If you’ve ever asked yourself “Can money buy happiness?” you’re not alone! But the answer is not straightforward. Which is why we want to explore the ins and outs of the impact our income and our net worth can have on our happiness!
It’s common to think “I’d be happy if I just had more money!” and while that is somewhat true, studies show that it’s only up to a point that money has a significant impact on our happiness.
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Can Money Buy Happiness?
While asking this question is common,We don’t love that the question itself feels as though happiness is transactional.
The question suggests that being happy is as simple as having a certain amount of money or happiness is something you can buy. It pushes a false narrative that your happiness comes from things outside of yourself. And the thought goes, “If money can buy happiness then that must mean there are things I can buy that will make me happy!” But there are people that live in big mansions with all the things money can buy that are absolutely miserable while other people are truly happy with nothing.
While this is a complicated philosophical question, we hope to shed some light and help you answer it for yourself. After exploring the idea as Financial Coaches we came to understand that to a certain extent money can help you be happier, but it’s still not the whole story.
Even though money is at the center of so much of our life and it is what makes the world go round. Life, the human experience, is far more complicated.
How Much Money Do You Need to be Happy?
Answering this question depends on a lot of factors and in our opinion it is unique to each person. Let’s start with the basics, if you don’t have food, water, and shelter then life is miserable. So being able to afford caring for yourself and having your personal needs satisfied – food, clothing, shelter, eliminates stress and increases your overall satisfaction. But once you get beyond those necessities being provided for, the impact your income has on your happiness is marginal.
Studies and Research
One study from 2010 sought to answer this question once and for all. The study was conducted by researchers at Princeton, made up of a team led by an Economist and Psychologist. These researchers asked participants about their emotional wellbeing, meaning how they feel in their day to day life. They also asked about their life evaluation and questions like “How much money would they need to feel secure?” or “How do you feel about your financial situation in the long term?” Based on responses of participants, in terms of income, the researchers concluded that any income above $75,000/annual does not increase your happiness.
In 2018 a second, separate study was conducted. The findings of this study stated that for participants to feel secure about their long term financial situation, they would need to bring in $95,000 a year.
Do You Need that Much Money to be Happy?
While these responses are a great starting point, we feel like they don’t quite tell the whole story. In fact, we believe as an individual you can still have all of your needs met and be perfectly happy with far less than $75,000/annual even in 2023. The key is managing that money wisely and making financial decisions that help you make the most of that income.
You don’t need to make a lot of money to manage it well.
In fact we know from our experience serving clients from all over the country. Our clients are all in varying industries and have a wide range of incomes. But what they have all learned is that you don’t need a lot of money to manage it well. You also don’t have to make a lot of money to be happy while also saving for your future.
In our experience, what matters more than your income is how much you are able to save for a rainy day and reach other life benchmarks.
How Can Money Buy Happiness?
While we don’t believe money is the key to living a happy life. There are ways that money can help improve your life that make you happier.
Paying for Life’s Necessities
The base-line for money being able to provide any level of happiness has to do with utility. We all need enough money to pay for the expenses that come along with not only survival but being able to function in a modern society. Without money to meet these basic needs there is a lot of struggle to make ends meet, and to participate in regular social activities, much less prosper and be happy.
Savings Reduces Financial Stress
Stating the obvious here – but the more money you have in savings, the less financial stress you will experience. Reduced financial stress has an undeniable positive impact on your overall feelings of happiness.
But this has little to do with your income level and more to do with your ability to save. Living paycheck to paycheck causes a significant amount of stress that is harmful in many ways.
Having an Emergency Fund in a separate savings account for a rainy day increases your resilience and improves your health. Being able to afford lifes necessary and sometimes unexpected expenses is a far better indicator of your financial wellness and the level of financial stress you are likely feeling.
Improving your Health
With reduced financial stress comes improved physical health! No additional steps required to get this benefit. As soon as we are able to feel stable financially, cortisol levels start to regulate and reduce things like cardiovascular strain and all of the other negative side effects that chronic stress has on the human body.
