I was once asked to go and see a couple at home. They had a modest looking house but once inside, it was filled with expensive antiques. In fact you could barely move for pricey looking objects. Their query was a simply one, could they raise a mortgage on their home to fund an extension they wanted to build.
The idea was that the extension would add more value than the cost of adding it, they could sell eventually, repay the mortgage and bank the profit. The problem with their aim was that they had applied for planning permission a year previously and raised a mortgage to fund the work at the same time. The planning process had dragged on longer than expected and the six figure sum from the mortgage had sat in their current account. A year later they were ready to do the work but had spent the mortgage cash.
What they now wanted, was in fact a second mortgage.
This was not in anyway affordable and so the meeting was not a long one. It has always stuck in my mind though as the most extreme example I have seen of trying to find joy in the purchase of ‘things’. Yes, they could have helped themselves and moved the money somewhere where it would have sat safely with a label on it saying ‘extension money’. This would have been a good behavioural nudge to themselves.
However, there was a bigger money issue at play here. They didn’t seem happy with life and were buying objects for that initial little rush of endorphins. The phenomena is well studied and the process is called the hedonic treadmill. The pleasure we derive from the purchase of something is fleeting and so we need another purchase and another, ad infinitum. Hence the treadmill, once you get on it, it can be incredibly hard to get off. The behaviour itself can be very financially destructive. We all know people who spend beyond their means on cars, houses and entertaining. If you don’t know someone (as the saying goes), it’s probably you.
Living beyond our means can lead to an impoverished retirement, not just financially but also emotionally as we have to reconcile to living a much lower standard of living than we have been used to. It can also leads to family break-up, particularly where one person in the couple is more like this than the other.
The only antidote to this problem is to look at what the research tells us makes us happy.
It isn’t the acquisition of stuff but time spent with others and giving back. The good news is that this is almost free. Almost, because we all need some money coming in to support our basic needs and buy us that most precious of commodities, time. So money does play a part in everything we do and it holds the key to making the most of life. Just be careful that you are buying the right thing.
We are currently helping clients to live happier lives and retirements, across the South East and Nationally from our offices in Hook, Hampshire.