Money, Freedom and the Art of Happy Living

Today, let's start to save some money.

Saving per se is a thing many people don't like to think about, because it means to surrender some consumption.

So let's look at some tricks that helped me saving and might help you as well:

1. Understand the economic concept of opportunity costs
   
   This concept basically says that you can spend each Euro only once.
   So you should not look too much on the price of something, but you should look at the utility (or happiness) it gives you compared to other products with similar price.
   
   Example:
   When you are about to buy something (let's say a dinner at a restaurant), don't say "well, that's 20 EUR, this is a good price so I buy it", but think what you could do with the 15 EUR instead. Think about something you like very much (let's say watching films) and compare (my meal in the restaurant equals buying 2 DVDs, or renting out 7 DVDs). And now decide: Buy only if the comparison seems worthwhile. If not, this good is not attractively priced for you (might be different for somebody else).


2. Calculate in yearly savings and imagine what you can do with the saved money
   
   Often people are too lazy to optimize e.g. their electricity provider, because the hassle involved seems to be big (compare offers, find a better one, cancel the old contract, set up a new one) and the reward seems to be small, e.g. a couple of Euros per month only.
   What helps is to think in (a) yearly savings, (b) the hourly pay for your effort and (c) what you could do with the savings each year:
   E.g. if changing your electricity provider saves 9 EUR per month this might not seem to much and not worth the effort if it takes let's say 3 hours work to switch.
   But in 1 year this is 108 EUR. In 5 years this is 540 EUR.
   Different picture.
   
   Continue reading in my main blog!

Today is May the 1st!

This is again a good day to live, especially here in Germany where it is a public holiday.

Is it in your country as well?!

If not, that should be introduced. At least I find the idea quite nice and appreciate it very much, that the "day of work", as it is called here in Germany, is actually a day of not-working!

This is a good day to pause and think about the role work plays in your life.

Initially for most people work or labour was just a means to survive. Later a means to consume and to afford some nice things and a bit of spare time on top.

And today? Well, we earn much more than we actually need for living and eating.

Let's look at some data from Germany (Source here, in German)

Item	Work needed 1950 (h)	Work needed 2009 (h)	Difference
1kg bread	0:27	0:11	-60%
10 eggs	2:01	0:08	-93%
1l milk	0:19	0:03	-80%
1kg coffee beans	2 days	0:19	-99%
Suit	4 days	17:00	-80%
TV	16 days	2 days	-87%

This list could easily be continued to most products that we really need for living today.

So, instead of what most people think, life in general does not get more expensive over time.

On the contrary, it got massively cheaper in the last decades, and probably in many aspects continues to do so. Looking at the data you can see that you can easily afford everything that your grandparents had by working much less - let's say not more than 30% of the time - than your grandparents had to work for it.

The problem thus is not that we have too little money but we work too much because we think that we must have much more things to make us happy.

Instead of being happy with a simple TV, a basic car as one had in the 50s and furniture you would use for decades, today we are talked into a brand-new TV each 5 years, 2 cars with oversized motors, cloths that are thrown away after wearing them only twice and loads of lifestyle-crap that is forgotten a week after you bought it. A lot of this desires are not coming from within ourselfes but probably from outside via peer-group pressure and TV ads.

Well, I don't say that all modern products are bad.

Not at all. Me and my family for example fancy very much some nice holiday-trips every now and then, and I enjoy the variety of books, films, good food and kitchen machines my grandparents weren't able to possess.

However, again there is the middle-way:

Find out what are the basic goods that you really need in life. Then think about what extra add-ons you like to have, add-ons that really increases your happiness on a long term basis.

And - important - find out for yourself!

Don't let others or advertising influence you. Think hard about things you bought and whether you enjoyed them in a sustainable way or whether they only gave you a short kick (as e.g. cloths do for me).

And then cut out all the crap, concentrate on basic needs and these few add-ons, and you will find that probably you can afford all of this and still work much less than your grandparents did.

Now the tough next step is to convince your employer that you want to cut down to 4 days a week from tomorrow on - but maybe you find a way!

So enjoy your day of work by spending a few thoughts on how to actually work less in the future!

Woodpecker

Practical example for down-shifting:

Didn’t everybody tell you, you ought to make it to the top by any means if you can? That the top is where you have power, where you are free, where you have control and the like?

Forget it, that’s complete bullshit.

The truth is:

On the way to realizing the last bit of your entire maximum potential, you will have a lot of trouble, as you will have no reserves at the end. You will be stuck in political games or annoying clients you never have imagined, you will have bad sleep and no free time left as all your resources have to go into your career. You will lose valuable social ties, your health will decline and you might even find out that you cannot enjoy things anymore, which you used to like before.

This is the old 80/20 rule: 80 percent of the work can be done with 20% of your effort; the last 20% of the work require 80% of the effort.

So whoever tells you that you must always give 100%, let him do so if he wants but don’t follow his advice, because typically the additional returns aren't worth the trouble.

Better downshift:

Find out the max level you could reach in your job (that will be determined by your education, your cleverness, your skills, but also by your social status, maybe your looks, your connections and so on). Do this in a realistic way, don’t cheat yourself and don’t count on luck, “justice” or some other act of god.

Now take that maximum potential and subtract one level from it. This (or less) is what you should aim for. E.g. if you really think you could become a senior executive if you give 100%, you should better target being a lower grade executive and in return spend only let's say 50% of your effort.

If you think you could be number 2 in your area of business, you should target being number 3 or 4 and save a lot of effort because the last mile is always the hardest.

This holds true for private matters as well. If you could squeeze in visiting 6 cities on your holiday trip, try to do only 3 or 4.

That way you will reach your goals relatively comfortably as you always have back-up resources at hand and your skills and nerves will not be stretched too much.

And you might very often find that with only 20% effort you can reach 80% of your maximum potential. No joke!

Cheers,

Woodpecker