary above $80,000 have a stronger effect on increasing positive feelings than pay raises that keep your salary below $80,000.
To put this all together, the notion that any additional income over $75,000 is negligible or shows diminishing returns on well-being has been debunked. Near the end of Killingsworth's study, he writes:
"Do the present data offer any insight into why income is correlated with well-being? The answer to this question is necessarily speculative, since the factors linking well-being to income are likely numerous, complex, and interrelated."
The answer to the question is definitely speculative, but the aim of this article is to speculate that money earned above $75,000 -- no, $80,000, increases happiness or well-being or positive feelings, whatever you want to call it, because that is when we can, and should, start using money as an agent of our selves.
Mo' Money Mo' Problems
"I don't know what they want from me It's like the more money we come across The more problems we see" - Kelly Price in "Mo' Money Mo' Problems"
Why is it that when we get mo' money, it seems like we have mo' problems? It is because as we get mo' money, the number of products, services, people, causes, and agendas we can spend on also increases. The mo' money we have, the mo' our money can help. In other terms, we get mo' influence, mo' power.
It is that same power which people mistakenly pursue as their end goal. It is often why we see that money-hungry people are often the emptiest and why people who are surrounded by extravagance throughout their life often find it difficult to build genuine connections with people. This same power is why having multi-billionaire CEOs can be dangerous for the populace. It is not because they are inherently evil, it is because their actions could affect the lives of millions. If Bezos doesn't take into account what a certain decision could do to already disadvantaged people, he could make them lose their entire livelihoods based on his will.
To illustrate this point further, let's imagine 5 individuals who have different income levels. Below is a table of their income, financial concerns, and who they influence with their decisions:
Name | Yearly Income | Financial Concerns | Influence |
Gilbert | $20,000 | Paying off living expenses as a college student | Himself, maybe a roommate, his landlord |
Sara | $80,000 | Saving enough money to finance her upcoming wedding | Herself, her fiancé, and their families |
Marcus | $200,000 | Investing into his first real estate flip to buy a bigger house for his family | Himself, his wife, his kids |
Chen | $1,000,000 | Acquiring a smaller, local competitor to her grocery business | Herself, her husband, her kids, her competitor's employees, her industry, her local community |
Samer | $1,000,000,000 | Deciding which foreign market to grow into for his trillion dollar market cap company | Himself, shareholders, board of directors, foreign economies, global trade, the livelihood of hundreds of thousands local people, lobbyists, politicians, policy makers, nations |
As people grow in affluence, they also grow in influence, because their spending decisions affect larger groups.
Gilbert is just trying to survive, poor guy. He is thinking of how to get $200 more in the next week to pay off rent.
Sara is past the point of survival, she is now spending on a wedding, which will impact more than just her. She is thinking of how the wedding is set up, where it will be, how many people are invited, and what food they'll have. She wants the wedding to be perfect.
Marcus has a family that he is responsible for, so if his investment turns south, the family will suffer for his decision. He is hoping he can send his kids to an elite university if this pans out.
Chen has grown her influence to more than just family, she is now responsible for a community of people, for a locale. Her spending decision will affect the local economy as well as the livelihood of many employees. She wants to improve supply chain efficiency to provide cheaper groceries for her town.
Samer's spending decision will impact hundreds of thousands of people overseas. The introduction of his company into a foreign market could spark revolts, policy changes, trade embargos, and the such. He wants to make sure his company continues to grow to provide value to its shareholders, because that is his job as a CEO.
As we can see, with mo' money, there are more stakeholders with each spending decision, leading to mo' problems. Your spending decisions impact more people, meaning you are more accountable for what happens caused by your spending. So why would people want to spend more money in the first place? It's because money allows for people to extend their selves in greater degrees of influence. Money is agent of the self. It is an enabler of the self. It allows us to express our values upon the world, to support the people we care about, to back the causes we are passionate about, to protect our communities, to leave the world a better place. Or not. Money is an agent of the self, so it also extends the influence of our short-sighted, egotistical decisions. This is why it is imperative that we build a strong foundation of values for ourselves before we hastily pursue the next best-paying job.
Lifestyle Inflation, Hoarding, MDoV
Without a clear sense of your individual values and beliefs, it is easy to fall into the trap of lifestyle inflation or hoarding. Lifestyle inflation is just spending to fund a certain lifestyle: buying a new car even though your current car works just fine, spending on clothes you'll wear just once, eating out for every meal because you don't want to deal with cooking, or traveling to instagrammable places for social media points. While spending like this isn't inherently wrong, doing so just because you don't have anything else to spend the money on is what leads to the meaninglessness of lifestyle inflation. Treat yourself every now and then, but don't eat cake everyday.
Conversely, hoarding is when you don't spend your money on anything, even the things that you value. It is the incessant withholding of money, even when you have enough to live comfortably. Having a savings account for emergencies or for your children's education is pragmatic and smart, but sending your kids to a rundown school to save money is not. If you value your children's education, spend your money to send them to a good school. If you value your health, spend your money to fill your kitchen with healthy foods. If you value your religious community, spend your money to fund your local religious institution. Money is made to be spent, not withheld.
