I recently saw a quote from Dr. James Dahle, aka "The White Coat Investor" where he mused "How do you go broke on $250,000? Spend $250,001."
Yep. In my paycheck-to-paycheck life post college I was pretty broke on a very paltry nonprofit salary, sharing a home with two roommates, but oh how good I was at spending all my money. Every. Last. Dime. I could walk into stores in total curiosity if there was something I might want to buy, and I will be darned if there always wasn't something I couldn't live without.
But the reckoning would come, like when it was time to replace the car's alternator. Still to this day I get chills down my spine when I hear any discussion of an alternator. Because they are very, very expensive. An awkward call to my Dad bailed me out, but gosh that cramps the style of a 20-something making it on her own.
Sudden cash windfalls from the Dad bailouts, or the $20 tucked in a random note, or a tax refund offered even more opportunities for spending. Remember the 1997 hit by The Notorious B.I.G, "Mo Money Mo Problems?" No way! Mo' money mo' ways to spend!
My spending trajectory was set through my 20s but, as previously discussed in this column, abruptly interrupted by a speech delivered on my graduation from public policy school on the dangers of living paycheck-to-paycheck with the golden handcuffs. This well-timed speech knocked me into a new reality that I was about to face -- a lifetime of working without choices. Fear of losing freedom sparked a savings habit. But inspiration has kept it alive.
In my speeches to medical residency programs around the country I walk through all the ways that someone could blow $250,000 in a year after they just lived on $60,000 the year before. My drive with every speech is to jolt folks out of a paycheck-to-paycheck life.
As it happens, many resident physicians live beyond their means and rack up credit card debt in anticipation of a lottery-like salary, but I explain that it won't work how they think it will. Mo money, mo problems! My hope is that if they can find a way to live below their current means, not anticipated means, they will have a last chance to tame their brains before the money stakes get much higher.
If taming a brain is lighting up your hokey barometer, stay with me. I promise it's real. Arthur Brooks, in his recent book From Strength to Strength explains just what is going on. The main culprits? Social comparison (aka Keeping up with the Joneses) and spending addictions.
Let's start with social comparison. Do we really want to be rich? Or do we want people to think we are rich? Or do we want a little (or a lot) of both?
I have "a friend" who even finds herself wondering from time to time if building wealth seems pointless if other people don't know about it. Like when people say youth is wasted on the young, can't wealth be wasted on the people who don't want to look rich?
Do I really want a Tesla for a high-tech battery and to solve climate change? Or do I see myself coasting down Cantrell imagining all those people looking at me saying, "Whoa, that is one successful chick."
But no! Spending for social comparison is a trap! As Brooks describes, "The small rush of pleasure we get from being envied by others one minute is swallowed up by the unhappiness from having less than someone else the next minute." Ugh -- so I can't have it both ways. I can't want to appear wealthy by comparison then not turn around and feel exponentially more envious of others who are wealthier (or who appear wealthier). Bummer.
But spending also does something to our brains that mirrors that of addictions. As Brooks explains, "Dopamine -- the neurotransmitter of pleasure behind nearly all addictive behaviors -- is excreted in response to thoughts about buying new things, winning money..."etc. We get dopamine hits, or pleasure feedback, to increased spending. But just like all addiction, Brooks describes the downside: "While the first sip -- or bump, or hit -- might give you pleasure, your brain senses an assault on its equilibrium and fights back by neutralizing the entering drug, making it impossible to get the first feeling back."
Yup, the brain seeks balance even if you don't. Bummer, right?
Someone call the cops. Every time I walk into Target, my poor delicate equilibrium is viciously assaulted by dopamine hits right and left, which is the only explanation for why a quick trip for deodorant costs $200.
Do you believe you could be immune to such brain urges and think your paycheck-to-paycheck problem could be solved by making more money? It's possible. Think of Sam Walton who famously drove his truck for decades or Warren Buffet who still lives in his original home.
But I ask you, "Would it kill you to assume that your brain is like mine -- just in case?"
If you are with me, then trust me -- you will want a financial leash for that brain, and I will give you my all-time favorites:
• Pay yourself first. Save 10%+ of your first dollars from every paycheck, and no matter what, make sure that money never hits your checking account. Hide that money from the dopamine savages.
• Save ahead for future expenses. That alternator would have been far less painful if I had been tucking money away into a car savings account. Auto transfer a little money each month into separate savings accounts for vacations, gifts, clothing, home repairs, and car repairs!
• Tame the bills. Bills aren't spent out of addiction. They are typically added by social comparison (think car, home, boats). A good ol' pencil to paper budget will back into the bills you can afford.
• Stop with the credit cards. If the brain is a fire pit with your finite money inside it, then consider a credit card as extra dry kindling and credit card rewards as lighter fluid. This is all a dangerous combination! That's why I passionately believe in the leash of using a debit card. When my household moved from credit card spending to mostly debit card spending, our spending cratered without trying. A declining balance of a checking account is a powerful leash at it triggers the brain to understand the scarcity of our money.
But anyone who has tried to walk a dog on a leash that is chasing after every squirrel understands that such a walk is no fun. The leash protects us, but, folks, it's not a long-term solution if your brain is mercilessly begging you to spend to impress people or spend to make you happy.
The next step is taming the actual brain, not just protecting us from it.
Brooks draws heavily from one of his favorite philosophers, Thomas Aquinas, who, while raised in a wealthy household, chose a simpler contemplative life with the Dominicans. Aquinas discovered four human idols that he believed reduced life's satisfaction over time: money, power, pleasure and honor. As Brooks summarizes, "Thomas argues that these idols leave us dissatisfied because they are not what we need as complete persons. They are the counterfeit currency paid to our special objectified selves."
Aquinas seems to suggest we can find life satisfaction on the other end of this brain taming work, so let's do it together. If an unleashed and ultimately untamed brain is the answer to, "How do you go broke on $250,000?" then a tamed brain might be a necessary ingredient for living below our means and getting the added bonus of finding satisfaction in life in the process.
And that, folks, is how we can find happiness in saving, not from the dollars in savings per se, but from the very act of saving, itself.