“Money is of no value; it cannot spend itself. All depends on the skill of the spender.”
Ralph Waldo Emerson
“Whoever said money can’t buy happiness simply didn’t know where to go shopping.”
Money Can Buy Happiness
Money can buy happiness, according to supporting evidence. However, it is up to you as well.
That is good news! I grew up with the notion that an excess of money may lead to feeling miserable. However, wealth alone is not a guarantee of a happy life. It can help you with your goals, make relationships more accessible, and allow you to be satisfied. Money can buy happiness when you can gain financial security for peace of mind. That is the icing on the cake.
Money Can Buy Happiness In Several Ways:
#1 Earning $75,000 A Year May Make You Happy
A classic study by Princeton University researchers Angus Deaton and Daniel Kahneman found a $75,000 salary to be an optimum level for two types of happiness: day-to-day emotional mood and more profound life satisfaction.
Their work studied 450,000 Americans polled over two years by Gallup and Healthways. The study asked respondents about their satisfaction, income, and adversities like lower income, divorce, and health issues. The more that income fell below the $75,000 benchmark, the unhappier people felt. However, those who made more than that amount did not report a more significant amount of happiness.
Another study at Purdue University and the University of Virginia found $95,000 to be an excellent salary for life evaluation or satisfaction and $60,000-$75,000 associated with emotional well-being.
Researcher Andrew Jebb found that earnings above the ideal threshold coincided with a lower level of happiness. This result suggests the more you make, the more you tend to spend, leading to lifestyle inflation.
Jebb pointed to a degree of happiness through the fulfillment of both basic needs and increasing material needs. Evaluations tend to be more influenced by people comparing themselves to other people. There is an old adage, “Keeping Up With The Jones” used for increased spending.
More recently, Matthew A. Killingsworth’s 2021 study disputed the relevance of making more than the threshold of $75,000 income did not lead to greater happiness. Killingsworth’s research suggested that “higher incomes are associated with both feeling better day-to-day and being more satisfied with life overall.”
I can assure you that earning $75,000 or $100,000 in NYC and living on your own would make your heart sing. For that matter, when someone earns half a million but has $550,000 in hard-to-reduce costs, they are not going to be a happy camper. That person may have a spending problem in need of fixing.
#2 You May Not Be Spending Your Money The Right Way
Consumers can realize more happiness if they spend their money according to core principles recommended by psychologists Elizabeth Dunn, Daniel Gilbert, and Timothy D. Wilson work in the Journal of Consumer Psychology.
Dunn and her colleagues have been proponents of the relationship between money and happiness. Following these tenets may add more satisfaction for consumers:
Buy More Experiences
For some of us, spending money on a new dress, a purse, gadgets, or other material goods makes us feel good. The question is, what produces longer-lasting benefits: material possessions or experiential purchases?
An experience can be a walk on the beach, an exotic or family vacation. True, not all experiences are good. The benefit of a great experience may allow for revisiting those happy memory years. When my children were younger, we often picked pumpkins at a farm, had apple cider, and visited the animals that roamed around. We all remember the fun we had. I’m sure we bought our kids souvenir t-shirts, lanterns, and hats, but they never used the purchases.
Giving to Others
Ever feel a high from helping someone in need? I have, and I am sure I am not alone.
The smallest gesture can mean so much to another that we are sometimes embarrassed that we didn’t act sooner. Making donations to your favorite charities feels good. Slipping a small bill to someone on the street provides us with an even greater satisfaction because it is an intimate form of giving.
This example is “prosocial spending.” There is a positive impact on our social relationships when we practice this type of giving. Give a book to a friend you enjoyed or a tasty treat can improve your bond with that person.
Treat Yourself To Small Pleasures As Antidote To Hedonic Buys
When we make small purchases, we are treating ourselves with relatively inexpensive pleasures. Happiness is closely associated with the frequency of these treats. As financial resources are relatively finite, we are better off making smaller purchases.
Dunn and her colleagues point to the lesser likelihood of adapting to this more secondary and more limited spending. On the other hand, we adapt more quickly to the more expensive purchases if habitual. These are “hedonic buys,” consumed for luxury purposes.
Let’s say you buy high-end specialty coffee drinks like cardamom lattes at $9 a pop daily from Starbucks ‘ Reserve Roastery. Over a short period, you may get accustomed to this rather expensive habit, and it is no longer unique.
When we buy showy sportscars or a bigger house, it may be consistent with our spending habits. We may not even enjoy these consistent expensive purchases as much because we are so used to these luxury goods. As mentioned earlier, this is classic lifestyle inflation, with more spending “required” to feed your happiness.
Extended Warranties Are “Overpriced” Insurance
Extended warranties can be a waste of money for consumers. From appliances to electronics, extended warranties may cost up to 50% of the product cost. On the other hand, retailers enjoy higher margins for this kind of insurance. I try to avoid those heavy-handed sales pitches we receive at the counter by saying I am in a hurry.
