It really depends on you. That includes how you respond to money, how you spend it, and how you think about it.
The psychology of money vs happiness is complicated. Let me explain.
Without question, living in poverty makes it difficult to be truly happy. A lack of money often causes emotional hardship and creates misery, anger, and frustrations, not to mention negative health outcomes. On the other side of the coin, wealth is more optimal but it is not exactly the antithesis.
Yes, money can buy happiness, to an extent. It can protect you from basic needs around food, housing, potentially health— but wealth does not create a bulletproof state of joy. Those who make it into high earning categories can still experience crises of well-being and questions about self-worth. And they are not immune to hard-hitting issues like domestic violence, drug addiction, body dysmorphia, depression and more.
The tipping point: how much money to be happy in the UK
You may have heard about the happiness salary: $75,000 (roughly £50,000 happiness salary in the UK) a year. In the UK, that is the top 20% of salary earners. According to a famous Princeton study of happiness from 2010 by psychologist Daniel Kahneman and economist Angus Deaton, earnings above that have no further effect on happiness. The quality of emotional daily experiences level off at a certain income level, they found. In other words, money does not buy happiness.
And it’s worth noting that having that amount of money is not equated to feeling rich. It’s a slippery slope, according to one British study, which found that the higher an income someone is on, the less likely they are to say that income makes a person rich. Consider that 74% of people making between £20,000-£29,999 consider an annual £50,000+ income to be rich, compared to only 27% of those actually earning that level of income.
Practical ways you can increase your happiness based on how you spend your money
The answer to the illusive questions “can money buy happiness” or “does money lead to happiness” may largely boil down to your own psychology. What matters most is the way in which income is directed to purposes that are likely to create your own happiness and satisfaction.
So how can you use your money, even if you are not wealthy, to create more happiness, satisfaction and pride?
- Buy yourself time. According to research from Harvard professor Ashley Whillans, time scarcity is an unintended consequence of wealth. But wealth can also be the antidote. Using money to buy free time, or time-saving purchases, can promote happiness. This means hiring time-saving help for shopping, cooking, cleaning and commuting. According to the study: ”Why does buying time promote happiness? Our experiment provides the clearest window into this process, by demonstrating that people felt less end-of-day time pressure when they purchased time-saving services, which explained their improved mood that day.”
- Indulge in small pleasures. According to the reputable happiness researcher Elizabeth Dunn, more frequent spending small amounts on little purchases can create more happiness than occasional large purchases. The indulgence of fancy coffees or flowers or books can provide regular pick-me-ups, she argues, and create more happiness over time that saving up for a sports car. “We may be better off devoting our finite financial resources to purchasing frequent doses of lovely things, rather than infrequent doses of lovelier things,” Dunn says.
- Give to charity. Don’t underestimate the gift of giving. We are inherently social creatures, and find it emotionally rewarding to spend and create happiness for others. Michael Norton, of Harvard Business School, talks about “pro-social spending”, in his 2008 study. He, and other studies since, find that spending money on others, and other financial acts of kindness creates a “warm glow” effect in people who engage in altruistic behaviours, even if just in small amounts.
- Spend on experiences. A study by Cornell University researchers, found that spending on experiences tended to improve wellbeing more than buying a possession. That’s because experiences, from skydiving to cooking classes to a movie, create lasting memories and improve social connections. They also tend to create less buyer remorse than material goods.
If you want to try these researched money approaches to affect your happiness, you can use Money Dashboard to review your spending from little indulgences, to charitable giving, and compare that to periods when you felt happiest and least stressed. Use this analysis to plan a happier future.