By Dr. Jim Dahle, WCI FounderWill more money make you happier? The short answer is yes. More money will make most people happier. The long answer, however, is much more complicated.
To better understand this issue, we need to introduce a concept that economists call “utility.” In economics, utility refers to the satisfaction levels consumers receive from buying and using a product or service. According to utility theory, people make purchase decisions based on the degree of satisfaction they get from an item or service.
Consider an example. If you're really hungry, a hamburger has a great deal of utility to you. A second hamburger is also pretty useful. Maybe you can eke out a little utility out of a third hamburger. But that fourth one isn't going to make you any more satisfied. More likely, it will make you puke if you eat it. This is the law of diminishing returns or, more specifically, diminishing marginal utility. As consumption increases, the marginal utility derived from each additional unit declines. Marginal utility is the incremental increase in utility that results from the consumption of one additional unit. It certainly applies to both income and assets. It probably reverses at a certain level. You've heard the phrase “Mo' money, mo' problems,” right? This is what that means. If you've ever had to spend thousands of dollars and countless hours on complicated, multi-state tax returns and meeting with estate planning attorneys, you know what I'm talking about.
The Studies
Doctors are no different from everybody else. They think that more money will make them happier. That's probably not really true given average physician incomes, but that doesn't keep us from believing it. Check out the most recent Medscape Physician Burnout and Depression survey:
More money was at the top of the list, right in front of adding more staff and making schedules more flexible (which are really the same thing since time is money).
Scholars have studied this issue, most famously Daniel Kahneman at Princeton in 2010. This is the study from which the $75,000 per year figure comes, i.e., that higher income doesn't make you any happier once you are making at least $75,000 per year. Even if you index that to inflation, it's still $108,000, far less than most physicians make. Even if you adjusted that figure for high cost of living areas, it's not going to even come close to the 25th percentile for physician income.
Kahneman isn't the only one who has made similar conclusions. Andrew Jebb at Purdue came up with a $95,000 figure in 2018. Dwyer and Dunn at the University of British Columbia found that actually giving people $10,000 made them happier but only if they were earning less than $123,000 a year. More money helped people to experience less intense (but not less frequent) stress, feel more in control of their lives, and achieve higher life satisfaction. It's not that you have fewer problems, it's that you can fix them quickly, concluded Jachimowicz et al.
Given my personal experience earning and living on $5,000, $20,000, $40,000, $100,000, $200,000, $400,000, $600,000, $800,000, and seven figures, the honest truth is that there is no hard and fast number anywhere near $75,000 at which point additional money does not bring additional happiness. I think the truth looks a lot more like this graph from Matthew Killingsworth's work in 2021:
He wisely titled his work, “Experienced well-being rises with income, even above $75,000,” and that graph represents exactly my experience. When you're making five figures, more income has pretty dramatic improvements in happiness. As you move into six figures, it's less so. Peak happiness is in the mid-six figures of income. Beyond that, there is very little you can spend money on that will make you any happier.
Even now, spending on everything we can think of that will make us happier, Katie and I spend something in the $200,000-$250,000 per year range. Once you've “taken care of business” (paying off student loans, mortgages, and cars and saved for college and retirement), that's enough money to go on all the trips you want to go on and eat out as often as you want anywhere you like. That's enough money to buy your cars brand new. That's enough to use a helicopter instead of a ski lift. It's not quite enough to routinely fly first class, much less NetJets, but the data here suggests that stuff doesn't really bring any sort of lasting happiness.
How to Get More Happiness Out of Your Money
Some people say that those who don't think more money doesn't buy more happiness just don't know what to spend it on. Ramit Sethi gets sad when he sees people “living below their station.” Maybe. There's probably some truth there. Let's see if we can come up with a list that will help you.
#1 Stop Comparing Yourself to Others
Comparison is the thief of joy. A faster car, fancier clothes, more expensive vacations, and a bigger house are unlikely to bring any sort of lasting happiness. People don't necessarily want to earn more money; they just want to earn more than their brother-in-law. C.S. Lewis said:
“Pride gets no pleasure out of having something, only out of having more of it than the next man . . . It is the comparison that makes you proud: the pleasure of being above the rest. Once the element of competition is gone, pride is gone.”
