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Happy Money

Money is less important to happiness than commonly believed. It is true and proven that making less than US$75k (on average, in the US) is bad for your happiness and health. It makes you constantly worried, increasing stress and cortisol levels in your body. However, above that threshold, there is no correlation (or decreasing correlation, depending on the study) between money and happiness. The middle class in the US is not happier than the high-income class, and despite a massive increase in living standards in the US for the past few decades, happiness levels remain relatively stable.

Above a certain minimum income level, money in itself is neither good nor bad for your happiness. What you do with money and why you are doing it makes it good or bad. Buying a private jet can make you happier - or not - depending on why you bought it and how you use it. Buying things that will give you social recognition, power, prestige, and short-term pleasure won't make you happier—investing in experiences that will strengthen relationships and provide you with purpose/meaning or boost your physical and mental health will. The most significant benefit of money above a minimum threshold is to buy time and freedom. It allows you to allocate your time to things that matter to you and will make you happier in the long run.

Make a list of what made you the happiest in the last few weeks and then another list of where you spent your money. If your happiness times were spending time with your family or friends, but your money is being spent buying watches and clothes, you are not maximizing your happiness (unless money is not an issue). Studies have shown that money spent on experiences (especially with the ones you love) brings more joy than spending money on things (especially things that bring social status).

Moreover, the price of things has a decreasing return on happiness. Spending 2x more on something that makes you happy will usually not make you 2x happier. Studies on housing in Germany have proven that moving to a better (and more expensive) house does not bring a proportional lift to well-being. Conversely, buying a car 20% cheaper than the one you have will not reduce your happiness by 20%. Still, it will undoubtedly give you more money to invest in areas with a “high return” on happiness (i.e., experiences).

Lastly, the standard definition of wealth is flawed. Wealth shouldn't be defined as the stock of money and assets accumulated. Wealth should be defined as what you have (or make) minus what you need. Someone "poor" that requires less than what they make has "infinite" wealth. Someone who has a lot but wants much more than they have is poor. The secret to happiness is not to want more but to learn to need less.

For the ones that want to dig deeper, I highly recommend the book "Happy Money – The Science of Happier Spending" by Elizabeth Dunn and Michael Norton.

Happy Life,



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