Welcome to the hedonic treadmill – a psychological phenomenon which is costing Kiwis their financial future.
Running a never-ending race
Hedonism is the pursuit of happiness and pleasure. Many have waxed philosophical (and psychological) about just how difficult those feelings are to hold on to; the more we get, the more we want.
The hedonic treadmill specifically describes our tendency to quickly return to a baseline level of happiness despite major positive or negative changes in our lives. It just keeps going round, and we end up treading the same steps – regardless of speed or incline.
In financial terms, this means that as our income increases, our spending tends to rise in lockstep and leaves us no better off financially … and sometimes worse.
It’s a pattern I see regularly in my practice: A client gets a promotion, upgrades their lifestyle, and soon finds that new normal somehow feeling inadequate.
The lifestyle block leads to pressure for a new SUV.
As Solin notes: “The relentless pursuit of alpha (market-beating) returns is a fool’s errand that enriches brokers and their firms and impoverishes investors.”
This is where the crucial difference between an investment manager and a financial adviser comes into play.
While investment managers focus solely on your portfolio’s performance, they rarely address the psychological aspects of wealth management. They won’t question why you’re upgrading to that larger house in the neighbouring leafy suburb when your current one suits your needs perfectly. They won’t help you understand that chasing status symbols might be sabotaging your long-term financial security.
Consider this: research shows that material possessions provide less lasting satisfaction than positive experiences and relationships. Yet, many Kiwis find themselves trapped in an endless pursuit of upgrading their possessions, often funded by debt.
This pursuit comes at a steep cost. Instead of building wealth through saving and investing, many are:
- Maximising their mortgages for lifestyle purchases.
- Leasing new vehicles every few years.
- Under-contributing to their KiwiSaver.
- Not paying down mortgages at a steady and significant rate, instead forever seeking interest-only facilities.
- Missing out on compound interest’s wealth-building power.
If these are hitting a little close to home, it’s time to start asking yourself: Is your spending truly enhancing your life? Are your financial decisions moving you closer to your goals, or are you simply running faster on the treadmill (and getting nowhere)?
How to step off the treadmill
Breaking free from the hedonic treadmill requires more than willpower – it needs strategy, support, and accountability.
The solution isn’t about deprivation. It’s about making conscious choices.
Perhaps it’s choosing to invest in your children’s education rather than upgrading to a larger home. Maybe it’s deciding that your current car is perfectly adequate, allowing you to direct more funds toward your retirement savings. Or it could be realising that another weekend at one of our beautiful local wineries with family creates more happiness than a new designer watch.
If you’re not constantly in the churn of “I want more and I deserve it”, you’ll start to notice how much harder your money can work for you – if you give it time.
As Solin reminds us: “The biggest obstacle to your investing success is staring at you in the mirror.” Understanding and managing our own psychological biases is crucial for long-term financial success. We may not even realise the extent of them until a trusted third party points them out.
This is where comprehensive financial advice comes in clutch. A good financial adviser helps you step off the hedonic treadmill by helping you determine what truly matters to you.
Your values and dreams are guiding forces in your financial plan. They might be financial independence, family security or even having the ability and means to support local charities – sorting your own future and then helping others in the community.
From your values, you can set meaningful goals. Rather than chasing arbitrary lifestyle upgrades, we help you align your spending with your values and long-term objectives.
Alongside this, your financial adviser will help you create boundaries: Developing spending rules that allow for enjoyment while ensuring progress toward your financial goals.
And most helpful of all when it comes to getting off that darn treadmill … financial advice, and having a plan in place, helps you resist social pressure and marketing messages that fuel the upgrade cycle.
In today’s world of endless consumption possibilities, perhaps the most valuable investment you can make is in good financial advice – not just to manage your money, but to help you build a more meaningful relationship with it.
True financial success isn’t about having the highest returns or the most impressive lifestyle. It’s about building sustainable wealth that provides security and enables you to live according to your values.
Remember, the view from your favourite look-out spot is just as spectacular whether you drive up in a luxury SUV or a reliable family car. The joy of watching your grandchildren grow isn’t enhanced by the size of your house. And the satisfaction of achieving genuine financial security far outweighs the temporary thrill of any material purchase.
There’s only so long you can keep running on the hedonic treadmill before you exhaust your reserves, or worse, go into significant debt. So, if you’re ready to get off the treadmill and back on a real track, it might be time to have a chat with a trusted, local financial adviser.
