MYTH BUSTED! Money IS Important for Happiness

One thing that I always heard as a kid was that “money can’t buy happiness” but the older I’ve grown, I really think I disagree with this – and now I have some cold, hard facts to back it up – money IS important for happiness!

Key Takeaways:

  • Statistically, Money CAN Buy Happiness
  • Money Can Be Addicting…In a Bad Way
  • How to Define Your ‘Why’
  • Importance: Your ‘Why’ > Making More Money

In this post, I’m going to cover the following major topics:

“Money Can’t Buy Happiness”

The phrase “money can’t buy happiness” is an age-old concept that, truthfully, I always had a little bit of doubt with. Even as a kid (I was a major smart-aleck), I would say, “sure, money can’t buy happiness, but it can buy things that bring me happiness.”

At that point, people would say, “no, Andy – that’s what we’re saying. Studies show that it can’t buy happiness.” And at that point, I would simply disagree with the studies.

The study that people are specifically referencing is done by two PHDs, Angus Deaton and Daniel Kahneman. What they found is that “not having enough money to live a decent life gets in the way of doing the ordinary things that make people happy,” says Dr. Deaton. “What might create your emotional wellbeing is spending time with your friends, and if your income is below $75,000, you may not have the money to do it. But for life evaluation, money represents a sense of achievement. And that just keeps on going up when you have more money.”

In essence, what they’re saying is that if money keeps you from being able to have a “decent” life, such as being able to afford all necessities in life without stress and still being able to afford some smaller things that bring joy to your life, then anything above and beyond that isn’t going to bring you more happiness.

Now, this study was completed in 2008, so when we equate it to 2022 dollars, it’s right around $100K for a household income. But that just seems relatively low to be the “cap” on the amount needed for happiness.

Let me be extremely clear – I’m not saying that you can’t be happy on a household income of $100K or less but rather saying that I think more money can bring you more happiness than that.

Another issue that I have with this study is that it doesn’t account for different locations and costs of living. That is addressed in their study saying, “No matter where you live, your emotional wellbeing is as good as it’s going to get at $75,000,” says Dr. Deaton, “and money’s not going to make it any better beyond that point. It’s like you hit some sort of ceiling, and you can’t get emotional wellbeing much higher just by having more money.”

I’ve never had data to combat this but from my personal experience, I couldn’t disagree more. I lived in downtown Chicago where our housing expenses were over $2K for an 800 square feet apartment in the city. We then moved to a small town where we had a house that was 1600 square feet and the housing expenses were under $1K. We had another $1,000 to spend and we had 2x the house.

Was I happier in a small town with lower expenses? Yes, 100%. Because my money went further. Everything was cheaper from housing to food, groceries to taxes. Our money, which was almost the same since my wife and I kept working for the same companies during this transition, was identical. It’s just that we could spend our money in more ways because things didn’t cost as much.

So the study shows that money can’t buy happiness…but how certain of that are we exactly?

Can Happiness Be Bought With Money?

If you ask me, yes – money can be bought with happiness. And the cool thing is that FINALLY, I have some data that backs up my thesis on this.

Visual Capitalist put out (another) amazing article that shows that money can buy happiness after all:

My main takeaway from this chart is this – the more money that you make, the happier that you are.

In a study by the Harvard Business School, they found the following:

  • Money reduces intense stress: There was no significant difference in how often the participants experienced distressing events—no matter their income, they recorded a similar number of daily frustrations. But those with higher incomes experienced less negative intensity from those events.
  • More money brings greater control: Those with higher incomes felt they had more control over negative events and that control reduced their stress. People with ample incomes felt more agency to deal with whatever hassles may arise.
  • Higher incomes lead to higher life satisfaction: People with higher incomes were generally more satisfied with their lives.

In a Princeton study, Matthew Killingsworth discovers that people gain the same amount of happiness from something based on the percentage, rather than the raw amount. For instance, let’s think about someone getting a raise.

If two people get a $10K raise, they’re going to be equally happy right? Well, most likely not.

The person that is currently making $50K is going to be happier than the one making $100K because they just got a 20% raise instead of a 10% raise.

When you step back and think, that makes sense. But what this means is that for every dollar you’re making/saving, you’re getting less happiness from it. Maybe that’s why people that make more money, spend way more money…

But guess what – the more people make, the more that they also will save:

What am I trying to say with all of this information? Well, it’s simple really…making more money is going to improve your quality of life and make you generally happier. That’s it.

Sure, some people truly are happy without making much money and that’s awesome. But I bet they’d be happier with more money.

