Hedonistic Adaptation and Your Finances

happy hobbits

Be happy. Like the hobbits.

Humans are unusual creatures.  Unlike hobbits, who are perfectly content with their lives of eating, drinking, smoking and just plain chilling, we humans keep wanting more and more.  From those in poverty to those who have had everything served to them on a silver platter, we all just want more.  And we think having more will make us more happy.  “If I just made $1,000 more per month, all my problems would be solved.”  “If only I had gotten that promotion, my life would be perfect.”  We all say these things to ourselves from time to time.  And we are lying to ourselves all the way.

I recently read about a term called hedonistic adaptation.  According to all-knowing Wikipedia, hedonistic adaptation is “the supposed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes.”  Meaning that no matter how high or low we get, we tend to end up at a happy medium at some point.  There are many examples of this in all of our lives, but the one that jumps out to me the most is a death of a family member or friend.  When you first found out that someone close to you has passed away, there is this feeling of crushing sadness.  Usually accompanied by lots and lots of tears.  You don’t want to eat, sleep or work because you are just so down about your loss.  But eventually, some people taking a longer time than others, you get over it.  You’re able to get on with your life and not let the loss completely debilitate you.

Everyone has lost or will lose a loved one at some point, but we move on.  No one lives the rest of their life in the same fashion as they did when they first found out about the death.  We had an incredible low, but we get back to our medium more or less.  The same goes for happy events.  A celebration for getting a job doesn’t last forever.  We eventually get back to a steady state.  This is an important thing to remember and a good reminder for us not to get too high or too low on ourselves, because we’ll eventually get back to normal.  Celebrate and grieve within limits, and then move on.  While this seems like a somewhat callous and objective way to think of things, it is so very true.

The idea of hedonistic adaptation can also be applied to our financial lives.  We all want more money because we think it will solve all of our problems and make us happy.  But most likely it won’t.  Think back to your time as a kid.  More than likely, you had a lot less money in your pocket when you were 10 years old (though probably a bigger net worth if you’re a broke professional).  Many people probably remember being a bit happier when they were younger.  We were used to the simpler things in life as kids, but as we get older and get more money, our expectations change as well.  As the good old saying goes, mo’ money mo’ problems.

If most of us remember being happier when we had less money as kids, how can we possibly think that having more money will guarantee happiness?  Well it’s easy to say that Hollywood is the cause of the world’s problems, but in this case it certainly is.  Specifically, marketers making us believe that having more money will bring real happiness.  This idea has turned this age into the age of consumption, spawning a whole new set of problems (such as Keeping up with the Joneses).  This goes against our nature of returning back to our happy medium no matter how high or low we get.  And this is a problem.

But how can knowing this help us?  Should we make it a point not to worry about money?  Should we turn down that raise or not increase our prices because it won’t make us happier?  Absolutely not.  What we can do with this knowledge is become smarter with our money.  The two things that many people, including myself, worry about when it comes to money is reducing debt and ensuring my family and I are financially secure for the future.  Notice this doesn’t include worrying about what type of TV or phone I will get years from now.  Most people innately worry about having enough for the future, and this is where debt and retirement savings come into play.

If you get a raise that nets you an extra $200 per month, don’t just let it sit in your account and eventually spend it on something frivolous.  Automatically transfer that extra $200 into your debt repayment amount.  This will get you out of debt sooner and decrease the amount of interest you pay.  Got some more money?  Increase your retirement plan contribution and don’t even give yourself the chance to miss that money.  Your heart will want that extra money to buy things or go on an unplanned trip to temporarily increase your happiness.  But knowing what we know about hedonistic adaptation, that happiness will not last.  Increase your piece of mind by getting rid of debt and saving for the future.

This obviously doesn’t mean living like a hermit and having a too large retirement account (yes there’s such a thing).  Spend money on yourself and your family on things that you will remember and that will bring lasting happiness and memories.  But focus on securing your future selves financially.  This is what brings people most happiness in the end.



  1. While being older is more stressful and has a lot of ups and downs. I definitely prefer the freedom of adulthood more than the restrictive happiness of childhood.

    • Syed says

      This example was simply used to show that happiness isn’t tied to having more money. Obviously being an adult gives you more freedom and more chances for happiness, but adults are also the ones that need anti-depressants. Thanks for the comment.

  2. I love that line about not worrying about what TV or phone I’ll have. It’s totally true. We don’t need those things to be happy or feel secure. What will those things matter if you can’t retire at a decent age? Also, I can’t live without the automatic transfer. Without it money just disappears for me.

    • Syed says

      I totally agree automatic transfer to my savings and retirement accounts is the backbone of my financial plan. Don’t know where I’d be without it. Thanks for the comment.

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