By Dr. James M. Dahle, WCI Founder
Will 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 4th 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. In fact, it probably reverses at a certain level. You've heard the phrase “Mo' money, mo' problems,” right? This is what it is referring to. 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.
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 almost at the top of the list, right behind working less (which is really the same thing since time is money).
Scholars have actually studied this issue, most famously Daniel Kahnemann at Princeton in 2010. This is the study from which the $75,000 per year figure comes from, 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 just $104,000, 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.
Kahnemann 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 $10K 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 higher life satisfaction. It's not that you have fewer problems, it's that you have the ability to fix them and 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 7 figures, I think 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, 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, cars, saved for college, saved for 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 is suggesting 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 he'll talk about it for a week before and after you go.
#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?
#5 Buy More Time and Health
There are really 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? Comment below!