I'm big on saving; I'm even a disciple of Mr Money Mustache. But an exercise in happiness ROI I did recently got me wondering about whether our consumerism is the most rational choice.
To measure the ROI of any investment in happiness, we need a system for measuring happiness. I propose the use of 'bacon-days'. One bacon-day is the enjoyment you get from eating one piece of bacon every day. I like this measure because I can always remember or re-experience exactly how much happiness a piece of bacon gives me. We can use bacon-days to estimate the happiness we get from something compared it's cost.
First, let's estimate the happiness ROI of acquiring financial freedom. I'd say not having to work is about the same happiness as having a piece of bacon every 5 minutes. So, 8hrs/day * 60mins/hr / 5mins/bacon = 96 bacon-days. That's the return. What's the investment? Over the last 50 years the S&P500 increased an average of 7.2% per year after inflation. If you had $2M at 7.2% you'll be making $12k/month before taxes. That's a good salary with some buffer. Now we can calculate the ROI. That yields a total of 96/$2,000,000 = 4.6E-5 bacon-days/dollar.
Now let's compare that to something else I want. For example, a bean bag chair. My wife and I will only be able to cuddle in it for once a week to watch a movie. During that time I'll enjoy it equivalent to about 4 pieces of bacon when compared to the current setup of two separate chairs. 1/7 week/day * 4 bacon/week = 0.57 bacon-days. That yields a total 0.57/$130 = 4.4E-3 bacon-days/dollar. Wow! I want that chair two orders of magnitude more than I want financial freedom!
But the chair is an easy example; everyone owns and believes in the value of chairs. What about something that really seems frivolous? For example, I want a plasma cutter. I do a little metal-work and I already own a band saw that does pretty much the same thing. But a plasma cutter would do it faster and I could do some more complex cuts. A plasma cutter and the compressor it needs to run will probably cost me ~$2000. Historically speaking I do a substantial metal-working project every 3 months or so (making a ladder/water-tower, making shelves, making railings, throwing a welding party, etc.) In any given project I'm probably making ~20 cuts. The joy I will get from making a cut with a plasma cutter instead of waiting on that noisy band saw is at least the same enjoyment I get from eating a piece of bacon. That works out to 1/90 projects/day * 20 cuts/project * 1 bacon/cut = 0.22 bacon-days. That yields a total of 0.22/$2,000 = 1.1E-4 bacon-days/dollar. That's still more than double the ROI of financial freedom.
Does this means I should pursue buying such seemingly frivolous things instead of saving for early retirement? It seems like it. I know these simple equations don't consider the value-decay of objects over time, but when something is an order of magnitude more ROI, unless it'll break that year or the next we can often discount value-decay. I'll have to think about it more.
