More money, less happiness: When money makes you miserable

More money, less happiness: When money makes you miserable

More money, less happiness: When money makes you miserableMoney, the conventional wisdom says, doesn't buy happiness. Modern psychology seems to back this up, with studies suggesting that beyond an income of $75,000, money doesn't make you any happier.

This conclusion is simultaneously obvious and counter-intuitive.

As an abstract principle, most us acknowledge that money doesn't buy happiness. But, at the same time, we all want more of something material — a nicer house, nicer vacations, the ability to live in a certain neighborhood or eat at fancier restaurants — that we think would make us happier. (If you're J.D., you think maybe season tickets to your favorite team might make you happier.)

So, we're left with a conundrum. Or, rather, a series of conundrums: Does income in excess of $75,000 make us happier? And if not, why not?

When Money Makes You Happier

In answer to the first question, I believe that all else equal — and as we'll see below, this is a huge qualifier, as things are rarely equal — more money generally makes you happier.

To be clear, money won't solve every problem. If you're lonely or bitter or angry, for instance, more money won't make you any happier. But just because money doesn't solve every problem doesn't mean that money won't solve any problems.

Money can make many things easier, or better. With more money you can:

  • Build a nest-egg.
  • Pay off your house or car.
  • Go on more vacations.
  • Have more kids.
  • Be a stay at home parent.
  • Eat better food.
  • Retire early.

With more money, you can do any number of other things that people enjoy and that make them happier. And if you're a victim of systemic poverty, more money can change your world.

As much as we pay lip-service to the idea of money not making us happy, it often does, and it's okay to admit this. It doesn't make us materialistic or greedy to want retirement savings, a nicer home, a paid-off car, or a trip to Europe.

When Money Makes You Miserable

Assuming that you buy the premise that (in theory) more money should (generally) make us happier, it raises the question of why (in practice) income beyond $75,000 annually doesn't make us any happier.

I think the explanation for this seemingly irreconcilable conflict is that most people spend the extra income poorly. Most people use money ways that make them less happy.

Their Job Makes Them Miserable.

People who earn a lot of money often assume that they're paid well because of their intelligence and skills. And that is undoubtedly often the case.

But often they're paid well in whole (or in part) because they've accepted a very difficult, demanding job that pays well precisely because it makes people unhappy! A job with long hours, lots of stress, lots of travel and time away from family and friends will generally pay well, but also significantly impair happiness.

It shouldn't then be surprising that people with high incomes are often unhappy. The high income and unhappiness have the exact same origins.

They Spend Money on Things That Bring Them No Happiness.

People are generally conformists. Drive through a rich neighborhood, and you'll see people dressed similarly, driving similar cars, going on similar vacations.

This isn't just a happy coincidence, that all these kindred spirits serendipitously found each other and formed a happy community. Rather, people succumb to keeping up with the Joneses and continually buy stuff — not because they enjoy it, but because they'd be embarrassed not to have it.

To a large extent, individuals let their peers dictate how they spend their time and money. Living on somebody else's terms — living somebody else's life — is not a recipe for happiness, and if you do it, extra money won't make you any happier. You'll be spending it how other people want you to, not how you want to.

They Take on More Debt.

When people begin to earn more money, they generally upgrade their lifestyle — buy a nicer home and buy a nicer car. The problem is, they don't pay cash for these things. Rather, they use their new, higher income as a means to borrow more money. Far from providing financial security, the extra income often makes their financial position more precarious.

Instead of using the extra income to buy freedom and peace of mind — which would make them happier — they incur more debt, which makes them more anxious than ever, with the added fear that if they lose their job, they'll be humiliated at having to ratchet back their newly lavish lifestyle.

Extra money won't make you happy if it tethers you to a heavily indebted lifestyle.

The Bottom Line

The lesson here is simple: If you come into more money, it can make you happier — provided that you use it in a way that provides you security, freedom, and sincere pleasure, not merely conformist consumption.

Money, in short, is neutral. It's a tool that can make you happier, or less happy, depending on how you choose to spend it.

Money will make you happier only if you choose to spend it in accordance with your values and your preferences. Nobody — not your parents, not your friends, not your neighbors, and certainly not a blogger! — knows what makes you happy better than you do. But, this doesn't stop people from assuming that they know what is best for you: what neighborhood you should live in, what car to drive, what education you “owe” your kids. If you listen to them, more money won't make you any happier; in fact, it may make you less happy, because you're working hard and incurring debt to live out somebody else's life.

Our family's life is a microcosm of this.

In our twenties, my wife and I both had good jobs in a large city. We had it made by what society values, but we weren't very happy; we worked long hours at demanding jobs. We did however live frugally relative to our incomes.

Burnt out on our jobs, we eventually moved to a smaller city and my wife quit her job so that we could have three kids that she stayed home with. Those were expensive decisions, both in terms of cash outlays and opportunity cost. But they were good decisions; we had less money, but far more joy.

