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.
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 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!
I really enjoyed this post and it’s message. I do look at things a little bit differently. I think that money can buy happiness when used right. I think there is some layer of “necessary but not sufficient” that comes with it so I try to look at it through a bit more of a glass 1/2 full lens. Granted this is definitely biased by the fact that I just finished training within the past year and had a huge jump up in income. But I believe it holds true. I wrote a bit more about this around the holidays but it pertains to the whole year 😁 Without realizing it at the time, it’s a bit of a rebuttal to this post:
https://prudentplasticsurgeon.com/money-can-buy-happiness/
I imagine PPS every morning sitting at his computer hitting F5 over and over again until the next White Coat Investor post appears 🤣
Good post as usual. I’ve always thought of the $75,000 study as being much older than 2010, that number always seemed outdated to me. Surprised it was only 11 years ago.
Maybe I should torture him by setting his comments to be held for moderation. 🙂
How can you not get excited about this stuff?!
(Also what does F5 do? Asking for a friend 😂)
Money is freedom to work as much or as little as you wish and to travel where and when you choose.
I’m about 18 months from a larger degree of freedom if the plan works out. At that time, I vest at my job in their 401A matching funds.
In order to make the plan work, we will also downsize markedly from the McMansion and its high taxes and high energy costs to more land and less house in a cheaper state with more sun.
I’m sitting in the retirement retreat right now, next to a fire, having watched the sun come up over the mountains.
Happiness is different for each person. For me, it’s working much less (say one day a week or an occasional Locum), having no mortgage, and having enough money to pay the bills and travel several times a year. Of course, the health and well being of my family is included in the equation.
I need my family, a trail, a river, a mountain, a dog, and a cup of coffee these days. The last few days here, we went out for lunch twice and that’s the only money we spent.
I’m close…all I have to do is not die.
Agreed that more money may not bring more happiness, but nothing says “you don’t matter” like receiving less money.
I agree and it’s a good way to know your service is not valued so maybe it’s time to move on.
I’ve noticed an increase in materialistic comments over the years on bogleheads and websites like this. Truly sad to see people find no joy in giving to charity or volunteering. Paying off a house is great, but there’s more to life than a paycheck. Its darkly comical to see others suggest that a family doc or pediatrician cannot possibly live off less than 150,000. The “American way” i suppose…
Not long after I retired I was offered seven figures to go back to the nine to five world. I turned it down almost immediately. That convinced me I had made the right decision to retire. Once you have enough, plus some margin, there is no reason to seek more money. It’s worthless at that point.
I know money apparently does buy happiness from all the White-Coaters who keep complaining about tipping service workers LOL
I am currently walking away from $1M per year. I hate the job/situation. Other positions have been similar. My health, relationships, and spirits have suffered long enough. Going part time in a great new place to live for a third the salary. I’ll soon find out if I’ve been trading money for happiness.
I think it could really be summed up as: More money can make you happier until you reach financial independence. After that more money is likely not to make you any happier. Because once you have financial independence you can do whatever you want and more options = happiness.
I really enjoyed reading this post. Having retired recently at 42( FI) , I have had some time to introspect and reflect on my past relationships with work, time, and money. I realized I am much more content now even though I am not earning any money because I am spending quality time with family and pursuing my hobbies which I previously didn’t have time for . The love and the feedback that I have been receiving from my children has been far more rewarding and gratifying than any job I have ever had in my life. I do believe that happiness has to come from within and being grateful for what you already have helps you in appreciating your life.