You’ve all heard the mantra “money doesn’t buy happiness.” While cliche, the sentiment behind it is completely true, but it’s also extremely simplistic.
It requires diving in deeper to the root issue. Isn’t having more money better than being broke? Sure, of course it is. The reality is, simply making more and more money is not going to increase our happiness levels. Often times, it’s the exact opposite. In 2010, Angus Deaton conducted a study which found that a $75,000 income level is where our happiness plateaus. Any additional income beyond that becomes more stressful and less likely to bring additional happiness.
You might think that sounds crazy, but consider how many athletes and celebrities seem to make more money than they can spend, yet their life spirals completely out of control.
The study also found that a lower amount of income is more likely to bring about stress and magnify emotional pain. So all this being said, there’s an ideal income level. You certainly need enough money to live on, but too much ends up not adding any additional happiness.
Saying "money doesn't buy happiness" can be simplified - buying more material possessions doesn't lead to a sustainable increase in happiness. The problem is we are inevitably stuck in a “wanting more” mindset, rather than practicing gratitude. We get stuck comparing ourselves to others on social media and feeling jealous. Rather than being thankful for what we already have, we tend to immediately focus on chasing the next big thing. We think as soon as we acquire it, we’ll finally be truly happy.
This becomes an unfortunate cycle. Most of the time when we buy the new “latest and greatest” product, we end up having increased happiness for a very short period of time, if at all. Eventually however, that newfound joy wears off, and life returns to normal. This principle is based on hedonic adaptation, which says that “humans tend to quickly return to a relatively stable level of happiness despite major positive or negative events or life change.”
We’ve all seen this play out before in our lives. We had an iPhone 5 that worked perfectly fine, we upgraded to the iPhone 6, and that becomes our new “normal.” There was an initial burst of joy with the purchase, but within weeks it has faded. Now, the thought of returning back to the iPhone 5 seems like self deprivation. In this way, our new standard has increased, yet our level of happiness hasn’t.
This quickly turns into lifestyle inflation. The simple pleasures start to not be enough. We need more and more stuff to bring us the same level of happiness that we had before. With the increase in lifestyle, comes an increase in spending. This directly shows why having more money doesn’t necessarily bring you more happiness. Increasing the amount of possessions we have won't bring lasting joy to our lives.
So if having the highest income level possible doesn’t bring true happiness, what does?
Everyone has their own set of values and purpose in life, but from a financial standpoint, effective money management and gratitude for what you have is what will bring lasting happiness.
Effectively managing your money involves making a plan for how it will be used. By making a budget and tracking your expenses, you’re able to know where your money is going. This also allows you to allocate money towards what’s most important to you. For example, instead of eating out so many times per month, you can start allocating that money towards a vacation fund.
Being in control of your finances has numerous benefits for your life and well being. By building up an emergency fund you’ll have peace of mind. This brings security and comfort, knowing that even if life brings about unexpected hardships, you’ll still be able to make it through.
It gets you out of the constant stress of the paycheck-to-paycheck lifestyle. It keeps you from being tied down to a job you hate, that doesn’t treat you well, yet you stick it out only for the paycheck. Instead, you can now switch to something better without the fear of being unable to pay your bills.
It lets you start to build up funds for retirement, and plan for a better future. If you have a really good handle on your finances, it can even lead to reaching financial independence, meaning you’ll no longer have to work a typical 9 to 5 job if you don’t want to. This brings about a whole new level of freedom, giving you control over both your time and money.
Overall, money can buy a lot of amazing things, but the amount of money you make won’t bring you additional happiness after a certain point. What will improve your overall life and well-being is having effective money management over your finances. Instead of focusing on how much money you're bringing in each month, evaluate the purpose of each of your purchases. Rather than stocking up on more and more posessions to try and fill any voids in your life, use money as a tool to pursue the areas of your life that you truly value most.