Extended warranties are often unnecessary. Consumer Reports recommends that you research the manufacturer’s initial warranty, which usually covers the product for at least 90 days. For most products, that is enough.
Pay Now, Consume Later
In our credit card-oriented society, we are conditioned to spending consumption and pay our bills later. We get immediate gratification from our purchase which doesn’t last as long as our card balances. Delaying gratification may sometimes allow us to feel the pleasure longer.
When booking a vacation, pay for it in advance rather than purchase it on your credit card. Your enjoyment may last longer.
Think About What You’re Not Thinking About: Remember The Details
We often focus on the best qualities of a purchase. By doing that, we minimize or ignore other features that may be critical. I know I have experienced this in some of our most significant purchases, only to regret it later.
Let’s say you want to buy a vacation home. You may be drawn to a cottage for its location and its charm, ignoring some of its downsides. Having a limited budget for your second home, you need to understand potential costs. Buying this cottage may require a lot of updating inside and outside of the building. Had you considered those costs, it may have helped you to negotiate the price down.
Related Post: How To Overcome Biases In Financial Situations
Beware Of Comparison Shopping
We are told to comparison shop to spend more consciously, but there may be a downside. Searching for a particular product available through different brands, we may use several websites like BizRate and Shopping.com. The sites may help us compare them. Retailers know comparison shoppers are ideal audiences for promotions because they have high intent to purchase.
The authors say these sites may offer comparisons based on available options rather than the attributes buyers seek. They may be purposely distracting you from what you are explicitly buying.. Don’t let them throw you off your game!
Follow The Herd Instead Of Your Head
You should read available reviews and pick movies, reading, and restaurants based on better customer ratings. By paying close attention to the happiness of others, you may better glean what you prefer. Be aware of what makes you happy.
I have found some reviews can be helpful through artificial intelligence, though, at times, they are faulty. Netflix recommends the next film we should watch. However, after I watched a murder mystery, Netflix suggested I watch Chitty Chitty Bang Bang. Hmmm.
#3 Buy What Fits Your Personality And You Will Be Happy
Spending increased our happiness when the purchases were for goods and services that match our personalities.
This ambitious 2016 study by Cambridge University psychologist Sandra Matz and others reviewed thousands of bank transaction records of customer purchases across categories. They studied Big Five personality traits: Openness to Experience, Conscientiousness, Extraversion, Agreeableness, and Neuroticism.
The study proved that money could buy happiness if spent according to the proper psychological fit. Our personalities influence our spending for experiential purchases, material goods, or to buy for others.
Our psychological fit matters. We look for similar traits when we choose our friends or colleagues, so we match up with each other. It also plays into how we each spend money individually according to our psychological makeup.
#4 Trade-Offs Between Time And Money
The relationship between time and money is well known. An old proverb, “time is money,” equates the two variables. However, we put different values on time and money. Time is a limited resource, but we don’t treat it as such and waste time often. Whether it refers to 24 hours per day or a lifetime, time is finite, and money may regenerate.
Saving money versus saving time was the theme of the Harvard Business School 2017 study by Ashley V. Whillans. Rising incomes around the globe have often come with stresses of time.
Buying Some Time
This study set out to examine how to reduce stressful feelings of time scarcity. The growth of the sharing economy has made time-saving services for household chores increasingly available. Participants allocated discretionary income at $80-$99 per month to buy time-saving benefits such as meal delivery, house cleaning, and lawn services.
Their study found that people realized greater life satisfaction when linked to spending money for these time-savers by reducing stress.
In a 2018 Harvard Business School study led by Whillans, over 4,000 cohabitating adults (i.e., committed adults) extended the above research. Disagreements about household chores are a primary source of relationship conflict. 30% of the respondents cited disagreements over household chores as the number one reason for divorce.
They found that time-saving purchases promoted relationship satisfaction based on bought “marital bliss.”
There is a Chinese proverb:
“If you want happiness for an hour, take a nap. If you want happiness for a day, go fishing. If you want happiness for a year, inherit a fortune. If you want happiness for a lifetime, help someone else.”
#5 Money Can Buy Happiness. Find Financial Security:
- Spend less than you earn.
- Don’t spend to impress others.
- Create an emergency fund for times of unforeseen circumstances.
- Minimize debt by paying your credit card balances in full.
- Reduce spending when you cannot pay balances fully.
- Automate bill payments to timely pay your bills and regularly contribute to your retirement plan.
- Save diligently and deploy into retirement and investment accounts.
- Invest early with diversification to minimizes risk, using long-term strategies.
- Money isn’t everything.
Various studies consider the relationship between money and happiness on our well-being. Indeed, if you can meet your basic needs and find financial stability, you should be happier than someone who cannot. The world has many unhappy millionaires and billionaires because money cannot solve problems like disappointments, health challenges, or broken relationships. Money can buy happiness!
My grandmother always said, “Poor or rich, money is good to have.” Managing your money well can’t hurt.
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What makes you happy? How does money affect your satisfaction levels? Do you use time-saving services to smooth stress levels?
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.