Our year end recap continues today with the articles published in May.
Following our introduction to happiness in April, we went on to spend the month of May diving into the intersection of money and happiness.
Money CAN Buy Happiness
First, we learned that money actually can buy happiness.
People love to say money can’t buy happiness. They are right that money won’t solve all your problems and that being rich won’t magically make you happy. But they’re wrong that money can’t buy happiness.
Money does this in two ways. First, and most powerfully, it can eliminate unhappiness. More money, especially for those on the lower end of the income spectrum, can protect from stress and the anxiety of scarcity in a way that can lift our happiness drastically. Second, when spent correctly, we can use money to increase our day-to-day happiness.
When things are going well, it’s easy to take the basics of life for granted. When you’re struggling to afford food, shelter, and other necessities, however, happiness is hard. Much of your day-to-day life is infused with extreme stress.
Money buys the absence of this stress and allows us a base upon which we can build our happiness. We tend to think of happiness as feeling good. We need to remember that it starts with not feeling bad.
Even beyond the basics, we can buy our way out of stress.
If you have a stressful commute you can pay more to live closer to work or take a lower paying job closer to home.
If you’re not getting enough sleep, then buy a new bed, pillow, blackout shades, or noise machine.
Money is a powerful force in promoting happiness and we need to stop pretending that it doesn’t matter.
How Much Does Happiness Cost?
Once we know that money can buy happiness, the next question becomes: How much does happiness cost?
To answer that, we need to first answer another question: What is happiness?
I know, I know. That sounds overly philosophical. But there are real answers to this question. While there are lots of different ways that people measure happiness, they fall into two rough categories.
The first is often referred to as “emotional well-being.” This is your moment-to-moment happiness and your day-to-day happiness. Are you excited right now? Did you feel angry today? These are part of the emotional well-being measurements of happiness.
The other is “life satisfaction.” This is when you think back on your life as a whole and consider how happy you are with it.
When we measure emotional well-being, happiness rises in parallel with income for a while and then plateaus. Money makes us happier up to a point, and then it has minimal effect. When we measure life satisfaction, happiness rises in parallel with money indefinitely. Richer people are more satisfied with their lives.
The emotional well-being finding is pretty easy to explain. Life is harder if you have less money. Once you can comfortably afford the necessities, maybe a few luxuries, and have a bit of a cushion, money becomes a lot less powerful and its relationship with happiness breaks off.
The number at which this relationship breaks off is different in different studies. The most comprehensive finding was that happiness increased with income up to a household income of $75,000. Adjusted for inflation that would be around $87,000 in today’s dollars. Meanwhile, the median American household earns closer to $60,000. Most Americans would be happier with more money.
The finding that life satisfaction increases with wealth indefinitely does not necessarily mean that being rich makes your life better. The finding is one of correlation not causation. This means that there could be a separate variable that impacts both life satisfaction and wealth.
Maybe people who accomplish big goals are more likely to be satisfied with their life and more likely to be rich. Maybe people with big social networks and good relationships are more likely to be happy and more likely to have access to high paying jobs.
The point is that money can buy happiness, but you don’t need to be Jeff Bezos to afford it.
Materialism and Happiness
After learning about the basics of happiness, one of the first topics we discussed was hedonic adaptation. The same applies to money and happiness.
Evolution designed us to be built for survival rather than happiness. This means that we always want more. The drive to stockpile more and more allowed us to survive when we were hit by famine and hard times. It often causes us unnecessary stress now.
The short happiness boost that we get from upgrading our lifestyle keeps pushing us to upgrade more and more. We need to learn to fight our instincts.
If I upgrade from a Toyota to a Cadillac, I’ll be happier. Briefly. And then I’ll go back to my baseline, but still have the bills from the Cadillac. If I want another happiness boost later, I’ll have to upgrade to a BMW.
Eventually I’m making monthly payments on my Bugatti without being any happier than I was with my Camry. These happiness boosts become more and more expensive.
Instead, we need to be more thoughtful about where we spend our money. According to psychologist Sonja Lyubomirsky, “the purchases or expenses that will yield the greatest emotional benefit are those that involve goals that satisfy at least one of the three basic human needs – (1) competence (i.e., feeling capable or expert), (2) relatedness (i.e., belonging and feeling connected to others), and (3) autonomy (i.e., feeling a sense of mastery and control over one’s life).”
Keep those guidelines in mind when you’re trying to buy happiness.