This trade-off was only possible because we had spent many years saving our money, deferring gratification — ignoring a culture that told us to spend as a reward for our hard work — so that when we finally spent the money, we spent it on something that we valued, namely our family. It was the best decision that we've ever made (all the credit goes to my wife!), but it was only possible to live that way in our thirties because of how we had spent, or more accurately not spent, in our twenties.

The point isn't that we're so smart, and that you should have a bunch of kids too. It is in fact the opposite: I have no idea what your best life is.

But then again, neither does anybody else besides you. If you find the courage to decide for yourself what you value, and you use money wisely to pursue your goals and your dreams, you will find that, contrary to popular opinion, money will buy you happiness.

More about...Psychology, Spending Wisely

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J.D. Roth
Admin
11 months ago

Guest posts are fun for me because then I get to comment for once. This is a subject that I discuss with folks all the time at F.I. gatherings. These events are naturally populated by people who have a lot of money. But you know what? They’re no happier than anybody else. My anecdotal observation is that your level of wealth has no bearing on how happy or miserable you are. As Michael says in this piece, what matters is how you use the money you have. I know people with low incomes (and low net worths) who are perfectly… Read more »

J.D. Roth
Admin
11 months ago
Reply to  J.D. Roth

See also: Wealthy, successful, and miserable [New York Times, so possible paywall]

Juan
Juan
11 months ago
Reply to  J.D. Roth

Wow that NYT article is crazy, yet many of the things it talks about make sense when you think about it. I can’t (but actually can) believe the hedge fund guy making $1.2M per year, wanting to go to a star up but “not being able to” because he had locked himself into a certain life style. The saddest part, his wife laughed about the career change and lower pay. What have we come to? I believe all this career dissatisfaction is one of the things fueling the FIRE movement. J.D., I remember reading on another post that we have… Read more »

Dan
Dan
11 months ago
Reply to  Juan

“FIRE” has zero appeal. “FI”? Definitely. “RE”? Nope. I have a flex schedule where I show up to the office whenever I want, and as long as I put 80 hours work in a two week pay period, it doesn’t matter how I do it. And I only work 80 hours per week. I tend to take every other Friday off and make it a three day weekend. I get four weeks of PTO every year, which will get bumped up to 5 every year. Big Plus: My boss doesn’t “approve” vacation. I just tell him when I’m going to… Read more »

Carmine Red
Carmine Red
11 months ago
Reply to  J.D. Roth

How do you evaluate the financial advice you get from other sources? Specifically, how do you decide if some piece of advice is for you, or if you should discard some adjacent advice. Is there an amount of pick-and-choose?

GRS definitely doesn’t seem like a dogmatic 100% one-way-of-doing things site, so I’d love to hear about the critical thinking you employ, and that I’m sure we can all use a little of since we’re getting bombarded by financial “do this!” or “don’t do this” instructions from so many different dimensions.

J.D. Roth
Admin
11 months ago
Reply to  Carmine Red

Oooh. Carmine, this is a terrific question. I don’t think I’ve ever written about this…but I should. If I weren’t headed out for 3-1/2 weeks on the road, I’d do it right now. Maybe I’ll try to tackle it on the plane.

Greg
Greg
11 months ago
Reply to  J.D. Roth

Yasssssss please!

J.D. Roth
Admin
11 months ago
Reply to  Greg

Haha. I can’t wait. I’ve already written 1600 articles about this and I have stuff to get done before I leave, you guys! Plus, there’s a Timbers game tonight. Yet, here I am diving deep into a future blog post. 😉

If what I have already is 1600 words, this article is going to be a doozy. I hope it ends up being useful.

Joe
Joe
11 months ago

Work/life balance is a fine line that you have to figure out for yourself. I agree that money can buy happiness. If you save and invest while you’re young, you can step back and work much less later. It’s easier to find a good balance when you have more time and aren’t constantly stressed out.

dh
dh
11 months ago

Nice post. I feel like one of the key issues is when people come into more money they feel like they have to *use* it in some way, whether for “good” or “bad.” “Good” could mean investing more in a low cost index fund, buying a rental property, starting a business idea, or so on. In other words, it can be mentally hard for some people to just let money pile up in the bank. But what’s wrong with that? I mean, “cash is king!” It can pay for all your basic needs and help you sleep at night. I… Read more »

dh
dh
11 months ago
Reply to  dh

Why do people have kids? Distraction. Why does JD go to Timbers games, travel so much, and work at the box factory? Distraction. Why are we all addicted to things like Instagram and Tinder? Distraction. Why is all the world in love with Game of Thrones and Harry Potter? Distraction. Everyone is constantly trying to distract themselves as best they can to avoid the void.

EFI
EFI
11 months ago

Coming from childhood poverty, I first looked at money as security and so having more felt more secure but didn’t actually make me any happier. As I earned more, I didn’t need to be so intentional about my money. I think that’s one of the reasons you get diminishing returns. I found myself earning more and spending more just…because. Once I returned to being intentional about what I do with it, and why I earn more, life has felt good again. And, having more money lets me correct the earlier mistakes. At this point, having more money allows us to… Read more »

S.G.
S.G.
11 months ago

I dunno, seems like a bunch of speculation to me. I dont see anything suggesting that the theory holds water other than it seems to make sense to the author. I think the relationship is fairly straightforward: more money makes you happy as it pulls you out of actual deprivation until it provides a basic standard of living with a level of luxury slightly above average. After that it isn’t correlated, not because money brings special problems, but because after that it’s about the individual and how personal character and choices effect his/her life. Plus I suspect a correlation: People… Read more »

Dan
Dan
11 months ago
Reply to  S.G.

