You’ve heard it many times before, “Money doesn’t buy happiness.” But is that actually true?
You might have read about the study that showed that money can buy happiness, up to a family income of about $75,000.
Or you might have heard or seen the joke of someone responding to that by saying, “Money could solve literally every problem in my life right now.”
So which is it? What does modern day neuroscience have to say about the relationship between money and happiness, and what are some ways that money can actually make us unhappy?
Why is this important?
Let’s think of money as a tool, like a knife. A knife can bring us great joy, either by cutting ingredients for a recipe, or maybe by helping us whittle a piece of wood for a gift. Some knives even help doctors save lives. And yet, a knife used improperly can cause serious harm.
Most people identify the lack of money as a source of stress and unhappiness. And yet, for the vast majority of lottery winners, a sudden jackpot of cash leads to deeper misery. Most people who win the lottery end up going bankrupt within a few years. In US News and World Report, Economist Jay L. Zagorski wrote, “Studies found that instead of getting people out of financial trouble, winning the lottery got people into more trouble, since bankruptcy rates soared for lottery winners three to five years after winning.”
Photo by Alexander Mils on Unsplash
Jesse Livermore is a famous example of someone who found great wealth, only to find that money alone does not lead to happiness. As the stock market crashed in 1929, Livermore shorted the market, meaning that while others lost their livelihoods, he profited $100 million. But, just 5 years later in 1934, he filed for bankruptcy, with only $84,000 in assets and $2.5 million in debts.
What happened? Why wasn’t $100 million enough to keep Livermore happy for the rest of his life?
Money Needs a Purpose
A knife sitting in a kitchen drawer does not make you happy. But using it to make a sandwich does make you happy. Similarly, money cannot work to make you happier unless you give it a purpose.
Once you identify a goal, you can put money to work for you, and money will make you happy. That goal might be retirement, or giving to charity, or buying a house.
A clearly articulated purpose will not only help you make decisions on how you want to use your money, but it’ll also help prevent what is called a “moving goalpost.”
If instead money becomes the goal, someone might start out by saying “I will be happy when I have $1,000 in the bank.”
Once they reach that goal, they might say, “I did that, now I want to have $10,000 in the bank.”
This also seems reasonable. $10,000 might help pay bills for a few months during hard times. But the goal isn’t “security.” Money is the goal. So, once this person reaches $10,000, they set a new goal for themselves.
And this happens over and over and over again. Each time, the goal is further away, and their self-set rules for happiness also get further away.
Instead of having a moving goal post, what do you think some better goals would be?
Ready to set your goals?
Many people find a lot of benefit in speaking to a financial professional to help set strong goals. Often having an objective third-party to speak to can help give your desired outcomes more clarity and specificity.
If you’ve had trouble articulating exactly what purpose you have for your money, CLICK HERE to sign up for a Free Bronze Account, and get a free 30-minute meeting with a licensed financial advisor.