Now, I’m not talking about an astronomical amount, but what about enough to just go on one more vacation each year? Or, be able to buy groceries that you want that week without checking clearance. Or, what about driving your SUV and not caring that gas is $5/gallon like it is right now in 2022.

These are simple things that can become major stressors if you’re budgeting down to your last penny and not making more money.

89% of Americans stated that money is a stressor for them, which to me is just proof that if people had more money they’d live a happier life. Now, that doesn’t mean that their life would be stress-free, but I do think it would allow them to be able to forget about some of the stress that they have in everyday life.

When Does Money Stop Buying Happiness?

Different than what the chart from Visual Capitalist shows, I do feel like people will eventually start to “top out” on their happiness scale from what they earn from money, and truthfully, I think it can be a bit of an addiction.

Some people truly will get happier the more money they get because it’s like a game for them (hand up) to see how much they accumulate, but that can be a serious negative when it’s time to retire and start spending down that money.

This is something that I’ve struggled with, personally, and am trying to work to get better at. I am forcing myself to save a little bit less for retirement (gasp!) and instead put that money into my Rainy Day Fund that I’ve talked about before. I think that doing so will allow me to be a little less focused on the ‘game of accumulation’ and instead enjoy the journey and not reach the destination as fast as humanly possible.

Unfortunately, most Americans have varying levels of financial stress:

So, when does money stop buying happiness? I think that’s a very personal question, but at the absolute least, when you can say that you’re not stressed about any of the topics listed above.

All of these things can not only be stressors, but items that can lead to serious issues in your life if you don’t have funds to protect yourself. I mean, you simply cannot convince me that if you were able to eliminate all of these stressors then you’d be the same, or even less happy, than if you were dealing with these in your everyday life.

And the thing is that while you can make a generic statement that if you make $XXX, then you naturally won’t have these stressors, that’s not guaranteed to be true for every family.

Now and then I see a story about people making a ton of money that still have a lot of stress in their life from money. I recently listened to an awesome podcast from Ramit Sethi where a couple was making over $500K/year and the wife’s card was declined at the grocery store…I mean, like how? That is just insane!

The fact of the matter is that more money will (almost) always make you happy, but it’s also important to note that if you have bad habits, those habits likely won’t be corrected simply by making more money.

If you can’t stick to a budget on a $40K salary, you’re likely going to blow a budget on a $150K salary – it’s all about the habits.

Another pitfall of making more money is that some people can find themselves becoming addicted to the hustle. Personally, this is something that I feel. Even when I was in high school working for minimum wage, I was addicted to picking up as many shifts as I could to try to get OT and hit my 1.5x wage. It was neverending.

At one point we had multiple people quit in the same week so we had a lot of open shifts and I picked up as many as I could. In the end, I had 130 hours of work in 2 weeks.

Because I was young, there wasn’t an issue with this. But if I was doing this with a family as I have now, I guarantee that my family wouldn’t be thrilled about me being gone all the time.

At the end of the day, there are things in life that are more important than money, and that’s why you need to be able to define your ‘why’.

The Importance of Defining Your ‘Why’

Your ‘why’ is the reasoning for doing anything. It can be the reason you go to college, the reason you want to work a certain job, the reason that you volunteer, anything! Normally I talk about defining your ‘why’ in the sense of using it to create motivation for someone starting to learn how to budget and invest, but this situation is different.

You need to know your ‘why’ so you don’t overwork yourself to distract from the goal that you have. I have a stretch goal to be able to retire at the age of 50. My ‘why’ is because I want to be able to spend more time with my family, doing whatever I want, whenever I want.

If I’m on track to be able to hit this goal working my current work schedule, and I voluntarily take a promotion that’s going to require more time away from my family, then I’m just going to be making more money but actually, be less happy.

It can be very easy to get distracted from your ‘why’ and find yourself getting addicted to the hustle of trying to make as much money as humanly possible and then when you look back at it, you realize that you completely ignored the reason that you initially set out to achieve in the first place!

Instead, continue to focus on your ‘why’ and make sure it’s incredibly well-defined. If not, you’re going to find yourself getting stuck in the rat race and look back to a life full of regrets.

So, take some time and think about what you want. Do some quick planning on that goal whether it’s a quantitative goal or qualitative, set up some parameters so you can measure your progress, and then get started!

Summary

So, can money bring you happiness? Heck yeah, it can. And generally, the more that you make is going to bring even more happiness.

Are there exceptions to this rule? 100%

But if you were offered a 10% raise right now, would you be more happy or sad…

You don’t have to answer that – we all know the answer. The only thing that I’m wondering is what’re you going to do with that money?

Hopefully, you use some to treat yourself, but if it was me, a large majority would be thrown into the market based on the latest Sather Research eLetter recommendations!

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