This is a financial blog so I often write about the techniques and frameworks behind how to achieve financial independence. But for me personally, the more fascinating elements of personal finance are the behavioral aspects of it. In one of my early articles, “Can I really quit my job and be financially independent?”, I talked a bit about why one should bother pursuing financial independence. But the question that people have asked me on and off is does financial independence or having enough money bring you happiness? Does money really buy you happiness? The answer is NO, money won’t buy you happiness, but it can be a tool to lead you to the path of happiness – if that confuses you, don’t worry. Let’s explore this further in this article. Everything I am about to say is fairly obvious, but I have come to recognize in our world of achievement and ambition, this sometimes gets blurry.
What is happiness anyway?
Every now and then, people read my blog and start to wonder if this is moving away from a personal finance blog to a self-help type blog. 🙂. But bear with me as I explain the relevance. I recently had the wonderful opportunity to attend a talk by the author and Harvard professor Arthur Brooks and read his recent book ‘Build the life you want’. I want to use some of his ideas and contextualize it to a personal finance framework to answer this question. Arthur Brooks describes the 3 key ingredients to happiness in an equation:
Enjoyment + Satisfaction + Meaning/Purpose = Happiness
So if this is happiness, can money ‘buy’ happiness?
Let’s translate the above equation to a personal finance context to help explore this question.
- Enjoyment – Money can help you do things that bring you enjoyment. But it’s important to be thoughtful and intentional about spending money on things that bring you enjoyment instead of being impulsive or buying things that have fleeting momentary pleasure. Arthur Brooks asks you to differentiate enjoyment from pleasure.
- Satisfaction – Arthur Brooks describes satisfaction as the joy you experience after a struggle to accomplish something. You may feel immense satisfaction in buying a big house after sacrificing and saving hard for it. But the sad part about satisfaction is that it’s always temporary – so the only way to keep your satisfaction always high is to keep achieving more. That sounds tiring to me 🙂. The key according to Brooks is, don’t let your wants explode – buying/spending on wants may give you satisfaction but it’s not lasting. So the fewer they are, the better.
- Meaning / purpose – is it possible for you to redirect your money to a clear purpose in your life? That can truly be impactful for you personally and give you more lasting happiness. But, if your life’s purpose is only to make money, someday you are going to possibly feel like Scrooge from ‘A Christmas Carol’.
So is having lots of money a good or bad thing?
Based on the above definition and details on happiness, you could probably gather that money itself should not be the end, but it can certainly be the means.
At this point, let me be clear about one thing – I speak from a position of privilege. I have enough money and I can speak about lofty things like purpose and enjoyment. I would argue that a lot of my readers are in a similar position. For people who struggle to make ends meet or put food on the table, this entire article might feel nonsensical and even entitled. So what does that imply? It means this – not having ‘enough’ money can make you unhappy. Also, having ‘enough’ money to be financially independent gives you choices in your life – choices to do what you want and live life on your terms. So pursuing financial independence is a worthy goal and does not make you a shallow person in my opinion.
There was a famous study in 2010 by Nobel prize winners Daniel Kahneman and Angus Deaton on how much money does everyone need to be ‘happy’, and that beyond that amount does not improve happiness. This study was followed up by a study by a team of Psychology researchers in 2018 providing more color on this topic and defining an ‘income satiation point’. Basically, all these studies say this – having money up to a certain point is important to live a happy life and can have a strong impact on happiness. However, beyond that point, money is not going to bring you any more happiness. Another way to think about this is that there is a diminishing utility for money to bring happiness after a point.
The trick and difficulty lies in knowing how much is ‘enough’. Despite the studies, there are endless debates about this. There is a mathematical way to calculate your financial independence number. But often that is based on a current expectation of a good life.
You might now ask me why all this pain to state something that might be obvious to most people? Because – believe it or not people either tend to forget or lose sight of it in their pursuit of wealth. So consider this my gentle reminder to everyone – and myself.
Note: throughout this article, you may have noticed I have used the phrases ‘having enough money’ and ‘financial independence’ interchangeably. They can be different but for simplicity I have used them interchangeably for the purposes of this article. |
Concluding thoughts
Honestly, I am not qualified to tell my readers what ‘enough’ is. This will be different for different people. And I certainly am not advocating a monk’s life. That would be extremely hypocritical of me. Just don’t lose sight of the things important to you in the pursuit of financial independence. Single-mindedly focusing on making money tends to make people ignore things that truly bring happiness like healthy relationships or finding enjoyment in small things.
But at the same time, dont shy away from pursuing financial independence.
In conclusion, financial independence is not the end to gaining happiness, but can be the means to get there.
Thank you for reading! I wish all my readers a relaxed and fun-filled end of year 2023!
Disclaimer: I am not a financial advisor and all the information in my articles are from my personal experience and are for informational and educational purposes only. Please consult with a financial advisor or CPA for professional advice
