What’s Your Financial Metabolism?

Guest post by Joel Hughes

There are so many parallels between financial discipline and dieting. In our first guest post, Dr. Joel Hughes explains his metaphor of financial metabolism. Joel is a professor, clinical psychologist, and church elder.

Losing weight is basically impossible in fatogenic America, or at least it feels that way to me. Part of this is because of the effects of metabolism on weight gain and loss. I’ve been reading about the effects of overfeeding and dieting on metabolism, and I have begun to wonder if these principles are a good metaphor for personal finance.

Overfeeding. When we eat too much, at first nearly 100% of the calories are converted to body mass. But after a while, the efficiency of this conversion wanes. When 12 pairs of identical twins were feed 84,000 extra calories at the rate of 1000 per day for about 100 days, they gained weight—but not the 24 pounds you might expect. Their weight gain was more modest, and ultimately only 60% of excess calories were converted to body mass. The rest was burned up as the metabolic cost of overeating, the increased metabolism associated with more body weight, and the increased activity in which they (unconsciously) engaged.

America is in a constant state of financial overfeeding compared to the rest of the world. For my entire career, there has been an increasing trajectory of income. You might think that 100% of increases are converted to net worth, but that has not happened at all. Instead, I’ve frolicked in the funds with meals eaten in restaurants, better cars, house repairs, more clothes, and other consumerism nonsense. The cost of living increased, but not as fast as my income. My kids grew (and I had more), so that’s a real expense. Certainly some of my increased spending was valid, but I wasn’t paying attention so 10 years later my debts remain largely unchanged. The efficiency of converting increased income to value is very poor. Most excess is burned up in a higher “financial metabolism.” It simply costs more in taxes, energy, and upkeep to maintain a higher standard of living. Solomon understood this principle thousands of years ago; “Whoever loves money never has enough; whoever loves wealth is never satisfied with their income. This too is meaningless.” (Ecclesiastes 5:10).

Dieting. When we don’t eat enough, at first we lose weight according to strict algorithms that approximate physical laws like thermodynamics. But quickly this changes, as all dieters can report. If you lose 10% of your body weight, your metabolism slows forever. Even after years at your new weight, you’ll never regain the faster metabolism you used to have. Meanwhile, your brain craves food more strongly than before. The body seems to defend itself against losing fat stores.

Here the metaphor works in reverse. If I put my finances on a “diet” and start saving more and paying down debt tomorrow, at first 100% of my efforts would result in savings and debt reduction. However, my “financial metabolism” is already broken. It would be really hard to lower the expenses associated with a (formerly) higher standard of living, and I would notice the “pain” of depriving myself of things I never had before I had more income (e.g., nice car). This is easily seen when Americans lose jobs. Many then promptly lose their houses. Or declare bankruptcy. Tightening the belt is really hard to do abruptly.

Prevention. Because we eat hundreds of thousands of calories each year, no one can correctly consume the precise number of calories each day required to maintain a constant body weight, but most people don’t vary by more than a few pounds a year. Our bodies regulate body weight, defending against rapid gains and losses when possible. However, when you are slowly overfed, you gain weight and then your body defends the new “normal.” Most Americans have gradually gained weight since 1970, leading to our obesity epidemic. As weight slowly goes up a few pounds each year, the “set point” changes. It’s reset to a new higher value. Therefore, prevention is better than the treatment. It is very hard (not impossible-I exaggerate) to lose weight and keep it off. It’s far better never to have gained too much weight to begin with.

When our finances are ignored, they slowly creep in directions we hadn’t intended. For example, I spent my new income instead of saving it. Now my habits want to defend a new “set point” where my higher income matches greater expenses with nothing left over. It would have been far, far better to intentionally set financial goals that anticipate increased income and allocate most of that to smart purposes instead of letting my standard of living float upward like a boat on a rising tide. It’s never too late to turn things around, but an ounce of prevention would have been better than a pound of cure.