We think we know what will make us happy, but we don’t. Many of us believe that money will make us happy, but it won’t. Except for the very poor, money cannot buy happiness. Instead of dreaming of vast wealth, we should dream of close friends and healthy bodies and meaningful work.

The psychology of happiness
Several years ago, James Montier, a “global equity strategist”, took a break from investing in order to publish a brief overview of existing research into the psychology of happiness [PDF]. Montier learned that happiness comprises three components:

  • About 50% of individual happiness comes from a genetic set point. That is, we’re each predisposed to a certain level of happiness. Some of us are just naturally more inclined to be cheery than others.
  • About 10% of our happiness is due to our circumstances. Our age, race, gender, personal history, and, yes, wealth, only make up about one-tenth of our happiness.
  • The remaining 40% of an individual’s happiness seems to be derived from intentional activity, from “discrete actions or practices that people can choose to do”.

If we have no control over our genetic “happy point”, and if we have little control over our circumstances, then it makes sense to focus on those things that we can do to make ourselves happy. According to Montier’s paper, these activities include sex, exercise, sleep, and close relationships.

What does not bring happiness? Money, and the pursuit of happiness for its own sake. “A vast array of individuals seriously over-rate the importance of money in making themselves, and others, happy,” Montier writes. “Study after study from psychology shows that money doesn’t equal happiness.”

The happiness paradox
Writing in The Washington Post last June, Shankar Vedantam described recent research into this subject. If the United States is generally wealthier than it was thirty or forty years ago, then why aren’t people happier? Economist Richard Easterlin of the University of Southern California believes that part of the problem is the hedonic treadmill: once we reach a certain level of wealth, we want more. We’re never satisfied. From Vedantam’s article:

Easterlin attributes the phenomenon of happiness levels not keeping pace with economic gains to the fact that people’s desires and expectations change along with their material fortunes. Where an American in 1970 may have once dreamed about owning a house, he or she might now dream of owning two. Where people once dreamed of buying a new car, they now dream of buying a luxury model.

“People are wedded to the idea that more money will bring them more happiness,” Easterlin said. “When they think of the effects of more money, they are failing to factor in the fact that when they get more money they are going to want even more money. When they get more money, they are going to want a bigger house. They never have enough money, but what they do is sacrifice their family life and health to get more money.”

The irony is that health and the quality of personal relationships are among the most potent predictors of whether people report they are happy — and they are often the two things people sacrifice in their pursuit of greater wealth.

Why aren’t rich people happier? Perhaps it’s because many of them are workaholics, because they’re more focused on money than on the things that would bring them joy. A brief companion piece to The Washington Post story notes that researchers have found that “being wealthy is often a powerful predictor that people spend less time doing pleasurable things, and more time doing compulsory things and feeling stressed.”

In general, rich people aren’t much happier than those of us in the middle class. Yes, money can buy happiness if it elevates you from poverty, but beyond that the benefits are minimal. So why do so many people believe that money will make things better?

Stumbling on happiness
In 2006, Harvard psychology professor Daniel Gilbert published Stumbling on Happiness, a book about our inability to predict what will really make us happy. The following is a 22-minute video of a presentation Gilbert made at TED 2004, in which he compresses his ideas into bite-sized chunks:

Gilbert says that because humans can plan for the future, we naturally want to structure our lives in such a way that we are happy, both now and later. But how do we know what will make us happy? We don’t. In fact, we’re surprisingly bad at predicting what will bring us joy. Gilbert asks:

Which future would you prefer? One in which you win the lottery? Or one in which you become paraplegic? Which would make you happier? [...] A year after losing their legs, and a year after winning the lotto, lottery winners and paraplegics are equally happy with their lives.

The problem is impact bias, the tendency to overestimate the “hedonic impact” of future events. Put another way, the things that we think will make us happy usually don’t make us as happy as we think they will. Winning the lottery isn’t a panacea. Having an affair with your hot new co-worker won’t be as thrilling as you imagine. And losing a leg isn’t the end of the world.

It turns out that humans are able to synthesize happiness. Many people look outside themselves for fulfillment; they expect to find it in things, or in relationships, or in large bank accounts. But true happiness comes from within. True happiness comes when we learn to be content with what we have.

13 steps to a better life
What does all this mean to you? If money won’t bring you happiness, what will? How can you stop making yourself miserable and start learning to love life? According to my research, these are the thirteen actions most likely to encourage happiness:

  1. Don’t compare yourself to others. Financially, physically, and socially, comparing yourself to others is a trap. You will always have friends who have more money than you do, who can run faster than you can, who are more successful in their careers. Focus on your own life, on your own goals.
  2. Foster close relationships. People with five or more close friends are more apt to describe themselves as happy than those with fewer.
  3. Have sex. Sex, especially with someone you love, is consistently ranked as a top source of happiness. A long-term loving partnership goes hand-in-hand with this.
  4. Get regular exercise. There’s a strong tie between physical health and happiness. Anyone who has experienced a prolonged injury or illness knows just how emotionally devastating it can be. Eat right, exercise, and take care of our body. (And read Get Fit Slowly!)
  5. Obtain adequate sleep. Good sleep is an essential component of good health. When you’re not well-rested, your body and your mind do not operate at peak capacity. Your mood suffers. (Read more in my brief guide to better sleep.)
  6. Set and pursue goals. I believe that the road to wealth is paved with goals. More than that, the road to happiness is paved with goals. Continued self-improvement makes life more fulfilling.
  7. Find meaningful work. There are some who argue a job is just a job. I believe that fulfilling work is more than that — it’s a vocation. It can take decades to find the work you were meant to do. But when you find it, it can bring added meaning to your life.
  8. Join a group. Those who are members of a group, like a church congregation, experience greater happiness. But the group doesn’t have to be religious. Join a book group. Meet others for a Saturday morning bike ride. Sit in at the knitting circle down at the yarn shop.
  9. Don’t dwell on the past. I know a guy who beats himself up over mistakes he’s made before. Rather than concentrate on the present (or, better yet, on the future), he lets the past eat away at his happiness. Focus on the now.
  10. Embrace routine. Research shows that although we believe we want variety and choice, we’re actually happier with limited options. It’s not that we want no choice at all, just that we don’t want to be overwhelmed. Routines help limit choices. They’re comfortable and familiar and, used judiciously, they can make us happy.
  11. Practice moderation. Too much of a good thing is a bad thing. It’s okay to indulge yourself on occasion — just don’t let it get out of control. Addictions and compulsions can ruin lives.
  12. Be grateful. It’s no accident that so many self-help books encourage readers to practice gratitude. When we regularly take time to be thankful for the things we have, we appreciate them more. We’re less likely to take them for granted, and less likely to become jealous of others.
  13. Help others. Over and over again, studies have shown that altruism is one of the best ways to boost your happiness. Sure, volunteering at the local homeless shelter helps, but so too does just being nice in daily life.

Remember: True wealth is not about money. True wealth is about relationships, about good health, and about continued self-improvement.

Further reading
Here are some additional happiness resources:

Last month, we discussed whether it was more important to be rich or to be happy. “Money and happiness are not mutually exclusive,” many of you noted, and it’s true. You can have happiness and a big savings account. Or neither. It’s important to realize, however, that money is a less reliable source of happiness than what’s inside you.

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