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 doubted. 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.”

People would often respond by referencing studies that found that money is not correlated with happiness.

The study that people are specifically referencing was done by two PhDs, Angus Deaton and Daniel Kahneman. They found 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 improve your emotional well-being 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 and spending on some enjoyment without stress, then more money will bring you happiness. However, above this point, there are diminishing returns.

A jar full of money

This study was completed in 2008, so when we equate it to 2022 dollars, it’s around $100K for household income. 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. Rather, I’m saying that I think more money can bring you more happiness than that.

Issue: Not Accounting for Location

Another issue 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 well-being 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 well-being 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 foot 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. We could spend our money in more ways because things didn’t cost as much.

That’s my anecdotal evidence for why the “max” income to max out happiness should account for your location.

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:

A visual chart displaying how money does buy happiness after all

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

Example: A Raise

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

The person 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 about it, that makes sense. But this means 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…

Savings Rate Based On Wealth

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

chart of savings rate by wealth class, showing that people who make more save a greater percentage of their wealth

In the long-term, this higher savings rate will lead to a more secure, and therefore happier, life. To be able to realistically save more of your wealth, you need to make more money to begin with.

My Point

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

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

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?

These simple things 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 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 forget about some of the stress they have in everyday life.

When Does Money Stop Buying Happiness?

In opposition to 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. However, that can be a serious negative when it’s time to retire and start spending that money.

This is something that I’ve struggled with, personally, and I am trying to work to get better at it. I am forcing myself to save a little bit less for retirement (gasp!) and instead put that money into my Rainy Day Fund I’ve mentioned before. I think 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:

level of american finance-related stress based on category, with preparing for retirement at the top with 19%

So, when does money stop buying happiness? 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 be not only stressors but can lead to serious issues 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, 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, but that’s not guaranteed to be true for every family.

Now and then I see a story about people making a ton of money who still have a lot of financial stress. 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, how? That is just insane!

The fact is that more money will (almost) always make you happier, 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. In fact, bad habits can get even worse with more money as you have more wiggle room to make mistakes.

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

The Hustle

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 shift,s 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 life would have suffered.

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 you volunteer, anything!

I normally 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 your goal.

I have a stretch goal to be able to retire at the age of 50. My ‘why’ is because I want to spend more time with my family, doing whatever I want, whenever I want.

A red pencil circling early retirement instead of delayed retirement

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 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. Then, when you look back at it, you realize you completely ignored the reason that you initially set out to achieve in the first place!

Instead, focus on your ‘why’ and make sure it’s incredibly well-defined. If not, you will 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!


So, can money bring you happiness? Heck yeah, it can. And generally, the more you make, the happier you will be.

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 you’re going to do with that money?

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

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