Money Can’t Buy Happiness? It Can Buy Important Ingredients.

“Money can’t buy happiness.”

I was begging for money to buy something from the neighborhood ice cream truck. This is the first time I remember my dad throwing out a phrase I’d hear many times. I remember thinking “Sure, but it can buy an ice cream bar, and I think that would make me happy….”

After my dad left, and my mom led us through a long period of financial struggle, my thoughts on happiness and money got infinitely more complex. I continued to hear this phrase throughout my life, and while I get the gist of it, it’s trite and far too simplistic.

As we head into a Thanksgiving break unlike any other (thanks, Covid!) I’ve been reflecting a lot on how grateful I am to have money now.

Money can’t buy happiness?

Maybe not, but lack of money makes happiness harder in our society. Most importantly, money can buy choice and that matters. A lot. Let’s take a deeper look at this.

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Money Can’t Buy Happiness – Really?

Money can’t buy happiness is most often used to capture two ideas with which most generally agree:

• Consumption won’t fulfill you
• Simply having money won’t fix everything wrong with your life

In my opening example, my dad was right. Buying ice cream wouldn’t have made me more happy in the long term. In the same way that buying designer clothes, an expensive car, or a new and bigger house doesn’t automatically provide happiness.

In most cases, purchases provide (at best) a temporary bump in feelings of happiness. We’ve all had those times where we desperately wanted something. When we bought it – it felt great. Eventually though, that feeling fades either back to neutral or viciously changes to full blown regret.

That’s not to say that purchases can’t provide happiness – particularly if they fulfill a life need. New clothes might actually make you happier long term if they make you feel more confident in a way that is sustained. A new house might make you happier if it fits your lifestyle better by providing more room or a living arrangement that works perfectly for your family.

This is related to that second meaning – you can have lots of money but if you haven’t figured out what your priorities are in your life and worked on those things, it won’t do you any good. As is almost always the case, simply throwing money at a problem without a plan isn’t actually all that helpful. This is why windfalls rarely lead to long term happiness.

Mostly though, more consumption doesn’t lead to more happiness. In that sense, just having more money can’t buy happiness.

Money Does Equate To Happiness Though…

You may have read about some amounts of income that do seem to correlate with happiness. A study from Purdue University, that is summarized well here, found the following:

• An annual income of $70,000 is ideal for providing emotional well-being in the United States
• The global average income for emotional well-being ranges between $60,000 and $75,000
• There is a higher level of “income satiation” that related to positive “life evaluation”
  • This number is ~$105,000 in the US and Canada
  • The worldwide average is $95,000
• After these levels, there appears to be a slight decline in positive life evaluation

So, it looks like money maybe can buy happiness to a certain point.

Strangely, many financial and life gurus have used this information to double down on the “money can’t buy happiness!” angle. Instead of focusing on the first part, they highlight the second – “See, after a mere $100,000 a year your happiness goes down!”

The problem with this? The median household income in the United States in 2019 was $68,703. (Source: US Census) 

Here is what those levels look like side-by-side.

The median household income is almost to the emotional well-being level. Nice…

Except that means at least half of US households are below that level and well-below the higher level of income satiation. (Good news for educators – many teachers can increase their salary above the $70,000 threshold. If you want to experience the six-figure bump it may be worth it to become an administrator.)

So, even if we agree that money can’t buy happiness past an annual income of $100,000 that still means there are a whole lot of people for which it might actually buy happiness!

This isn’t really a surprise for anyone who has experienced financial insecurity. Maybe money can’t buy happiness, but in our current society, not having money leads to a lot of stress and unhappiness.

Money Can Buy Security

If you’ve never had to worry about money on a day-to-day basis, it’s easy to dismiss. But far too many don’t have that luxury.

A favorite quote of mine from Educated by Tara Westover (affiliate link) captures this perfectly:

“I began to experience the most powerful advantage of money: the ability to think of things besides money.”

― Tara Westover, Educated

The first basic level of financial security is having enough money that you don’t need to worry about how you’re going to take care of your basic needs on a regular basis. In our current society, it’s virtually impossible to meet the basic needs of food, shelter, and healthcare without a decent level of income.

I get it – there are monks who self-actualize for something else. Many people get by on very little. But everyone needs some level of wealth to have their basic needs met.

Money is required to have a basic sense of security. That sense is required to even think about happiness. To pretend otherwise is ridiculous. 

Money Can Buy Choice

Once one moves past the basic levels of security money provides (and again – far too many aren’t even there), the greatest benefit of money is the choices it empowers. 

If you have, or are earning, enough money to meet more than the basics then choices unfurl before you. Suddenly, you have options that weren’t available before.