That’s where I’m at. I grew up poor and know what it’s like to barely have enough money to scrape by. I now make a comfortable living but live in a HCOL area. I don’t yet own a house, and right now, it’s not clear to me that owning one would make me happy. I do a lot of foreign travel (thanks miles and points) and when I look at what I’ve spent overseas in the last decade, it’s a good chunk of money — probably $20k, if not more. Sure, that’s half my current student loan debt or a… Read more »

Jan
Jan
11 months ago
Reply to  Dan

At 60, I have spent a whole lot more then 20k on travel. I don’t regret one dollar spent. I learn best by experience. I am happy with making the choices I made. Not looking back to ponder what could have been is my key. Still, I am genetically predisposed to depression- so sleep and moving forward are always my “go to” for a good life.What is “happy” anyway?

dh
dh
11 months ago
Reply to  Jan

From James Altucher’s 10 Scams you Encounter in Everyday Life: “The entire modern concept of happiness was re-created with commercial images to fool you in various ways. So that people can advertise to you (“if you buy this, you’ll be happier than if you buy that”), so that companies can convince you to work (“if you make this amount of money and we treat you vaguely nicely then you will be happy”). So that self-help gurus can sell you everything from food to exercises to positive thinking to make you think you will be a little bit happier. I do… Read more »

Scott
Scott
11 months ago

This may be a dumb question, but when referring to$75k income is that before tax or take home pay?

J.D. Roth
Admin
11 months ago
Reply to  Scott

Hey, Scott. The rule of thumb I’ve developed for parsing numbers like this is: They generally refer to gross (pre-tax) income rather than net (post-tax) income unless the author specifies otherwise. Most writers are pretty good about emphasizing if they mean post-tax income. (I’d be curious to hear if this is what other people assume too…)

Anne
Anne
11 months ago
Reply to  J.D. Roth

Also, is that per household or if there is a couple living together does the amount rise to $150,000?

S.G.
S.G.
11 months ago
Reply to  Anne

I suspect it’s household income. Per google the median household income was around $61k for 2018. I believe part of what the number is telling us is that people get happier until they make just a bit more than average, which is consistent with other psychological studies I’ve seen. It’s possible it’s less about material wealth and more about relative wealth.

Kim
Kim
11 months ago

Good article. I don’t want to nitpick, but that $75,000 figure is based on a study that’s often misinterpreted. The study is about day-to-day well-being, not something broader like overall satisfaction with life. Other studies find no drop-off at a specific income level. There’s a good article about it on Vox: https://www.vox.com/2015/6/20/8815813/orange-is-the-new-black-piper-chapman-happiness-study Quote from the article: “Same goes for a Gallup poll question asking Americans, ‘Generally speaking, how happy would you say you are — very happy, fairly happy, or not too happy?’ Only 35 percent of people in households making under $10,000 a year reported being very happy. Eighty-three… Read more »

Jo
Jo
11 months ago

The article makes very good points. Might I add that more money, for some, means more ways to give and help others (especially thinking of Robert LeTourneau here), which makes them quite happy.

Greg
Greg
11 months ago

The point thats always missing from these ‘money =/ happiness’ articles, especially quoting the $75K study, is that certainty of income is crucial. The whole point of the FIRE movement is the FI bit, which translates into “certainty of income into the future”.

How secure are you in your job? How sure are you that if you lost it, you could get another? In my experience, the amount is much less important than security.

Stress comes from uncertainty.

Tom
Tom
11 months ago

You nailed it. We have saved up for over a decade with the goal of upgrading to a dream home, but ultimately decided it wasn’t worth it. We had more than enough to pay for what we wanted in cash with a good chunk leftover. While it would of been nice the inflated prices would of caused stress as more debt would have to be taken out. Also, more costly maintenance and repairs that are ongoing. But the biggest reason why is because we decided it ultimately did not fit our lifestyle. We are more on the go type of… Read more »

Papa Foxtrot
Papa Foxtrot
10 months ago

A Princeton professor claimed that anything over $75,000 makes you less happy. I highly doubt they make less than $75,000. Over all this is a very good article. I strongly believe spending to impress others will make you unhappy because you will never impress everyone.

https://forgeyourwealth.com/2019/05/17/does-money-buy-happiness-a-case-towards-wealth/

Nick
Nick
5 months ago

Love the article. I automatically save/invest a certain amount of income and spend the rest on what I want. I have to remind myself that enjoying life is much more important to me than having a $5M investment portfolio. I have enough saved to never work again which makes me very happy. But it doesn’t compare to spending money on my favorite hobbies or activities that allow quality time with special people in my life.

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