The Power of Gratitude
Another topic that we revisited was gratitude. Just like gratitude lets you get more happiness out of your situation, it also lets you get more happiness out of your stuff.
Feeling grateful boosts your happiness by combating hedonic adaptation. It also makes you more optimistic, which in turn makes you happier. On top of that it makes you feel a stronger connection with friends and relatives, which also makes you happier. Studies have even found that grateful people sleep better (and we’ve already learned that more sleep improves our mood).
If that’s not enough for you, gratitude also decreases negative emotions. More gratitude means less depression, anxiety, loneliness, and envy. It also means fewer headaches, less acne and coughing, and more time exercising.
Gratitude really is the most powerful tool in our happiness arsenal.
Our next article was about finding the best happiness bang for your buck. The short answer? Spend money on experiences!
Experiences provide the best happiness boost for a number of different reasons. First, they avoid hedonic adaptation. You don’t get used to an experience in the same way that you get used to a new couch.
Even if you do a lot of travel, for example, you still don’t have the same level of hedonic adaptation. A trip to Peru is very different from a trip to India is very different from a trip to South Africa.
On top of that, experiences also build our relationships with other people. This also adds to our happiness.
We can also have experience-based challenges that would give us an even larger boost. Something like learning a new skill or training for a marathon give us the standard happiness boost from experiences plus the happiness bonus that comes with growth and overcoming challenges.
There is also a gray area in which you can turn your things into experiences. A boat is a thing. Taking friends out on the lake is an experience. A guitar is a thing. Joining a band is an experience.
If you want to be happier, start spending more money on experiences. Or even better, turn the things you already have into experiences.
Give Away Your Money
Another way to get more happiness out of your money is to give it away.
This may seem counter intuitive, but it is based in the findings that acts of kindness make us happier.
The act is more important than the value here. This means that even inexpensive acts can yield big benefits. Buy flowers for someone. Give a small donation to charity. Pay for the car behind you at the drive-through.
One interesting study in this area looked at happiness levels before and after people received large bonuses. The people with the highest percentage spent on others were the happiest, regardless of the actual size of the bonus. (And that’s on top of the unsurprising finding that people that spent their money on others were happier than people that spent the money on themselves, paid off debt, or invested it.)
Every little bit helps, both for our happiness and for others, so start giving today.
More Money Less Happy?
As we approached the end of the month we started focusing more on balance. First, we looked at when more money will make you less happy.
Most of the month focused on how more money can make you happier. The problem is that you need to give something up to get more money.
This is the idea behind opportunity cost. We trade our spare time for more money. This is fine, but it means we need to be cognizant of when the time would make us happier than the money.
The standard ways we make extra money are by working overtime, picking up a side hustle or a second job, or working on passive income projects. These can provide you with more money to spend on trips and doing nice things for others that would give you a happiness boost. The extra money can also be invested so that you can have more free time later. On the other hand, having more time now means you can have more experiences with your family, more time hanging with friends, time to develop hobbies, and sleep and exercise more. All of these things will also make you happier.
The key is to know yourself and to understand that your preferences may change throughout your life. I used to work three jobs. Then I went to one job and some side hustles. This year I have finally quit all of my side hustles and am using the time for present happiness instead. I also turned down a crazy salary with crazy hours a few years ago because I would rather have the time with my family than the money.
Only you can know what is the best fit for you at this point in your life. But make sure you’re not just trying to maximize your income without regard to your time.
The Present Versus the Future
In addition to balancing our free time now versus our earning potential, we also need to add a third dimension. We need to be able to balance the present and the future.
There are some instances where this is an easy call. One example is buying things that I can’t really afford. If I do that, I’ll be paying the credit card bill long after the happiness boost has worn off.
Most decisions, however, are much more tricky and nuanced.
Is it better to work 80 hours a week and retire in 15 years or 50 hours a week and retire in 30?
Is it better to spend money on a vacation for a happiness boost now, or invest it for a bigger happiness boost later?
You may have instinctive reactions, but there really is no correct answer to questions like these.
Again, you need to find your own balance. Living only for the moment is not healthy. A race to FIRE is also unhealthy. Where you land in between those poles is up to you.
Join the Conversation!
And that’s what we’ve learned this year about money and happiness! What do you think? What have you found to be the best way to buy happiness? What ways do you use your money to buy relief from stress? Let us know in the comments!