Does Money Buy Happiness?

October 26, 2018

Several studies show that happiness levels increase as an individual earns more until reaching about $75,000 in annual salary. No matter how much over $75,000 people earn, they don’t report feeling happier. Typically, financial advisor conversations are centered around how to achieve financial goals. This can be done by saving money, living a healthy and affordable lifestyle, and having a fee-only investment advisor tailor a strategy to meet the overall financial plan.

Happy Money

Dr. Elizabeth Dunn and Dr. Michael Norton, authors of Happy Money: The Science of Smarter Spending, indicate that people aren’t happier based on how much they earn. Dunn and Norton focus on how happiness can be improved based on ways people choose to spend their money. The saying “Money can’t buy happiness” has been around for centuries. Maybe money can’t buy happiness, but Dunn and Norton show that the way we spend our money can improve happiness in five ways: buy experiences, making it a treat, buy time, pay now and consume later and investing in others.

Buy Experiences

Dunn and Norton provide four guidelines on the types of experiences that provide the most happiness:

  1. The experience brings you together with other people, fostering a sense of social connection.
  2. The experience makes a memorable story that you’ll enjoy telling for years to come.
  3. The experience is tightly linked to your sense of who you are or want to be.
  4. The experience provides a unique opportunity, eluding easy comparison with other available options.

Make it a Treat

Two groups of students were given chocolate to taste and rate how much they enjoyed the chocolate. After the tasting, one group was given a two-pound bag of chocolate to take home while the second group was told to avoid chocolate for the next week. When both groups came back to taste the chocolates a week later, the first group did not enjoy the chocolates as much as the second group. Dunn and Norton state that knowing we have access to wonderful things undermines our happiness by reducing our tendency to appreciate life’s small joys.

Buy Time

As people earn more, they spend more time working. Dunn and Norton write that people feel unhappy and stressed when working, commuting, shopping and doing housework. Here are their recommendations:

  • Work: Find a career that offers a work-life balance.
  • Commuting: Find a home close to work or close to the bus or train
  • Shopping: Spending less time shopping can create more time. For example, using home delivery for groceries can free up an hour to enjoy with family or go to the gym.
  • Housework: Pay someone or services to do dreaded chores to free up more time.

Pay Now, Consume Later

Neuroscience studies show that when money is spent, brains are active in the same areas that would be active when we are in physical pain. Dunn and Norton claim credit cards provide anesthesia against the immediate pain of paying. Consuming now and paying later may make people happier today, but also leads to debt and spending more.

On the other hand, paying now and consuming later and creating anticipation has its benefits. Everything is paid off. There is no more pain of having to pay as the event approaches. Our minds have a way of savoring the anticipation and allowing us enjoy the experience more.

Invest in Others

In Dunn and Norton’s study, the amount of money people spend on themselves was unrelated to their overall happiness. When people gave money back and invested with family, friends or charitable causes, their happiness was greater.

In a Gallup World Poll between 2006 and 2008, people who donated to charity in the past month reported being happier in 120 out of 136 countries. The study holds true no matter if one is rich or poor.

Fee-Only Investment Advisor

Still have questions in how to build a happier lifestyle within your financial plan and investment strategy after learning about Happy Money? Safe Landing Financial is a fee-only investment advisor in Los Angeles. Not located in Los Angeles and looking for a fee-only investment advisor? Safe Landing Financial serves clients virtually nationwide.

by Brian Fry CFP®

Safe Landing Financial is a Los Angeles, CA fee-only financial advisor providing financial planning, retirement planning and investment management to tech professionals and pre-retirees. When you work with Safe Landing Financial, you work with Brian Fry, a fiduciary and CERTIFIED FINANCIAL PLANNER™ that puts clients’ best interests first. Financial planning services include: retirement planning, charitable giving, asset protection, estate planning, saving for college, debt management, tax strategy and investment management. Safe Landing Financial serves as a virtual fee-only financial advisor to individuals and families nationwide.