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When a dollar is not worth a dollar

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Summary

This article discusses the concept of 'marginal utility', which describes the level of satisfaction or joy when consuming a good or service. It is illustrated with a line graph that begins with a high level of satisfaction and decreases with each additional bite of ice cream or dollar amount earned. The article examines the concept in relation to money, explaining that many people are stuck in a 'scarcity mindset' and anchored at 'Point A', when they could be at 'Point B', which is the perfect amount to satisfy basic needs. It also discusses 'Point C' which is the point at which people realize that they don't need more money, but more time and the ability to decide how to spend it. The article also emphasizes that money cannot fix internal voids and that introspection is the first step to finding true happiness.

Q&As

What does the "utility" of ice cream have to do with money?
The utility of ice cream describes the incremental joy that arises from the incremental bite of ice cream, and the same arc of utility can be applied to money.

What did the 2010 paper by Daniel Kahneman and August Deaton determine about money and happiness?
The 2010 paper by Daniel Kahneman and August Deaton determined that happiness curve flattens at $75,000.

What is the "scarcity mindset" and how does it relate to money?
The scarcity mindset is the pernicious feeling that there’s always another shoe to drop, irrespective of how much money one has saved or earns. It arises from the (false) belief that there’s never enough and that someone’s bound to be left out.

How can one quantify the "Point B" of money?
One can quantify the Point B of money by evaluating the trade-offs between competing needs and desires. For example, if one wanted to fully save for their child's college in 18 years, it would require roughly $1,000 of savings a month for those 18 years.

What is the "Great Resignation" and how does it relate to Point C?
The Great Resignation is when younger workers are saying, "I don't want to play the delayed time game. I want to enjoy some of that time right now." It is the decision to prioritize flexibility, happiness, and the ability to decide how one spends their time.

AI Comments

👍 This article is a great example of how economics and psychology can be combined to provide insightful advice on the use of money and personal development.

👎 This article relies too heavily on economics and fails to provide any practical advice.

AI Discussion

Me: It's about how having too much of something can be just as detrimental as having too little. It uses the example of ice cream and money to illustrate the point. It talks about how there's a point of diminishing returns when it comes to both, and how it's important to find the equilibrium between having too little and having too much.

Friend: Interesting. So what are the implications of this?

Me: Well, it's a reminder that having a lot of money isn't a guarantee of happiness. The article talks about how money can provide a sense of security, but it can't fill the internal voids we all have. It's important to recognize that money isn't the only source of joy and happiness, and to find other sources of fulfillment and satisfaction. It also emphasizes the importance of finding the balance between having too little and having too much. Too little can lead to feelings of deprivation, while too much can lead to feelings of excess and overwhelm.

Action items

Take some time to reflect on what brings you joy and what makes your heart sing.
Calculate your savings rate to determine how much money you need to save for large-ticket expenses such as a down payment or college tuition.
Consider the trade-offs between competing needs and desires to determine how much money you need to live comfortably.

Technical terms

Marginal Utility: The incremental joy that arises from the incremental bite of ice cream.
Maslow's Hierarchy of Needs: A theory of psychology that describes the biological requirements for human survival, such as air, food, drink, shelter, clothing, warmth, sex, and sleep.
Scarcity Mindset: The false belief that there is never enough and that someone is bound to be left out.
Satiated: To be deeply satisfied.
X-Axis: The horizontal axis of a graph.
Hollowed Out: To be weakened or diminished.
Savings Rate: The amount of money saved over a period of time.
Point B: The perfect amount of ice cream (a kid’s single scoop for a grown man). It’s the point at which you’re deeply satiated, yet well aware that anything beyond it won’t really move the needle.
Point C: The point at which you realize that you don’t want more money, you want more time.