The Hedonic Treadmill
The hedonic treadmill is also called as hedonic adaptation. The jargon explains how we are wired inside us. The behaviour applies to all walks of life not just finance.
It is human to return to relative amounts of happiness despite the positive or negative events in our life. Whether we win a lottery or loss a limb in an accident, in one year time we will see both in similar eyes. This is a part of human adaptability.
What does this mean to finance is, if you pin your happiness to your finance, you will never be blissed out. You will adapt to your new level of finances and stay the same old person. The point is the spikes of happiness or sadness will level out and you will come back to the old levels of happiness. Imagine you increasing your life style (read that as lifestyle inflation) it gives you a great pleasure for a small amount of time but over a period that becomes a norm, which means that you will get used to this new lifestyle with old levels of happiness. This also works in the opposite way. For example, if you have a pay cut or a job loss or living in lesser means, we will adapt (read that as lifestyle deflation). That is just being human. We don’t like to be stuck on things very long.
So what should you do with this behaviour in finance?
Find ways to distribute the gains so that you stay happier longer. Don’t go and inflate your lifestyle way too much just because you got a raise.
If you want to deflate your lifestyle, just do it all at once. Don’t distribute the pain.
Now that you know you are wired this way, be aware and step off the treadmill and don’t be a prey to this hard wiring.
Most mistakes in the money world happened due to this one single phenomenon. A lot of people who won lottery became bankrupt. The new rich entered into the world of pain due to this one phenomenon.
Our adaptability is a good thing, stupidity is not. This is why gratitude diaries work. If you are happy with what you have, you will continue to live happily. Stay clear from the treadmill.
🥂to gratitude!
