My wife and I recently had dinner with two young women. We hadn’t met them before we connected through an online social group in Panama City, Panama. One was a twenty-six-year-old German photographer whose husband helps start-up businesses. The second was a twenty-eight-year-old Australian who works online with her partner.
I always enjoy meeting people. There’s a blank slate. We know nothing about each other and I love asking questions.
“Do you enjoy living in Panama City?” I asked.
“No, we don’t like it here much,” they replied, “It’s not a great city.”
“So, what brought you to Panama?”
As young Digital Nomads, the world is their oyster.
But they aren’t living in Panama City because they enjoy it. “We’re here for the low tax rates,” said the German. The Australian agreed. “Income taxes are high in Australia. My boyfriend and I can make so much more money working online from here.”
I asked, “Did you prefer living in your home cities?”
They both said, “Yes.”
What I said next might make you cringe:
“So…you’re giving up life satisfaction in exchange for more money?”
They just stared. They didn’t know what to say.
Both of these women earned a lot of money. The German woman and her husband (who was also in his late 20s) recently bought a Porsche. They also planned to buy a million-dollar home in Panama City. They already had enough for a 30 percent down payment.
If you’re saddled with debt or unable to pay for good food and shelter, then living in a city you don’t enjoy might help if you can earn more money. But otherwise, it makes little sense.
In the first chapter of my book, Balance, I admit to asking total strangers boatloads of questions. When someone tells me about a decision they made, I sometimes ask, “Why did you choose to do that?” They might be talking about buying a car, raising their kids a certain way, taking a holiday, pursuing a degree, moving to a different country, giving to charity or training for a marathon.
When I ask, “Why did you make that decision?” the answers vary at first. But eventually, when I continue to dig with “Why?” the answers begin to rhyme. We make choices based on the belief that they will make us happy, comfortable, healthy, whole or secure. In other words, we’re motivated by life satisfaction.
But how often are we wrong? Daniel Kahneman is a Nobel Prize winner in behavioral economics. He says most people don’t know what makes them happy. I can hear what you might be thinking: “That doesn’t apply to me!”
Unfortunately, that applies to most of us. Ask someone why they bought a new car, a new iPhone, a new purse or a larger home. If you keep digging with “Why?” they’ll tell you they did it to feel happy, safe or secure. In other words, they’re motivated by life satisfaction.
Daniel Kahneman categorizes happiness into reflective happiness and experiential happiness. If we ask someone, “Are you happier driving that new Mercedes Benz than you would be driving a 10-year old Toyota?” they will almost certainly say, “Of course.” That’s called reflective happiness. It reflects what we believe.
But Experiential happiness is far more real. It represents what we feel–what we experience internally. And research suggests that material acquisitions (whether it’s a new car or an upgraded home) almost never increase our life satisfaction.
The same can be said for having more money…to a point.
For example, a Purdue university-based study found that life satisfaction increased with income up to about $105,000 a year, before life satisfaction plateaus. And most people who earn above $160,000 a year report lower levels of life satisfaction compared to people who earn $90,000 a year.
A Warwick university-based study, however, says happiness is relative to what your neighbors earn. If you earn $105,000 a year but all of your neighbors earn $500,000 a year, then your relative penury could send FOMO into overdrive. That could ensure that you take on higher debts (to keep up with your neighbors’ purchases) and there’s a strong correlation between debts and misery. The Warwick study also found that being a big fish in a pond with bigger fish could negatively affect a person’s health. FOMO, it appears, can also attack our cells.
Daniel Kahneman is right. We often don’t know what will make us happy. But we all want to be successful.
Success shouldn’t be defined by income, money in the bank, a better car, or a better career. Success should instead be defined by life satisfaction. To be successful, I believe we require the following four quadrants:
- We need solid relationships
- We need our health
- We need a sense of purpose
- We need enough money to cover our basic needs, some money for experiences and savings for our future.
My new friends don’t enjoy living in Panama City. They prefer their home countries. But they’re trading life satisfaction in exchange for more money. That’s common, however backward.
I wonder how many of us do the same thing.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas