1. Escaping the Cycle of Permanent Dissatisfaction: The Hedonic Treadmill
Have you ever noticed how the thrill of a new purchase fades quickly? Whether it’s a promotion, a new car, or a bigger house, the initial excitement often gives way to a new baseline of expectations — and soon enough, you find yourself chasing the next upgrade. This phenomenon is known as the hedonic treadmill.
What is the Hedonic Treadmill?
Imagine running on a treadmill at the gym: no matter how fast you run, you stay in the same place relative to the room. Similarly, in life, no matter how much more money you make or how many new things you acquire, your overall happiness tends to remain constant. This psychological effect means that increases in wealth or possessions bring only temporary boosts in happiness before you adapt and desire more.
Scientific Evidence:
A landmark study by economists Daniel Kahneman and Angus Deaton analyzed the relationship between income and happiness. They found that once people earn enough to cover basic needs—food, shelter, healthcare—additional income has a diminishing effect on happiness. This means that after a certain point, more money doesn’t make you significantly happier.
Consider the story of Anil, a young professional who upgraded his smartphone every year. Initially, the new phone brought excitement and admiration from friends. But within months, the novelty wore off, and he found himself eagerly awaiting the next model. This cycle repeated endlessly, leaving Anil feeling restless and unsatisfied despite spending thousands.
Social media amplifies this effect by constantly exposing us to others’ curated successes and possessions. According to a report by Credit Karma, 39% of people in the UK feel pressured to spend more money to appear successful or happy on social platforms. By choosing to “look poor” — that is, living modestly and avoiding flashy displays — you effectively step off this relentless treadmill. This decision often brings more lasting inner peace and happiness than chasing status ever could.
2. Regaining Freedom of Choice by Avoiding Lifestyle Inflation
When we increase our spending every time our income grows, we fall victim to lifestyle inflation. This means that even as we earn more, we don’t gain financial freedom because our expenses rise proportionally—or sometimes even faster.
Take the example of Priya, who started her career in investment banking. Early on, she bought designer clothes, a luxury car, and lived in an upscale neighborhood. While her outward appearance suggested success, she was trapped in a high-stress job and had little savings. Her income was mostly spent on maintaining this lifestyle, leaving her little freedom to pursue other passions or take risks.
After a few years, Priya made a radical change: she cut down her discretionary spending to nearly zero for 6-9 months, focusing instead on investing in her education and skills. This shift allowed her to build a financial cushion and eventually leave her high-paying but unsatisfying job. Today, Priya enjoys the freedom to travel, explore new opportunities, and live life on her terms.
Why Does This Matter?
When your expenses are tightly coupled to your income, losing your job or facing unexpected costs can be devastating. On the other hand, maintaining a gap between income and expenses creates a buffer that gives you choices—whether it’s switching careers, taking a sabbatical, or investing in a business.
Financial Logic:
Suppose your monthly take-home pay is ₹1,00,000. If your expenses are ₹90,000, you have little room to maneuver. But if you keep expenses at ₹60,000, you have ₹40,000 to save or invest, which compounds over time and builds wealth.
Investing in Yourself: The Ultimate Asset
Priya’s story highlights the importance of investing in skills and education. Platforms like Skillshare offer affordable, accessible courses on entrepreneurship, productivity, design, and more. Learning new skills can open doors to better opportunities and income streams without the pressure to inflate your lifestyle prematurely.
By prioritizing growth over consumption, you build a foundation for long-term financial security and freedom.
3. Breaking Free from Survival Mode: The Stress of Maintaining Status
Living a high-status lifestyle often comes with hidden costs beyond the price tag. When your expenses consume a large portion of your income, you become trapped in survival mode, where every financial decision feels critical and stressful.
For example, imagine Raj, who received a bonus and bought a luxury car that consumed 40% of his take-home pay. Suddenly, he couldn’t afford to lose his job, take a break, or explore alternative careers without risking financial ruin. The pressure to maintain appearances creates a domino effect of additional expenses—premium insurance, maintenance, fuel, and lifestyle upgrades.
Maintenance Costs: A Hidden Drain
A study by Yahoo Finance analyzed car maintenance costs over the first 75,000 miles and found that entry-level brands like Hyundai, Toyota, and Honda cost almost three times less to maintain than luxury brands such as BMW and Mercedes-Benz. This illustrates how upgrading one item can cascade into higher recurring costs.
Inflation and Expense Growth:
Inflation further exacerbates this problem. If your expenses grow with inflation but your income stagnates or grows slowly, the gap between income and expenses shrinks, increasing financial stress.
The Financial Freedom Gap
The greater the gap between your income and expenses, the more peace of mind you have. This gap provides flexibility to take risks, try new ventures, or simply enjoy life without constant worry.