Remember that investing and spending are one-player games. It's you against your goals. That's it.
#2 Buy Experiences with People You Care About
Want to get more bang for your buck, more happiness for your money? The studies suggest that the best place to spend is on shared experiences with people you care about. Take the extended family on a cruise. Take your spouse to dinner. Take your kid to play Airsoft. Yes, you'll end up with big welts, but you won't regret it and your kid will talk about it for a week before and after you go.
More information here:
Spend Your Money on What Makes You Happy
#3 Learn to Be Content
“Simplify, simplify, simplify,” said Thoreau. Yanni said, “The less you want, the richer you are.” Seneca said, “No person has the power to have everything they want, but it is in their power not to want what they don’t have and to cheerfully put to good use what they do have.” There is a lot of wisdom in those words.
#4 Make More Money
If your household income is NOT in the mid-six figures, don't kid yourself. Making more probably will make you happier. Take a look at your earning activities. Can you make them more efficient? Can you charge more? Can you spend more of your time doing things that earn more? Can you ask for a raise? Should you switch jobs?
More information here:
16 Ways to Earn More Money as a Doctor
#5 Buy More Time and Health
There are three scarce items in your life: money, time, and health. They are not 100% interchangeable, but to the extent that they are, see what you can do to swap money for time and/or health. Without health, wealth isn't worth much, and we're all living on borrowed time. Pay someone to do stuff you don't enjoy doing. You'll probably end up healthier and maybe even wealthier, but you'll certainly end up happier. Always keep an eye out for ways to swap money for time and health.
What do you think about making more money? Do you think it would make you happier? Are you content with what you have? How did you get there?
Agree with Dr. Dahle’s suggestions for maximizing happiness, but this issue is of course quite complicated, and discussed well (though briefly) in Jonathan Clement’s book “How To Think About Money.” The core empirical issues are that “happiness” can be operationalized in very different ways, and that “money” is not the same as “income” (as Jim would be the first to point out, income and wealth are not equivalent). Day-to-day happiness may not increase linearly with income as far as we think it should, but perhaps that’s because more highly compensated work roles entail more stress, unpredictable hours, etc. Overall satisfaction with one’s life (or current period of life) may be a better marker. To illustrate the “more money” ambiguity, as new attending just a few months in, I make $325K a year, but have a net worth of -$100K and a liquid net worth of only ~$50K. Even if I didn’t think more “money” (income) would improve my day-to-day happiness (perhaps it wouldn’t), I certainly think the security and flexibility of more “money” (wealth) would improve my overall life satisfaction, especially for this early career period of my life.
Rick Ferri in a recent Bogleheads post shared some average spending data among his retired millionaire clients.
90% spend about $85K per year (no mortgage, ignore taxes)
10% spend about $120K
Most interestingly, said these amount’s didn’t vary much up to $10M portfolio.
Anecdotally as a retired decamillionare, we spend about $130K per year. (spending everything we want)
I wonder if the marginal utility graphs you shared, shift after retirement?
Or maybe Rick’s data is skewed as Bogleheads might spend more conservatively than larger population.?
Or maybe it’s not what you actually spend, but what you “could” spend that makes you happy?
Two people vs a family is a big difference. $130k / year for two is a similar per person spending to Jim’s $250 – 300k for his family.
Yes, but I doubt we’ll cut our spending back that far when they move out. We’re going to stay in the same house for instance.
awesome article Jim. I think one thing to look at also is what you give up to make the money that exceeds the mid 6-figures. As docs we have had our fair share of broken relationships with our friends and family because we were studying to get into med school, studying in med school, on call every 4th night during residency, and then trying to establish ourselves as attendings that the 6 figure income we receive took a whole lot of sacrifice of the relationships that would truly make us happy.
Jim, was there any comments in the happiness studies you looked at seeing if the diminishing returns on income were because of the sacrifice of relationships and other happiness drivers to get that extra dollar?
I don’t recall ever seeing anything like that.
Actually, the apparent plateauing of happiness with increased income turned out to be driven by the least happy people in the cohort. Excluding these found increasing (and possibly accelerating) happiness with more money. Daniel Kahneman coauthored a nice 2023 analysis (link in my name) that describes these findings.
