Mr. Money Mustache, one of the top personal finance bloggers of all time, mentioned a peculiar point on the Tim Ferris Show. He said that you should optimize your finances for return on happiness (rather than the cliche return on investment or any other metric).
Similarly, I watched the billionaire Mark Cuban mention on Shark Tank that he makes his business decisions based on return on time rather than return on investment.
These amazing insights got me thinking about what the best metric is.
Clearly, return on investment alone is not the best metric if you’re looking to optimize life. Purely chasing what makes you the most money can backfire because money alone won’t always bring you fulfillment, pleasure, happiness, or what you want. There are plenty of stories of wealthy men who regret spending too little time with their family or sacrificing their health needlessly in pursuit of extra money they didn’t need.
On a personal finance front, return on happiness makes more sense because so many followers of the industry end up suffering for decades on end to build up a nest egg through compound interest that will finally make it worth it. Some of these adherents will cut ruthlessly on everything to the point where they’re biking to work, living off $100 of groceries a month, and using the showers at $10 per month gyms — all to invest the money they could have spend on lattes in an index fund that will grow to a million dollars decades down the road.
As illustrated stressed in the book The Millionaire Fastlane, maybe it’s not worth it to suffer for 90% of your life to have all this money in your 60’s or 70’s since you’ll be too old to even enjoy it.
I believe Mr. Money Moustache’s point was that contrary to standard personal finance belief, it’s sometimes okay to splurge in the short term. His belief is that your ultimate goal is to have the highest average level of happiness throughout your life rather than one where you’re suffering at the beginning of your life for a pay-off at the end or vice versa.
Is return on happiness the answer? I found this to be closer to the mark but still too vague. Those three words alone, without clear clarification, can be misinterpreted.
The reckless teenager can misinterpret “return on happiness” to be a YOLO philosophy where you believe you should do everything pleasurable now. The obvious problem with that is that the extremes of this behavior can sacrifice long-term growth and happiness for short-term pay-offs. We’re talking about indulging in drinking, partying, and hard drugs in place of studying for school or starting a business.
Having said that, I believe there is a benefit to the “For all we know, we might not get tomorrow” philosophy. Not to the extremes I just mentioned, but to the point where you emphasis enjoying and making the most of the present.
Like Charlie Munger says, the extremes are usually wrong. There truth is usually somewhere in the middle.
I believe optimization, in this case, comes from having a moderate amount of fun right now, while preparing for the distant future as if you will live to get there even if there’s a chance you won’t. Specifically, this could mean budgeting and saving some of your money, but also giving yourself some leeway to spend some money or time on healthy activities that you enjoy now (like bowling, shoes, or sight-seeing). At the same time, you build for the future by investing in your education, business, or career, knowing that this will snowball into a vast resource decades down the line (this can be through online courses, podcasts, books, etc).
A more “perfect” level of optimization would be to find a job you’re 100% passionate about (or move towards that direction). That way, your work is 100% productive and building for the future while you are still enjoying the journey. And it would be ideal, from a mathematical standpoint, if all your pleasures outside of work were productive to the point where they were building to greater wealth and free to partake in.
But as Dave Ramsey says, real life isn’t just a math equation. Not all of us are like Warren Buffett as a child, who studied stock market books for fun. Few people are going to find this right out of school or have completely built this dream job even in several years in the workforce. And most likely, your hobbies and interests will require you to spend money and doesn’t seem to clearly pay off in any way financially in the short or long-term.
So what’s the TLDR of this rant? The optimal return on happiness solution is one where you optimize for a balance of the highest average of happiness throughout your whole life by enjoying the present, while still budgeting reasonably and investing for growth for the future.
I argue it isn’t a seamless straight line you’re aiming for. There will be wiggles in the line. Sometimes, there may be small periods of 2 to 4 years (say college) where it may pay off overall to suffer a little bit more on average for a higher absolute return on happiness.
Now, let’s touch on return on time.
About the Author
Will Chou has spent thousands of hours studying the world’s billionaires at willyoulaugh.com. He has poured over countless books and interviews to become THE go-to expert on billionaires and how they achieve peak performance and business success. He has a free gift for readers of this article you can get by clicking here.