Beyond this benefit, with additional means and discretionary funds we are able to care even better for ourselves. We are able to eat better, go to the gym, see your doctor, and more! All of those things help increase happiness.
Money is notorious for wrecking relationships! But when you are financially stable it can have a positive impact on your relationships.
Let’s say for example someone who used to struggle financially now no longer has to ask to borrow money. That helps improve their relationships with friends and family. As things improve further they have enough money to help others, possibly without the expectation or even the need to be paid back. As someone who now gets to use their financial stability to pour into others, life satisfaction increases!
Not to mention the most important relationship of all – the relationship with your spouse! Managing money as a couple can be incredibly challenging and is the cause of many divorces in the United States. But what about a couple that manages their finances together without money fights? They will experience far greater happiness and a higher net worth than couples who do not manage their money together.
Peak Life Experiences
Without money we couldn’t do one of our favorite things in life. For us it’s travel! We love to go on adventures, eat well, attend concerts, see broadway shows, the list goes on and on! Without money these things are not possible and we aren’t trying to pretend like they do not add to our happiness.
We regularly look back on the trips we’ve gone on and the adventures we have had with an immense amount of gratitude and fulfillment from having been able to have those experiences. In this way we feel like having expendable income can absolutely make you happier. But they can also be a bit empty.
Peak experiences are great but they can also cause a lot of friction and frustration. These experiences will not “make you happy” if you are a miserable person, now you are just a miserable person on a vacation. You need to find ways to be happy outside of these experiences.
Having More than You Need – Giving Generously
Giving generously is probably the closest you can get to “money buying happiness”.
Many of the world’s wealthy people will be quick to tell you that the best part of having money is being able to give it away! Not only to friends and family in need but to causes and organizations that you are passionate about.
When you have more money than you need, you can give generously. In our opinion giving is one of the greatest motivations for reaching Financial Independence and building wealth.
Buying Your Time Back
Once you reach a level of Financial Freedom, and eventually Financial Independence, you are able to buy your time back! This is the whole point of saving and investing – putting money away for use at a time in the future. When you’re Financially Free, living on less than you make and with plenty of money in the bank, you get to choose how you spend your time!
Once you reach this point in your financial journey, it becomes a matter of how you spend your time to “buy happiness”. The way you use your time can either make you happier, or not. Are you using the time you have now to do things that add value to and enrich your life?
Living a Purposeful Life
If you are Financially Free and have enough money, then you don’t have to pursue a high income and status in a job that you might not like. In fact it is common for those who reach a level of financial stability to change careers to something more fulfilling. Despite lower pay or less prestige they get to seek work that is fulfilling in other ways. To pursue passion projects and try their hand at building something of their own.
In our opinion, being able to make this choice of “purpose over profit” is the ultimate financial goal. Seeking your purpose and using the luxury of time to pursue things that are more meaningful in life is a wonderful way to live. The focus becomes less about making money. Rather making money becomes a side effect of pursuing your purpose and more meaning into your life.
How Money Won’t Buy You Happiness
The Pursuit of Money for the Pursuit of Status
If you center your life around money, financial success and status in an attempt to be happy, you will wind up empty handed. Money simply cannot make you happy.
Living a money centered life, you will find the finish line just keeps moving. This is definitely a reason to watch out for Lifestyle Creep and avoid “Keeping up with the Joneses”. If you don’t, instead of happiness, you will find yourself right back at square one. Thinking “I still need more money to be happy.”
No one ever said, “I wish I spent more time making money” at the end of their life.
Growing Your Net Worth Without a Purpose
Having money for the sake of having it is empty. Yes, money sitting in your bank account is a great security blanket, and that provides a level of happiness. But watching the account balance climb without having a purpose for that money, does not bring joy or fulfillment.
Using Money to Shop/Have More Toys
In the most direct sense, money cannot buy happiness when it is just used to buy stuff. But as we are surrounded by marketing and ads at every turn, we are led to believe that we can buy a solution to all of life’s problems.