Weird methodology. Why not exclude the happiest too?
That’s like saying my weight loss program of all chocolate works if you remove all the people who didn’t lose weight.
Good article Jim. Glad to see another perspective on whether more money (above $75,000) can buy happiness. First time seeing the Matthew Killingsworth work. I like it and feel it’s more accurate. I like your #5 (buy more time and health). That one stands out the most.
Interesting how the advice changes as you get richer. From 2014:
“If you can’t live on $200,000 a year, you have a spending problem, not an earning problem.”
https://www.whitecoatinvestor.com/whats-your-problem/
From 2024 this post above “ If your household income is NOT in the mid-six figures, don’t kid yourself. Making more probably will make you happier”
$200k in 2014 is $265k in inflation adjusted dollars.
I agree with your point that more money, particularly for a family, makes things easier. For primary care/hospitalist/pediatrics making in the $250k range it’s a hard truth to hear.
That brings us to reason #1 above.
200k in 2014 was great money because people around or above us were making around that much. In 2024, the Joneses are making much more. Instead of comparing our own financial status from the past, and being happy with how far we’ve prospered, we compare them with others from the present. This, and the constantly moving goal post for the target income and NW we imagine that will make us happy keeps robbing us of our happiness.
The other thing I’ve noticed once you get more FI is you can avoid certain expenses such as buying big ticket items (expensive house, cars, flashy toys) to impress others or even frequent fancy restaurants and spend $200 for a dinner since your priorities are now more on eating healthy at home. Your expenses are more narrowed on what truly brings happiness to you and your family.
I guess the point is that spending more doesn’t make you that much happier, but it’s certainly easier to reach your financial goals with a higher income.
Thanks. This was a really helpful read. The data was interesting.
Importantly , the free advice is worth remembering !
Being a human being, I would almost always say that having more money would be a good thing. But in taking that poll on what workplace measures would help most, I would rank physician control and lighten patient loads as the top choices. Thanks to following measures like the good advice on WCI, I have enough to retire, while my salary as a family doc has always been low average (low six figures). I read a quote by author Morgan Housel (as he quit investment banking) that says it all: “doing something you love on a schedule you can’t control can feel the same as doing something you hate.”
I grew up lower middle class, experienced financial trauma in college (including food insecurity), and struggled until my late thirties.
I made about $1,000,000 TC last year, but I will make much less next year because I’m selling my software company. Money absolutely helped me. I only called the suicide hotline twice last year- down from eight times the year prior.
With more money, I can give it to my church and make sure my kids never have to face the struggle I did. I will have more time to upset WCI, leading to Josh writing more blog posts about me. Really, I didn’t mean for my posts to cause such a fight; I just thought it was a joke at the time.
Envy is the natural state of man. God even made not coveting wives and houses part of the Ten Commandments! I still struggle with it, but now that I have enough money to live without worry I have the bandwidth to focus on other sins: like gluttony and lust.
I have an ACE score of 5, but I also have a disfigured face. I hate to say this, but making money helped me be less angry at God. I feel awful because many people are blessed with less and still have more faith; I am just trying to get better one day at a time.
Please pray and fast for me.
Srry to hear about your unique challenges, especially as a newly mildly disfigured person.
You’re disfigured? What happened? Are you OK?
Fell off a mountain. More info in an upcoming podcast and a little in a podcast a couple weeks ago.
OH my gosh. I agree with your answer 100%. Seems so simple but people always tend to say yes or no. Up to a certain point, being able to manage your money just will. Because if you don’t have to worry about constantly making ends meet, that is a huge relief which opens the door to happiness. But after that, well, you have to the work yourself from there on out!
When I was working in academia, I checked out some of the happiness literature. Interestingly, while more money does seem to increase happiness up to roughly $100k in today’s dollars, the amount that happiness increased was fairly small; money explained only 5-10% of respondents’ happiness. In the study you cite here, it only increased from about 61 to 66 on a 100 point scale. A measly 5 point increase all the way up to $400k income is pitiful, enough to be statistically significant but with remarkably little practical significance.
Money can certainly make many aspects of life easier, but it’s not very good at making us happy.