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By Katie Pins
It’s one of those questions that has been pondered for years: Can money buy happiness?
The answer: yes, but it’s not that simple. The life satisfaction and joy that comes from money is dependent on many factors. Don’t worry, there’s a ton of research on the topic. Let’s look at when money can make you happier, when it can’t boost your self-esteem, and how you can squeeze the most joy out of your dollar.
Your income can impact your happiness levels, according to research. However, after a certain point, an increase in salary has little impact on your happiness.
It’s not surprising to hear that researchers at Michigan State University found that poverty makes people unhappy.1 For our income to make us happy, we need to have enough money to secure our basic needs of food, shelter, bills and any debt we have.
The exact yearly income for full life satisfaction depends on where you live, the number of people in your household and how you define happiness. That’s why there are many conflicting studies about the topic. Research at Purdue University found that globally, life satisfaction does not increase after $95,000.2
Most of the research finds that after a certain amount of money, happiness no longer increases. Pay raises only make us slightly happier temporarily, and we can fall into the trap of trying to “keep up with the Joneses” with our disposable income.
Michael Norton, associate professor at Harvard Business School, has done extensive research on the topic of happiness and money. He has found that money can buy happiness—if you’re spending it right. Norton found that people who gave their money away or spent it on others were happier than those who spent money on themselves. 3
He also found that people who spent money on group activities were happier than people who spent money only on themselves. The group as a whole also reported feeling closer to each other—and close relationships make us feel good.3
Still not convinced? Michigan State University found something very similar in one of their recent studies. People that spent money on experiences were happier than people who spent their money on a material good.1 They concluded that part of the reason experiences created happiness is that they’re harder to compare and the memory of the experience creates lasting happiness.
So, if you want your money to make you happier, spend it on someone else, spend it with someone else, or give it to charity.
What would you do if your car broke down tomorrow? If you have an emergency fund, you could have enough for a down payment on a new car. If you don’t have something in savings, the stress and anxiety that comes with figuring out your next financial move could make you unhappy. A survey by PWC found that people who have built up their emergency fund are less stressed about finances. If you’re able to cut back on expenses and put more toward a high-rate savings account, you could be just a little happier.
The research has shown that, for the most part, the amount of money you make will not make you happier. It’s actually your relationship with money that will help determine how happy you are. The good news is, you have a say in that relationship.
When we reflect on what we have in our life instead of what we don’t, we are happier. This concept comes from a ton of research on scarcity. Our perception of having less of something than others has a big impact on our happiness, even it’s just our perception.4 So, when we think of all the great things we have in our lives, we could increase our happiness without increasing our wealth.
“While it’s true that having more money doesn’t usually make us less happy, it’s also true that simply having more money doesn’t guarantee happiness,” Norton says. “People should stop thinking exclusively about how to get more money, and instead focus more on whether they are getting the most happiness out of the money they already have.”
4. The Soul of Money
Katie Pins is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.