Refresh Your Perspective on Money and Happiness
Financial ManagementBy Alex Kluesner
Eighteenth-century Swiss philosopher Jean-Jacques Rousseau said, “The money you have gives you freedom; the money you pursue enslaves you.” He clearly believed that money alone can’t guarantee happiness. Many other philosophers, business moguls, and philanthropists both before and after his time would also agree. But even centuries later that valid and valuable perspective doesn’t always stop us from struggling with money’s role in achieving a deep, abiding sense of satisfaction in life. If you find yourself wondering whether a larger bank account or better investment returns would bring you (more) happiness, consider taking some time to think about how those things are and are not related.
It’s true that money and wealth can provide a certain amount of happiness and well-being by helping us satisfy our base-level needs. But past that subsistence level, your needs – which are driven primarily by lifestyle preferences – are different than those of others; you might need more or less wealth than someone else to achieve the feeling of contentment that comes with comfortably maintaining your lifestyle. This concept has spurred academics to produce a welter of socio-psychological and financial studies to determine whether an increase in wealth beyond what you require to satisfy your essential needs will result in a similar increase in happiness. For instance, a 2010 study conducted by Nobel Prize-winning economists Daniel Kahneman and Angus Deaton claimed that the relationship between annual income and happiness was highly correlated up to $75,000 a year but then lost significance above that threshold.1 Even though such research doesn’t offer a hard-and-fast rule for every person and every situation, the most recent addition to the literature, a 2021 study from Matthew Killingsworth, shows that wealth does continue providing more happiness above that $75,000 income level, but at a diminishing rate.2 The takeaway for us is that, whatever our own actual number may work out to be, the pursuit of wealth comes with an inflection point. In other words, the psychological toll of generating additional wealth at a certain point may be greater than any temporary happiness gained from it.
If you agree that the overall relationship between money and happiness eventually becomes nonlinear, then what should you do with money you do have? The beauty of money is that it can buy many things, and while you can’t order happiness off Amazon (some might argue that point), it can buy flexibility. A certain level of wealth – when spent wisely – can afford you the opportunity to do almost whatever you want whenever you want with whoever you’d like. It can buy you more time with friends and family. It can allow you to quit your job tomorrow and pursue a truer passion. It gives you freedom to do the things that make you happiest. And it’s important to remember that you don’t need an immeasurable amount of wealth to do these things as long as you prioritize what truly matters to you: charitable giving, family vacations, or planning for the next generation, just to name a few. Following this framework could make you feel wealthier than any amount of money ever could.
Your long-term financial plan is one mechanism to help translate your money into happiness. Your advisory team works diligently with this idea in mind when helping you select an investment portfolio and implement financial planning strategies to meet your life goals and desired milestones. So, instead of being hyper-focused on the pursuit of happiness by way of accumulating more wealth or chasing higher investment returns, be mindful of your current assets, long-term financial plan, and how both can deliver financial freedom and greater flexibility.