Does money buy Happiness?

According to an often-quoted study, satisfaction with life tops off at an income of $75K. That is barely over the average US household income of about $65K. Yet, most of us believe we would be happier if we had more money. So what is going on? As you make more money optimizing the happiness profit gets harder and if you are not thoughtful about it, at around $75K your profits begin to turn into losses.

For most of us, to get money we must do something (usually that involves going to work), and then chose how to spend it so that the exchange (our time and effort in return for the thing we spend money on) has a positive bottom line, or happiness profit. If your income is fairly low, most things you buy are worth doing most kinds of work. Let’s look at an example. Mary and Beth are on the opposite ends of the income ladder. Mary works at McDonalds for $10 per hour. Beth has a corporate job making $125K per year.

Mary works at her fast-food job for 8 hours a day, 5 days a week (sacrificing some choice and freedom but generally her job is not stressful and her commute is easy) making a total of $400 for the week. Mary spends the money on a month’s worth of groceries for her family–meeting an important basic need. She has generated a happiness profit without having to think very hard about her choices.

Beth also works at her job for a week and makes about $2000 after taxes. It is a stressful job with a long commute but overall Beth enjoys her work. Beth has noticed that her friend has recently bought a Louis Vuitton bag and Beth decides to spend her money on a bag similar to her friend’s. She purchases the bag and invites her friend for drinks. She is proud of her bag but when they meet, she notices that her friend has upgraded to the $4000 Louis Vuitton bag and hers now looks small and unimpressive. Beth is no longer proud of her bag and puts it in the back of the closet determined to work harder to get the fancier bag. Overall, Beth didn’t make happiness profit despite her high income.

After basic needs are met, people really do have to understand their priorities and what brings them long-term happiness. Mary has few choices and most of them result in happiness profits. Beth has many choices and many of them will not result in happiness profits. Beth will have to do some soul-searching to figure out if she wants to keep her high-paying job despite the stress and the commute and how to spend her money in more satisfying ways.

What ways do you spend money that bring you optimal happiness?

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