Your New New Year’s Resolution: How to Drink Yourself Wealthy
Our Favorite F Words Part 3: Fine Tastes & Finance
Over the next few weeks we’ll be exploring our favorite F word, Finance, and how it relates to the other important F’s in our lives: Family, Friends, Fun and more. If you missed our previous posts on Food or Family, start there.
Wine is my favorite alcoholic drink, but I have to admit that I usually can’t tell the difference between a $10 bottle and a $50 bottle (though apparently neither can the pros). Just a few days ago I was ringing in the new year with some friends when somebody got the obligatory champagne out of the fridge as we approached midnight.
After a sip, I asked “Is this the Barefoot wine I saw in the fridge earlier?” and got the response “No, this is Dom Perignon.” I felt pretty embarrassed considering Barefoot sells for less than six dollars a bottle while Dom can go into the hundreds (a fact I only discovered yesterday morning while researching it). If you’ve never heard of either of those brands of wine or couldn’t care less, this is the blog post for you!
For people who do have a refined appreciation of high-end goods, this post might get a little uncomfortable. While I fundamentally believe that Independence Is Built on Education, there are some things we’d simply be better off not educating ourselves about.
Wine (and any other alcohol) is a perfect example of a luxury good. I used to have a boss who told me that her significant other appreciated fine wine and their monthly wine budget was almost as much as my entire grocery budget. After a short conversation it became apparent that it was genuinely harder for them to enjoy a ten dollar bottle of wine because they knew so much about the subject. This phenomenon of training ourselves to like expensive things to the point that we can’t live without them is called the hedonic treadmill (or hedonic adaptation). Unlike most treadmills, the hedonic treadmill is a dangerous road to walk.
We step on the hedonic treadmill when we start to prefer luxuries, from food to house size to bathroom convenience to transportation. The hedonic treadmill wouldn’t really be an issue if luxury goods actually made us happier, but study after study after study shows us that’s not the case.
Here’s the hard part. When we adjust our lifestyles upward, we meet new people, find new circles of friends, and then adjust our reference group upward as well. People are very good at adapting to new circumstances and accepting change as the new normal. You may have heard of that famous study in which amputees and lottery winners were equally happy only a few months after their accident or windfall. The same thing happens when we buy luxury goods. They become our new normal, which then makes it that much more difficult for us to appreciate the simple things we used to enjoy.
The catch of the hedonic treadmill, which we’ve covered before, is that it’s much easier for people to adapt “upward” to better, easier, more luxurious circumstances, than to adapt “downward.” This is what makes the hedonic treadmill a trap that keeps us racing for bigger, faster, and more expensive lives, with no increase in our happiness.
I have a friend who is a sommelier, and I respect her dedication to the field. Her palate for wine likely surpasses yours and mine and she has honed that skill and put it to good use. Anyone who can work to become great in their field is worth admiring and it isn’t up to me to determine what fields are worthy of pursuing and which ones aren’t.
Most of us, however, don’t focus on just one luxury — we want the white glove treatment with everything. We often find ourselves trapped in the middle: too knowledgeable about something to appreciate low-end versions of it, but not knowledgeable enough to capitalize on that skill. In these cases we are no better off than the folks who spend less to find equal happiness, and worse off than the true experts who turn their skills into business opportunities.
I fully recognize that my argument borders on advocating that ignorance is bliss. Yet with so much information available in the world, it doesn’t make sense (and isn’t possible) for everyone to know everything. We specialize to move forward, and some things aren’t worth specializing in if we can’t become the best.
In the business world there’s a concept known as Winner Takes All: in some industries, if you aren’t one of the biggest players, it’s better to exit the market completely. Spices are a good example. Who wants to compete with McCormick? Nobody. The market isn’t large enough for two players to reach those economies of scale.
Our fine tastes are similar in a sense. If you want to indulge in an occasional luxury, go for it. Yet when we reformulate our whole lives to adapt to ever increasing luxuries, hedonic adaptation makes us less satisfied in the long run, ruining both our finances and our ability to appreciate simple joys.
So how do we avoid this trap? First off, back away from the ledge of luxury. It helps to spread luxuries out far enough that you can continue to recognize them as luxurious. If you go to restaurants infrequently, you can really appreciate the fact that a team of dedicated servants is working to provide you with a meal. Having “Emerald tastes” only makes us weaker, while having “Green Glass tastes” allows us to appreciate both the finer things in life and the things that are a little rougher around the edges, a quality we should all strive to be experts in.
Nathan is the CEO of Monte Largo Financial Advisors LLC.