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The Hedonic Treadmill Effect

This is it. Ground zero. Top roof.

Hedonic Treadmill.jpg

Mostly for most of you people, this is as much happy as you are ever going to get. Some variations, here and there. That is all. I am sorry. Well, I shouldn’t be. You would not be happier because of you. Because your scales would change. Scales you used to measure happiness up till now.

You are earning X. You think you would be happy earning Y. (Y-X) is happiness.

But as soon as you start earning Y, your scales reorient and X converges to Y. (Y-X) tends to zero. Back to the base level position you were earlier. The pursuit of happiness you see is much like walking on a treadmill. You have to keep walking to stay at the same place.

Hence, the Hedonic Treadmill!

Coined by Brickman & Campbell in their 1971 essay “Hedonic Relativism and Planning the Good Society” and later modified by the British psychologist Michael Eysenck, this effect or concept is relevant to us to live more meaningful lives pursing passions we truly care for and understanding that although material gains (including money) are important, more of them wouldn’t make us happier.

Another lesson: Do not forget your roots.

Always stay in touch with your roots. Stay the person who you were previously. Do not change the scales. Maybe. It would definitely make your humble and grounded, but maybe just make you happier.

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Picture Credit: simpleeconomist.com

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Working More Than 12 Hours?

Forgive the rant, but: 

If you are spending more than 12 hours at your workplace (barring exceptional circumstances), that would mean that either your organization’s culture is poor or/and systems are outdated or/and processes are lethargic or/and you are inefficient (you need training, thus) or you are a psycho (you need a psychiatrist).

If you are spending more than 12 hours at your workplace, you are a liability. 

You are not an asset for the organization. Even if you are thought so by some, you are a depreciating asset. You are an asset with high maintenance, high peripheral costs. You set the wrong example. You vitiate the entire atmosphere. You ensure that the wrong people are promoted and the better employees leave for better organizations. You are not only a liability for your organization, but even for your family. You are setting a wrong example even for them.

If you are spending more than 12 hours at your workplace, you are taking the human civilization backwards. 

There was a time when the 4 day work week seemed like a probability. That everyone would have enough time on their hands to pursue their hobbies, pursue their passions. That everyone could have a side-project that could further the civilization. But people like you killed it. That dream. You made people more aggressive, more greedy. Unnecessarily.

If you are spending more than 12 hours at your workplace, you are already dead. 

Telling someone publicly that you work more than 12 hours does not make you appear smarter in front of your colleagues. Whatever they might say in front of you, they pity you behind your back. They pity that you do not have a life outside work. They pity that you do not realise that in all probability you would not be remembered by your own family in 200 years time.

They pity that you don’t realise that you are already dead and inconsequential.

Getting Insured [Part II]

In the last article, we saw how Aadeshna calculated the returns on her mother’s “Cash Value” insurance policies. (Click here to access the article.)  And she was shocked to find that not one of the multiple policies her mother had subscribed to gave returns in excess of 6% which meant that the money invested would only double in 12 years (calculated using the “Rule of 72“).

getting-insured-part-ii

Now, what are “Cash Value Plans”?

The Cash Value Plans are those insurance policies which typically have two parts:

  1. Risk Cover
  2. Savings Component

The risk cover part provides you with the death benefit. Say, a policy holder has an insurance coverage of INR 1 crore. That means that the risk coverage is of 1 crore implying that in the event of death, the nominee of the policy holder – typically a family member – would get INR 1 crore.

And the savings component ensures that you receive a a lump-sum at the end of the policy coverage period or get an annual survival benefit every year. Sounds great, right?

But it is not.

This brings us to lesson number 2 (Click here for lesson 1):

Keep It Simple, Stupid! – the KISS principle designed by the US Navy in 1960

Insurance companies, like any other company, exist to make profit. They are not into charity. That you would receive a lump-sum or an annual survival benefit does not mean that the insurance companies are paying you out of their own pockets. They are making you pay for it. How?

Through your premiums!

This is why premiums of cash value plans are on the higher side as compared to the premiums of the useful “Term Insurance” plans which just do one thing: provide risk coverage. Typically, the premiums of cash value plans are 2 to 3 times the premiums of term insurance plans.

And it is the difference in the premium amounts which is used to provide you with the cash-back at the end of the coverage period.

To know more about the differences between cash-value plans and term insurance plans, wait for the next post!

P.S.: The motive of the post is not to show that getting insured is not necessary. That is absolutely not true. Getting insured is imperative. But there is a better way to get insured which shall be discussed in the subsequent posts of this series on Insurance.

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Picture Credit: www.telegraph.co.uk

Getting Insured [Part I]

One Sunday afternoon, Aadeshna’s mother brought up the topic of the investments she had made in her lifetime. Her mother had retired last year from the Indian Post Office. Most of the investments were in the form of life insurance policies  which were going to mature within the next 3 to 5 years time-frame along with some recurring deposits and fixed deposits. Her mother wanted Aadeshna to calculate the returns on the insurance policies. Aadeshna had recently graduated from one of the best B-schools in the country. Although not an actuarial professional, she had a clear understanding about Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR) among other concepts all finance professionals are privy to.And  Aadeshna was curious to try them out!

Insurance-dice-copy.jpg

Picture Credit: http://orixinsurance.com/

She did the math. Not one of the half dozen policies returned more than 6%. 6%! What is 6%? Doubling the money in 12 long years? (Click here to know how she calculated that in a jiffy!)

She explained to her mother how she could have enjoyed a better return, more liquidity and bigger life coverage if only her mother would have known that:

Insurance is not an investment. It is an expense. A necessary one, but an expense nevertheless. 

That is lesson number 1, people. And while we understand it when we pay the insurance premiums for our cars and motor-bikes, somehow the cash value plans are able to fool us into believing that they add more value to our lives, when in reality there are better options available.

What are Cash Value Plans, you ask?

Click here.

Clue: Aadeshna’s mother had opted for Cash Value Plans.

P.S.: The motive of the post is not to show that getting insured is not necessary. That is absolutely not true. Getting insured is imperative. But there is a better way to get insured which shall be discussed in the subsequent posts of this series on Insurance.

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