Minimalism and Mental Clarity
The KonMari Method, popularized by Marie Kondo, advocates keeping only things that “spark joy.” Applying this philosophy to finances means cutting unnecessary expenses and commitments that drain your resources and mental energy. This not only saves money but also reduces stress and increases emotional well-being.
4. The Power of Authentic Living: Building Meaningful Relationships and Self-Worth
Money and possessions can sometimes distort how we perceive ourselves and how others perceive us. A revealing study found that 25% of Americans admitted to pursuing romantic relationships primarily for financial gain, and over half of those misrepresented their finances to attract partners.
The Danger of External Validation
When self-worth is tied to material wealth or status, relationships and social interactions become transactional and fragile. This can lead to loneliness, mistrust, and superficial connections.
Authenticity as the Cornerstone
True wealth is not about flaunting possessions but about inner confidence and security. The famous author of the novel The Adolescent once wrote, “If I had 100 million, I would nevertheless walk around in old clothes because the knowledge of it, my consciousness of my wealth, would suffice.”
Many wealthy individuals choose simplicity over ostentation. They understand that authentic living fosters meaningful, resilient relationships and a deeper sense of fulfillment.
The House Metaphor
Imagine your life as a house. The outside is what you show to strangers — flashy, impressive, but often superficial. The inside is your true self, shared with family and close friends, where genuine values and character shine. Prioritizing the inside over the outside leads to lasting happiness and peace.
Financial Wisdom: Integrating These Lessons
Understanding these four reasons to keep a low financial profile can transform how you approach money and life:
- Resist the hedonic treadmill: Focus on lasting happiness, not temporary thrills.
- Control lifestyle inflation: Build a gap between income and expenses to gain freedom.
- Reduce financial stress: Avoid high-maintenance status symbols that trap you in survival mode.
- Live authentically: Build self-worth and relationships based on true values, not materialism.
How Inflation and Present Value Affect Your Financial Decisions
When comparing loans and investments, it’s critical to consider the present value of money adjusted for inflation. Inflation erodes the purchasing power of money over time, so ₹1,00,000 today will not have the same value 10 or 30 years from now.
Example: Suppose you take a loan of ₹5,00,000 at 15% interest for 10 years, and you have a fixed deposit (FD) earning 7% interest. Nominally, the loan interest is higher, but inflation averaging 6% annually reduces the real cost of the loan repayments and the real returns on the FD.
Using the formula for present value adjusted for inflation:
PV = FV / (1 + i)^n
Where:
PV = Present value
FV = Future value
i = Inflation rate (decimal)
n = Number of years
This means that the real burden of loan repayments decreases over time, while the real returns on your FD are also reduced. Therefore, a loan with a higher nominal interest rate might be less costly in real terms than it appears, and breaking an FD to pay off a loan might not always be the best choice.
Comparative Table: Nominal vs Real Values Over 10 Years
| Parameter | Nominal Value | Real Value (6% Inflation) |
|---|---|---|
| Loan Interest Rate | 15% | ~8.4% |
| FD Interest Rate | 7% | ~0.9% |
| Loan Amount Owed After 10 Years (₹5,00,000 Principal) | ₹20,18,594 | ₹11,34,735 |
| FD Value After 10 Years (₹5,00,000 Principal) | ₹9,84,717 | ₹5,53,706 |
This table illustrates how inflation affects both loan costs and investment returns. The real cost of the loan is significantly lower than the nominal amount, and the real gains from the FD are also diminished. This is why financial decisions should always factor in inflation and present value.
Practical Advice: How to Apply This Wisdom in Your Life
- Maintain modest spending habits: Avoid lifestyle inflation and keep expenses well below your income.
- Invest in yourself: Prioritize education and skill-building for sustainable income growth.
- Use inflation-adjusted calculators: Tools like the LoanVsFD app help you compare loans and investments in real terms.
- Build an emergency fund: Create a financial buffer to avoid debt traps and stress.
- Choose loans wisely: Borrow only at reasonable interest rates and for appreciating assets.
- Focus on authenticity: Cultivate relationships and self-worth based on values, not material displays.
Conclusion: The True Wealth Lies in Simplicity and Freedom
In the pursuit of financial success, it’s easy to get caught up in appearances and the endless chase for more. However, the greatest financial wisdom often lies in simplicity, self-control, and authenticity. By keeping a low profile, you escape the hedonic treadmill, gain freedom of choice, reduce stress, and build genuine relationships.
Remember, wealth is not just about how much you earn or own, but about how much freedom and happiness your money brings you. Use the power of inflation-adjusted thinking and smart financial planning to grow your bank account—not your ego.
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