While money by itself doesn’t directly create happiness, how you spend and view money can contribute to how much joy you obtain from it. A large academic study from 2021 observed that for most adults in the U.S., higher income is associated with higher experienced happiness. However, for the least happy 20% of the population, there was no reported increase in happiness levels beyond about $100,000 of income.1 This data illustrates that having more money doesn’t always create happiness — but if used properly, money often can increase happiness and well-being.
What’s setting us back from happiness?
One common state of mind setting back people’s happiness levels is living on autopilot. And there appears to be a cultural epidemic of this mindset throughout most of the world. Autopilot can be defined as going through life not being aware of our conscious experiences and without intentional decision-making.2 This state of mind is caused by stressful and time-consuming life demands from the workplace, parenting and other everyday pressures. Therefore, it can be necessary to actively schedule time to pause and reflect on what makes us happy.
What makes us happy?
Given the individual experience of “happiness,” it’s difficult for psychologists to define and measure happiness. Evaluating our well-being is often favored over measuring happiness, as it’s more comprehensive and includes factors such as happiness, life satisfaction, how well we function, and our physical and mental health. Gallup Inc., which has worked with leading psychologists for more than 50 years to measure global well-being, has tried to simplify well-being into five main elements:3
- Career/Purpose Well-Being – Do you like what you do every day and find meaning and purpose in life?
- Social Well-Being – Do you have strong relationships and love in your life?
- Financial Well-Being – Do you manage your finances well to reduce stress and increase security?
- Physical Well-Being – Do you have good health and energy to get things done daily?
- Community Well-Being – Do you have a sense of engagement with where you live?
The majority of people (66%) are doing well in one of these areas, but only 7% are thriving in all five areas.3 Is there an area of your well-being that you value that’s currently lacking given your life circumstances? You can choose to dedicate time and energy — and even align your spending and financial goals — to enhance a particular area of well-being.
Fortunately, many of us already spend money on things that are tied to our well-being without even thinking about it. Did you purchase tickets to a concert or book a new vacation? This would be an experience-based purchase tied to social or community well-being. And it’s commonly known that an experience-based purchase provides more sustainable happiness than a materialistic purchase.4
However, there are likely some areas in our budget that don’t bring us sustained happiness, and shifting our spending from one category to another may serve us better. The next time you’re setting a new financial goal or contemplating between multiple goals, you may want to consider your values and how this purchase impacts your long-term happiness and well-being. Keep in mind that spending on short-term pleasurable expenses is obviously okay. But if our spending is weighted too heavily on instant gratification, it can negatively impact our happiness and well-being.
It should be noted that while our finances can impact our well-being and happiness, there are many other variables involved, such as our environment, life circumstances and even genetics. In fact, a study of 30,000 twins provided evidence that 40% of the differences among people’s happiness levels is simply due to our genetics.5 That isn’t to say there aren’t active changes we can make to increase well-being and happiness, but everyone has a different starting point and may be wired differently.