To avoid meaningless lifestyle inflation and hoarding, I offer an alternative method of money management: monetary distribution of values (MDoV). MDoV is the proportional distribution of discretionary income equal to the relative importance of your values or beliefs. What that means practically is spending the same % of your discretionary income (money you have left over after living expenses and necessities) as the importance of a value or belief. MDoV conceptualizes the individual as a distributer of wealth, not just a holder of wealth. Much like prisms and light, individuals redirect the surplus wealth that flows through them, shining their unique selves upon the world, dispersing the excess wealth in various directions just as a prism disperses light into a spectrum of colors. The more money that passes through them, the more vividly they imprint their self onto the world. Without enough money, we cannot see who they are. In order to carry out MDoV, you need to do enough introspection and reflection on your own values and beliefs to know how much you care about certain things. You can think of this as cleaning, defogging, shaping, and smoothening out your unique prism, allowing light to pass through.
Implementing and Practicing MDoV
Here's how you can adopt MDoV. Write a list of everything that you value about yourself and your life; write a breakdown of your values. Start out with the big things, the stuff that's non-negotiable. Health, family, faith, friends, passions, those sort of things. Lay them out in as much detail as possible. Ask yourself specifying questions to get to the core of these values. What portions of health do you care about the most? Is it being able to run everyday? Is it about eating foods that make you feel good? Is it about being able to keep your joints working properly? What about family? Do you care just about your nuclear family or does it extend to other relatives? In what ways do you want to spend on faith? Is it through charity organizations? Which friends mean the most to you? What are you passionate about? What do you want from your passion? To really get down into the nitty gritty and understand yourself, write down the beliefs you have about each of your values. Beliefs can be thought of the "why" behind a value. For example, "I value my cardiovascular health because it will allow me to play with my kids when I am older."
Once you have the big stuff down, write next to each one of your specific values how important they are to your life in % terms. These should add up to 80%. Of course, the importance level of each of your values is somewhat arbitrary, but because they are personal, you should have some sense of what number to put down. What is important is that you have some sense of relative importance. From there, you can fill in the gaps with the less important stuff like travel, quality of life upgrades, and entertainment. These should add to 20%, providing the rest of your values breakdown. You should end up with a comprehensive breakdown of your values and beliefs. Again, these are your current values and beliefs, and should be revisited every few years or so. For each one of your values, the proportion of your discretionary income should match their % importance.
For example, let's say you value artistic expression in life. You believe that artistic expression is good for the soul and enhances one's life. You decide that you are passionate about music, specifically playing guitar. You attribute 10% of your values breakdown to this artistic expression through playing guitar. 10% of your discretionary income should be allocated to doing that. Whether it is attending regular guitar lessons, taking part in jam sessions, signing up for a music school, or buying equipment, you should spend your money as an agent of manifesting that value of and for your self.
Through MDoV, you can have a loose financial structure for carrying out a life that you value. Now, the difficult part is abiding by your own structure. To practice MDoV successfully and sustainably, you need to really understand where your values come from and what experiences have formed your beliefs. Otherwise, you will undermine yourself and your values will fall by the wayside to your impulses. A practical way to help stay on track with MDoV is to plan your expenses ahead of time, I suggest a month in advance. Next month, how will you spend the 5% of your discretionary income you've allocated to show appreciation for your best friend? Will it be flying out to see her? Will it be buying her a new flower pot? Will it be paying for a spa night? Do this for each value. Planning the expenses out doesn't have to be a painstakingly precise process, it just needs to be done with some thought. Again, these aren't concrete numbers that have no leeway, they are estimations or ranges of how much you should spend. The numbers are there as targets or goals.
MDoV to Achieve Spending Success
"[…] the more people equated money and success, the lower their experienced well-being was on average, and there did not appear to be any income level at which equating money and success was associated with greater experienced well-being." (Killingsworth, 2021)
How much money you have and how much you spend are not good measures of success. You'll end up comparing yourself to others and how they spend their money. "Oh wow, Jimmy spent $500,000 on his new car! My car is only worth $50,000... Jimmy is so cool and I'm so lame." Looking at spending in absolute terms makes it easy to compare yourself to others, and even worse, it assumes that the more money someone else spends, the happier they are. That is not necessarily true.
What is a good measure of success is how representative your spending is of your values and beliefs. In other words, what matters most is how closely you abide by your MDoV. The great thing about MDoV is that it is personal and success is internal. "Jimmy spent $500,000 on his new car? That's good for him, I hope he gets to spend his money on what he finds value in." That's it, there is nothing else you can conclude about Jimmy or about yourself within the framework of MDoV because it is all relative. Jimmy's $500,000 car may be 20% or 100% of his discretionary income, we don't know, nor should we care. Someone else might only allocate 10% of their discretionary income to a car, it is all about their unique MDoV.
So while getting above that $80,000 income level might not guarantee you happiness and well-being, it gives your prism more light to shine your colors with. What we want from this life isn't being able to flaunt our spending on material goods and perpetually partake in a meaningless rat race. What we really want is to leave our family, friends, and communities, our loved ones, our people, with better lives than before.
Let's cultivate our unique lightshows for as many people to see, without fear of evolving them over time. Let's make our colors known and shine them as vividly as we can without stealing the light from others. If we can do this, our communities will be enveloped by a spectacular collective lightshow that will rival even the wonders of the cosmos.
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