It is easy to fall victim to things like Lifestyle Creep and to try and buy our happiness. But when we do, we quickly find ourselves unsatisfied. Bewildered that even though we are surrounded by these “great” things we are still unhappy..
At the end of the day, using your money just to have more things is empty and doesn’t make you happier.
Excessive shopping and buying lots of gadgets can even be an attempt of coping or seeking escape from the difficulty of life. So while the initial purchase may be gratifying (immediate gratification) it doesn’t have lasting power. The luster wears off in a short amount of time and you’re back looking for the next thing to buy.
Surprisingly, according to many lifestyles and even Hygge culture, the opposite is true. Living a simple, minimalistic life can actually make you far happier than having every toy, gadget or new tech that comes out.
Free ways to be happier right now!
A study on happiness found that a daily gratitude practice can increase your happiness just as much as doubling your income! With as little as 5-minutes a day you can start to improve how happy you are.
The great thing is gratitude works best when you focus on things that money cannot buy, things that add value to your life and are often taken for granted. For us that can be a sunrise, hot coffee in the morning, birds chirping, the simple things that make daily life rich.
Choosing Your Mood
”When we are no longer able to change a situation, we are challenged to change ourselves.” – Viktor Frankl, Man’s Search For Meaning
One of the most powerful things you can do to be happier, is learn how to choose your mood. Teaching yourself to be responsive rather than reactive is a form of self mastery that can powerfully impact your daily life.When we walk through life being reactive and letting our triggers get the best of us, we are allowing our ego and our insecurities run the show.
The ability to choose your mood also has financial benefits. When we do not have the ability to slow down and control how we react, we can find ourselves losing the ability to control our spending. This is true for those who turn to past times like shopping as a way to self soothe and cope with negative emotions.
But choosing your mood means being able to take a step back from your situation and reframe your initial reactions and choose the way you respond. Rather than being controlled by your emotions and insecurities, you are controlling your emotions and reminding yourself and your ego that you are safe. This takes considerable practice, but over time you can master your emotions and learn to choose your mood.
Being Money Mindful
When you use money with intention and align your financial decisions with your values, then money can buy happiness. At least to a degree. When you bring mindfulness into how you manage your money you will find it helps you eliminate negative emotions associated with trying to buy happiness.
Money mindfulness is another form of self mastery. The practice helps you intentionally use your money and align your spending with your values. In doing so, you experience less buyer’s remorse and negative emotions like guilt and shame after spending money is far less frequent. This absence of negative emotion can obviously improve your happiness! It can also help you stick to your budget, help you incur less debt, and cultivate the habit of saving money!
Spend Your Time Wisely
“You often feel tired, not because you’ve done too much, but because you’ve done too little of what sparks a light in you.” – Alexander Den Heijer, Nothing You Don’t Already Know.
There is so much truth in this quote and it’s so relatable. But while many people interpret it as needing to make radical changes in their life, we suggest taking small steps toward using your time wisely.
Spending your time wisely means using the time you have to do things that add value to your life. Rather than filling your schedule with all the things you need to accomplish. Focus on the value of each thing on your schedule. As Stephen Covey says “The key is not to prioritize what’s on your schedule, but to schedule your priorities.”
While you decide how to spend your time, ask yourself when was the last time you did something just because you wanted to? When was the last time you prioritized relaxation or play? These are the priorities that often get overlooked, but they’re also the things that spark a light in us all!
So – Money Can Buy Happiness?
While money can help lift us out of poverty, meet our basic needs, and enjoy better health – beyond those things, money cannot buy happiness. If money could buy happiness we wouldn’t see as much pain as we do in highly successful people.
Money is a wonderful tool and resource that we can use to make the world a better place. But it is what we choose to do with it that can make us happier. Simply having money will not make you happy, but in using it to serve others can! This is the most important thing to remember when working to build wealth. It is not the money that will make you happy, it is the good you choose to do with it.
What impact will your wealth have on your family, the community, and the world?