Tuesday, June 23, 2015

One-Dollar Salary

Financial independence is a completely different animal to retirement. Sometimes you do what you want to do, sometimes you do what you have to do. The experience of doing something because of love/belonging/esteem/self-actualisation is fundamentally different from doing something for safety/physiological reasons. Abraham Maslow is one of the father's of positive psychology. His 'hierarchy of needs' is incredibly simple and powerful.

Money and capitalism are fantastic at dealing with the bottom two categories. We really are witnessing a miracle as billions of people are being pulled out of (borrowing the colours) red and orange poverty. The top stuff, the good stuff, the tasty stuff, is a much more tricky problem. There is also the question of knowing when to shift focus. When do you have enough. The incentives that work for basic needs can get in the way if they don't get controlled. Think of our love of sugar, fat and salt. All very useful when they are scarce. Not so useful when things are abundant.

There are plenty of studies to show that money does buy happiness. Initially. The thumbsuck amount where things start to change in one study is $75,000. Clearly being impoverished or scared makes thinking about happiness a luxury. The journey up to whatever 'the number' is does make a huge difference. People earning more than that do get happier, but largely because they are earning more than the people around them. Happiness is relative. So it isn't the money doing the trick, it is the mental comparison. That is definitely a form of Green Poverty.

I have always liked the idea of the 'One-Dollar Salary'. A number of leaders in business and government have worked for an annual salary of $1. I think it would be awesome if promotions actually involved a salary cut. 'Thank you, and congratulations on your smaller pay package. You are one step closer to independence.

When people look at the wealth of individuals like Buffett and Gates on the Forbes rich list, they may think there is a pot of gold ala Scrooge McDuck. In fact, most of all of their wealth is 'reinvested'. The value is the market's best estimate of the future value the businesses they own will generate. 100 years ago, most businesses involved physical capital that made stuff. If the business stopped, that capital could be sold to make other stuff. A factory could be repurposed. A horse could do something else. Many businesses now are 'intangible'. You can't just take the business and give it away. There is nothing to give away. What the business is doing is what matters, not what it has.

The thing that should raise people's ire is conspicuous consumption. We need to work on our Green Poverty. If we are able to break down how much of our happiness comes from relative wealth (best displayed by spending), we may be able to get even more people out of Red and Orange Poverty, which should help our Blue Poverty. Yes, I love colour.
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