Should you use your money to buy something we desire, save it in an emergency fund, or invest it for the future? Those are options that don’t exist at low levels of income. Once you’ve reached that level, then you can start thinking about how money will make you happy.

Repair or replace?

Used or new?

Renting vs. buying? 

Investing vs. mortgage freedom? 

Do I continue working at this job that I know is safe, or do I take a risk that may lead to higher income?

These are all important questions we ask once we have enough money to start optimizing for happiness. They also provide a sense of control over our lives. If we make the “right” choice, our future will be better.

Optimization is about choice. And choice is absolutely related to happiness.

Choice Provides a Sense of Control

Just like the absence of money creates feelings of insecurity, the absence of choice creates a sense of powerlessness.

It’s why phrases like “financial freedom” and “financial independence” exist and resonate with so many. Even phrases like “wage slave” (as truly problematic as it is) capture the idea that one isn’t in control of their time.

Feeling out of control is a major driver of stress. We often talk about how stressful it is for powerful businessmen earning lots of money because they constantly have to make “big choices.” Sure, that’s stressful, but they’re in control.

Individuals who don’t have that sense of control experience much higher levels of toxic stress. Even the perception of self-efficacy, as described in this article is a major stress reducer:

“The perception of being in control (rather than the reality of being in or out of control) is an important buffer of negative stress. When people feel that they are not in control, they start feeling stressed, even if they actually are in control and simply don’t know it.”

Feeling in control is empowering. It leads directly to lower stress. Lower levels of non-productive stress lead to higher levels of happiness. 

The Pursuit of Financial Independence Leads to Choices

There’s a reason many immediately feel a higher level of happiness just from pursuing financial independence. It’s less about the finish line, and more about the sense of control and choices it provides along the way.

Here are some of the major markers along the way that led to increased happiness for us, and may do so for you as well:

Understanding the Possibility

Just knowing there is a path that allows you to break the traditional path of consumption, career grind, and full retirement age (which keeps getting higher) changes your perceptions.

I’ve written before about my own epiphany that led almost instantly from a feeling of trapped despair to motivation for the future. 

The key? Understanding that there is a different choice. You can be in control. 

Creating A Financial Plan

If you’ve been clueless about your finances, just stumbling through life without setting financial goals and mindless lifestyle inflation (like we were), then creating that first plan feels amazing. 

You are now in control in a way you haven’t been before. You start making choices with your money.

(If you’re ready, check out a list of financial goal examples to get started.)

F You Money

So many hate their job because they feel powerless. They have to put up with the crap because they have no other choice financially. 

“F you” money is a concept explained well by JL Collins on his website and in my favorite financial independence book: A Simple Path to Wealth (affiliate link.)

Saving up “F you money” is a powerful moment in your pursuit of financial independence. It’s not about the amount of money you’ve accumulated – it’s that you no longer have to put up with all those grating things at work. You can advocate for yourself, speak out, or walk away. 

Having that sense of control makes many people begin to enjoy their jobs more. It’s amazing.

Oh, and I can’t miss the opportunity to include the video (warning: language) below:

Funded Lifestyle Change

For some, “F you money” and a fully funded lifestyle change may be the same. For me, not quite. I consider F you money the point at which you are willing to lose your job because you know you can survive until the next thing.

A fully funded lifestyle change on the other hand means you’ve identified a different path you’d like to take and accumulated the money to do so. It lets you make the intentional choice to take a risk and change things up.

An entrepreneur can start a business and have multiple years to make it profitable. An investment professional can become a teacher. A doctor can open her own practice.

It’s an amazing feeling to be in control of your own future.

Financial Independence

Financial independence gives you the ultimate control. You can now choose to work, or not. If you choose to work, it’s not for a required amount of money. We embrace FIOR (financial independence optional retirement) because we want to work at what we choose, rather than stopping work entirely.

This also highlights the distinction for what money can buy, and what it can’t. If you reach financial independence without understanding what fulfills you, it can actually cause a decline in happiness.

You’ve now got choices. Use them to do what makes you feel happy and fulfilled.

Summary – Money Can’t Buy Happiness, But It Matters

Money on its own won’t buy you happiness. In general, simply consuming also doesn’t lead to happiness. Any happiness it does provide will fade over time.

But, having more money does provide two important factors for happiness:

1. Basic security
2. Choice and a sense of control

Pursuing financial independence supercharges that second ingredient of choice by providing clear markers and an increasing sense of control of your financial life. That sense of control allows you to optimize for happiness in your life.

Maybe money can’t buy happiness directly, but it can buy security and choice. And you can use those ingredients to build happiness.