One of the best things I’ve ever posted on The Simple Dollar (in my opinion, anyway) was an article entitled “Some Thoughts on the Fulfillment Curve.” From that article (where I’m referencing the book Your Money or Your Life:
The middle portion of the first chapter focuses on the “fulfillment curve,” which basically refers to the idea that once you reach a certain level of luxury in your life, anything beyond that level is merely diminishing returns.
I went on to provide a visual example of this “fulfillment curve”:
Here’s another example (with a picture of the curve again, for visual aid).
Example #2: Home Buying
1 – We’re essentially homeless. We live in our car.
2 – We live in an extremely cheap, extremely small old apartment. The rent is extremely cheap, but there’s barely enough room for sleeping space for everyone or room to do anything at all. We’re embarrassed to have guests at all.
3 – We live in a nice apartment or a small house. There’s enough room for everyone to sleep and have meals, but we’re sometimes pinched for space and there’s more clutter than we’d like. We have some of our friends over, but we feel pretty self-conscious about the place and don’t have the dinner parties we’d like.
4 – Our house is just the right size for our family. We feel comfortable having any and all guests over, the housework doesn’t overwhelm us, and the bills are completely manageable.
5 – Our house slightly exceeds what our family needs, but it gives us some room to grow. The bills are slightly painful, but we can manage things. We spend a bit more of our weekends on home cleaning and maintenance than we’d like, but we feel quite proud giving dinner parties and inviting people over.
6 – Our house is a McMansion. We can afford the bills, but just barely, and only if we eat everything at home. The bills make me feel kind of guilty, and there are times where it feels like all we do is upkeep.
7 – We bought a house nine times our annual income on an ARM and it just adjusted. Our house is mind-blowingly awesome, but we’re getting foreclosed tomorrow. We have no equity and we have no idea what we’re going to do. I wish we’d never come here.
It’s a really powerful idea and the more thought you give to it, the more you see it popping up again and again in your life.
However, this idea eventually leads to a much more challenging question. What is fulfillment? What does it mean to be fulfilled?
In the above curve, you can see that the peak of the curve is at #4, correct? Let me repeat my description of #4 when the curve is used for buying a home.
Our house is just the right size for our family. We feel comfortable having any and all guests over, the housework doesn’t overwhelm us, and the bills are completely manageable.
That’s the ideal house, right? Here’s the catch, though. How do we know what that house is when we’re shopping for it?
Quite often, we don’t make our financial moves based on real fulfillment. Instead, we make our moves based on perceived fulfillment.
When my wife and I were shopping for our home in 2007, we had what we thought was a good idea of what we were looking for, and we actually managed to find something close to that. However, once we actually moved in, we discovered our home was closer to a #5 on that curve than a #4. Our house is actually a bit bigger than we needed for one child, and it’s probably a bit too big for the three children we have now. We could probably use the same square footage, but only if it were arranged quite a bit differently.
Thankfully, we had more sense than that when we replaced our college cars in 2009 and 2010, but when we purchased our first cars, we definitely made choices that leaned more toward a #5 or a #6 on the fulfillment curve than the optimal #4.
Perceived fulfillment is a tricky thing. Often, it’s informed by what we think our needs are rather than what our needs actually are. That disparity is fueled by a lot of things: marketing (not just TV ads, but things like product placement and PR releases that show up as “news”), using neighbors and friends and family as measuring sticks, a sense of “I deserve it,” and so on.
What I’ve learned is that when I make a purchase, I usually actually aim for a #2 or a #3 on the curve rather than some optimum #4. If I can’t articulate a deep, clear reason for a particular feature, I won’t pay for it. If I see an item and just want it without a clear reason why, I know I should think about the decision more carefully.
Almost always, the purchases that I perceive to be on the “lower cost, but perhaps not as feature rich” end of the fulfillment curve turn out, in the long run, to be right at the peak of that curve. I bought a seven year old vehicle off of eBay last year, thinking that it might not be quite as reliable or feature-rich as I hoped but that the price was right. After driving it for three months, I came to discover that I loved the vehicle and it met my needs and wants almost exactly.
The next time you go for a big purchase, underwhelm yourself a bit. Get the item that makes you think, “Eh, the price is great, but I kind of want the features over here.” Don’t skimp on the things you’re certain you need, but scale back on the things that you’re trying to convince yourself that you want. Buy that #2 or #3 on the curve.
You might just find out that it’s right at the peak of your curve. Even better, you’ve probably saved some serious cash in the process.