Relative money

KEYWORDS: money, life, mathematics

I want to start talking about money. I think a lot of people have an absolutely unhealthy relationship with money, in a way that taints all of their social interactions, their perception of themselves and others, the way they establish relationships, etc.

I also want to try something different, and rather than go for a more big-bang approach, try writing small snippets as I feel like it, and eventually re-edit them into an article, or make it a series. Anyway, let's start with something very simple. So simple that maybe most of you've already thought of it. But I have to start somewhere.

How much is a million dollars, really?

That's the question that I want to answer. Or better said, I want to help you develop an instinct, so you can come up with an answer on your own. And the idea is very simple: start with the instincts you already have, and figure out the scaling factor.

So, let's think about your instincts for a moment, by starting from the other extreme. Let's imagine you want to buy an item, and it costs $0.01. Do you need to think about this expense? Absolutely not. You can get 10 of it. Hell, you can buy 100 of them, and you still don't have to think about this expense. Let's bump it by one order of magnitude and try again. What about a $1 item. Do you need to think about this expense, or can you just get it? What about $10? $100? $1.000? $10.000?

Now, please pay attention to what I'm asking you to do here. I don't want to know if you can afford the item. I want to know what's the highest it can cost, so that you can still buy it without having to think about how little money you're spending. I don't know your financial situation, but I'd expect this number to be in the $10 to $1.000 range. If you want another way of looking at it: What is the highest denomination bill you would feel comfortable making it rain, without having to worry about how much money you'd have left in your bank account the next morning.

Once you've found that value, make a two-column table, and write that value down in the first row. Write your current income next to it. On each subsequent row, multiply both numbers by 10. Eventually you'll get to $100.000, $1.000.000 and higher. And next to it, you'll have a reference income value. The conclusion should now be obvious: If you were making as much money as the number next to $1.000.000, you'd be able to spend $1.000.000 without having to think about how little money you're spending. That's the instinct.

If you want, you can extend this concept a bit by adding a few categories more: "Don't have to think about it", "Only once per month", "Only once per year", etc. Always sticking to whole order-of-magnitude values. Then see which income would give you this same feeling for $1.000.000, or whichever figure you're curious about.