What is the relationship between money and happiness?
There’s an oft-quoted 2010 study which found that reported levels of happiness started to taper off once a $75,000 salary had been reached.
In other words, while higher income levels still reported higher levels of happiness, the degree of increase got smaller further up the income chain.
For years, $75,000 was seen as the happiness sweet spot.
Earlier this year, a new study that surveyed over 33,000 people – and over 1.7 million experiences between them – contradicted this finding.
According to the follow-up study, reported levels of happiness and well-being continued to trend upward at an equal incline and in tandem with income level, well beyond the inflation-adjusted salary of $80,000 (what the researchers determined as the 2021 equivalent of $75,000 in 2010).
So what happened? Did we get greedier? More superficial and materialistic? Grow further apart? Why do money and happiness have a tighter correlation now than they did in 2010?
The problem with comparing these studies is that it’s comparing apples and oranges. If anything, it raises further questions about the relationship between money and happiness.
To better understand that relationship, we must first consider what happiness is. For that, we turn to the world of psychology.
What is happiness?
Numerous studies have found that happiness itself isn’t directly based on money – but that money has a role in many of the things that are.
For example, interpersonal relationships have been found to be a central tenet of happiness, but financial problems are among the leading causes of divorce.
Marriage isn’t the only kind of relationship of course. Regardless, the amount of time available to spend with friends and family can certainly be influenced by income.
Health is a component of happiness, but access to health care and a nutritious diet are also correlated with income level.
In many ways, money impacts how much of our time and energy can be devoted to the things that make us happy.
Lessons from the world of psychology
To some, happiness means jet-setting around the world, having new experiences, and meeting new people.
To others, it includes watching some rugrats grow up in a happy, healthy home that can support all their needs.
Considering the differences from person to person, expressions of happiness as a starting point introduce too many variables to control for.
So we’re going to slide right on over to the opposite side of the spectrum – the absence of happiness – as the starting point. What characterizes an absence of happiness?
When we consider a host of psychological conditions associated with happiness (or a lack thereof), such as depression and anxiety, we find that they tend to have some commonalities. They may have different symptoms, but almost all of them have roots in a lack of control over circumstances and a sense of hopelessness.
At its core, hope is based on progress. Progress is forward-facing and requires a genuine belief that you have some efficacy over outcomes.
Without a sense of personal efficacy and progress, it’s hard to imagine anyone reporting that they feel happy.
The inflation rate of happiness
Money gives us control over many of life’s circumstances. Being able to pay for housing, bills, food, car repairs, and other needs eliminates major stressors that detract from a personal sense of well-being.
Money is also a tool that enables us to pursue our own version of happiness, whether that be more time with family and friends, traveling around the world, or getting a new car.
Consider this: In 2010, the average cost of a new home in the U.S. was just shy of $279,000. That’s about 3.7x the salary of someone making $75,000.
In 2021 to date, that figure looks much different. The average cost of a new home clocks in at $408,800. Even with the “inflation-adjusted” income of $80,000, that’s a 5.1x multiple – a difference of over 33% – in just eleven years. There’s little sign this trend is slowing.
And it’s not just real estate. Other living expenses have also continued to climb faster than inflation rates capture.
It makes sense, then, that the reported level of well-being continues to rise well beyond the $80,000 benchmark. The benchmark has less buying power.
The price of happiness, it seems, is a moving target. Americans are increasingly falling behind the level at which they feel financially secure and fulfilled. They continue to grapple with financial stressors at higher and higher income levels.
Solving for why
But why? They did all the right things. They went to college, got the job, worked hard, climbed the ladder, saved…the whole enchilada. This raises questions around personal success, fulfillment, competence, and progress – questions that address the ‘why’ the two studies arrived at different conclusions.
After all, few people have influence – or even a real understanding – over macroeconomic trends that impact their finances. An inability to meet milestones when in reality, the goalposts are moving further away, is a recipe for hopelessness.
Perhaps the relationship between money and happiness hasn’t changed fundamentally. It’s just that happiness has gotten a helluva lot more expensive.
Getting off the treadmill
So are we stuck on a treadmill of existential dread, falling further and further behind our goals – and our shot at the pursuit of happiness?
Not necessarily. The key lies in understanding that the 9-to-5 trajectory, on its own, has diminishing returns. Acknowledging this reality – and strategizing around it – is the first step in exerting more control over your financial life and future.
Warren Buffet says: “If you don’t find a way to make money while you sleep, you will work until you die.”
The best way to grow money while you sleep is by making your money work for you.
Many people feel they can’t afford to invest. This is a critical fallacy, because in reality, they can’t afford not to. It’s a common misconception that investing is for people who wear monocles and have chauffeurs. Thanks to technology, investing is becoming increasingly democratized.
HappyNest, for example, only needs you to invest $10 to get started. That money starts to generate more money for you immediately. By reinvesting your gains, you can reap the wealth-building benefits of compound interest and turbocharge your nest egg’s growth.
HappyNest is a low-risk investment that produces steady returns every quarter. With two commercial properties currently leased by stable tenants like FedEx and CVS for 8- to 10- year terms, you can enjoy consistent dividend reinvestments (or payouts) as well as the appreciation of the real estate, an investment class dominated by the wealthy due to its capital intensive barriers of entry.
Starting and growing a nest egg offers control over your finances, peace of mind through stability, a sense of progress toward financial goals. Perhaps most importantly, it offers hope for the future – a solid foundation for the pursuit of happiness.
Because the best thing about having money…is not having to think about money.