Saturday, July 12, 2014

The Correlation between Fulfillment and Money

On hindsight, the correlation between fulfillment and money should be positively correlated, that is the more money one earns the more fulfillment one gets. But is that really the case?

Based on a research done by Stevenson and Wolfers on the Life satisfaction metrics against Real GDP for each individual nation, we can deduce that our intuition is correct, but not absolutely. It appears that the correlation came up to about 0.70 instead of 1.0 that we imagined it to be. Why is that so?

The Fulfillment Curve

There has been many debates for a number of decades on whether money can truly buy happiness. Based on Robin, V in his book Your Money or Your Life, the fulfillment curve shows that the amount of money spent for Survival, Comforts and Luxuries does indeed improve the fulfillment of one's life. To a certain extent that the marginal benefit of spending money is less than the marginal cost, the fulfillment began to decrease substantially to the point of R.I.P. So how does this exactly work? Let's dissect each individual phase of life.

Phase 1: Survival

The Survival phase is the most important aspect of one's life. As human beings, we are at the mercy of basic needs such as oxygen, food, shelter, etc. Without them, we are unable to sustain our lives to see the very next day. Even though there are reports saying humans can live on 100 hours without having a single drop of water, we don't want to go to such extent. This is why we see that the survival phase has the steepest increase in the fulfillment curve on every unit of money spent.

Phase 2: Comforts

The Comforts phase is probably where most of us are at right now. We can afford a shelter but probably not the bungalow at Sentosa Cove. We can probably indulge in a few fine dining activities but not all the time. We can take the public transportation but not afford a car. We can travel anywhere we want by flying with budget airline but not first class or business class seat. The list goes on. If you are at this stage of your life, then money will still serve as a purpose for you as you aim for the luxury phase of life. Perhaps you want to drive a BMW one day or maybe own a condo at the town area. You work hard to meet the next phase of life.

Phase 3: Luxuries

Very few acquaintance I know are at this stage of their life. This is also the phase where the marginal benefit of spending money is at its closest to the marginal cost. This is the "ENOUGH" phase. You have all the monetary means to spend on any luxury items you fancy and money probably means nothing more than repeating the same activities or buying the same luxury goods over and over again. This is the PEAK.

Phase 4: Overconsumption

In his book, Robin called this the "Clutter" phase - the stuff beyond anything that is excess. And it is easy to see why. Let me give you a layman real life example. I had a buffet lunch with my family this afternoon at the Lime at Park Royal Hotel at Pickering. Friends who know me would know that I love to eat raw Sashimi very much. So when I grabbed my first plate of the Sashimi, there's only one word that can describe my feeling at that point in time: "Simply Awesome" (okay, it's two words, I cheated there). When I went back to grab my second plate, the feeling was still fantastic. The Sashimi was fleshy and thick and it melts in the mouth when you put in right there. When I grabbed my third plate, it tastes okay. By that time, I was already quite done with the Sashimi and wanted to try something else (After all, who eats only Sashimi throughout the buffet right!!!) The idea was that the fulfillment when I ate my third round was definitely not as fantastic as the first and second round. The same concept applies to money. To a certain extent that money is excessive, it only becomes a burden. You are worried about getting robbed. You are worried about how you should decline your relatives who approach you for money. You are worried that money cannot sustain your already high fulfillment level.

What is my Magic Number?

When I began my journey for Financial Independence (FI) back in 2011, I had some numbers in mind based on a few assumptions I made of what should be the peak. The numbers, unchanged from 4 years ago, stand currently at $1,414,705.83. This does not mean that the numbers will not change over time. If any of the assumptions I made earlier have changed, the magic figure would change accordingly. What remained the same is the Fulfillment curve that applies to everyone. My "Enough" figure might shift upwards, but the curve will not deviate from it.

Phase 5: Participation

Apparently, there is a cheat code to the curve. This final phase is called the participation - the contributing phase. This is where fulfillment is derived not from money but rather from the contributions you give back to the society. More specifically for most people, the fulfillment curve slope upwards when you help people attaining the Survival and Comforts phase, usually in poor developing countries where basic necessities such as food and water are scarce. In Singapore, there are a larger group of people who contributes to this and it is heartening to see fellow human beings helping one another in times of difficulties.

The different phases of life is something that we go through in life. They may not be the same for most people. Some of us can be stucked at the comfort phase for life and we may never experience the others. For others, they may experience all the 5 phases of life from the Survival to the Participating phase. Regardless of where you are, the curve would probably serve the same for you and me. It is now up to you to determine what you should do not only your money but also your life.


  1. B,

    $1,414,705.83 !!!???


    What's the 0.83 for?

    You must either be an accountant or engineer! Talk about CNC precision engineering!

    I guess $1.4 or $1.5 million is too fuzzy for you?

    You must do very well in technical studies ;)

    1. Hi Smol

      Hahaha. The precise 2 decimal point comes from the projections I used in Microsoft excel, so uncle cw got it spot on there.

      A whole number 1.5 million is too generic. I like it to be calculative. LOL,just kidding.

  2. The 0.83 comes from Microsoft Excel.

    Just copy and paste the number: $1,414,705.83

    The power of Microsoft. Without it; it will be 1.4M or 1.5M.

    Don't laugh. LOL!

    Hee hee.

    1. Hahhaah Uncle got it spot on there.

      Either I came up with some random numbers or they came from the great invention of microsoft excel. I can go on to 4 decimal points even :)

  3. Eating buffet is like filling jar with marbles.

    Fill up with big marbles (your favorite food) on the first few rounds and then fill up with many smaller marbles by visiting every corners.

    Me too. Fisherman's instinct. Attack all available types of Sashimi on the table. LOL!

    Can't fill anymore. Never mind. We already get what we want. Worth it!

    1. Come to think of it, we might as well go to cold storage and buy a whole bunch of Sashimi there. Why must go to buffet ah?

    2. Same comment from one Batam taxi driver to me.

      Why go and catch a few fish when I can buy ice box full of fish from their wet market. LOL!

  4. Wah how you project one ah? Can share share or not? Some more so precise wor! I also wanna know my magic number!

    1. Hahaha PIB

      I think everyone has their own weightage of importance of their status.

      So mine will not be accurate on yours I guess, not even myself maybe ;)

  5. Hi B,

    Curious to also know if the much talked about "$1,414,705.83" target is based on today's dollars (real) or a nominal target? =p

    1. Hi 15HWW

      Hmm, I counted it based on today's present value actually, so a couple years from now, the figure would shrink in real value :(

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