How much money do we need to be truly happy? How much is enough?
As a clinical psychologist, I’ve frequently explored this question– seeing its impact on my clients’ lives as well as in my own journey towards financial independence.
We’ve all heard the cliché: “Money can’t buy happiness.” It’s a universal truth played out time and time again in heartfelt classics like “It’s a Wonderful Life” to the cutthroat universe of “The Wolf of Wallstreet.” But when it comes to our actual day-to-day lives, the chase for the almighty dollar often takes centre stage, reflecting the enormous power money has on our priorities and choices.
So when researchers tell us they’ve figured out how much “enough” is, we naturally want to know.
UNVEILING THE MAGIC NUMBER
So what’s the magic number?
Daniel Kahneman and Angus Deaton, two Nobel laureates in Economic Sciences, famously suggested in 2010 that $75,000 per year was the magic income figure to achieve optimal happiness. They found that with each dollar, people’s well-being rose but after $75,000, there was no increase in well-being. The implication was that chasing after more money after this point was a fool's errand.
Since then, this research has been picked apart and criticized. The rigidity of this figure failed to account for individual differences, regional cost-of-living variations, and inflation. Each new study comes up with increasingly larger or nuanced figures, making headlines with each publication. For instance, the latest survey from Bankrate in June 2023 found that Americans felt they needed to earn $233,000 a year to feel financially secure.
THE GOALPOSTS OF “ENOUGH” KEEP CHANGING
The thing is…none of this research indicates that once we hit any arbitrary number (whether $75,000 or $233,000), people are satisfied and stop wanting more. If hitting a number optimizes happiness, why don’t we just stop?
It’s because we never really hit “enough.” The whole idea of “enough” is fundamentally subjective and depends on comparison with others in our network or some benchmark. Numerous schools of thought in psychology, such as Social Comparison Theory, tell us that in order for us to make judgments about whether we are good at anything, we need to draw comparisons from the world around us, and those comparisons are ever changing. When we believe that money and material wealth directly result in happiness, the goal posts are never fixed and our achievements are never “enough.” There is no Finish Line - there is always something bigger and better.
WHAT THE NUMBERS REALLY TELL US
The truth is that research associating money with well-being doesn’t tell us much about happiness. Rather, it does tell us a lot about unhappiness. Being unable to keep up with our expenses or manage debt does tend to result in feelings of anxiety, stress and shame. The power money issues have on negative emotional states is enormous, with annual surveys consistently indicating that financial issues are the number one source of stress for Americans and Canadians. So earning more money to prevent negative outcomes and emotional states can be a worthwhile goal.
The problem is that we believe, mistakenly, that happiness and unhappiness are two sides of the same coin. If more money reduces unhappiness, more money should also lead to more happiness. The reality is that psychological research tells us that while money impacts unhappiness, the pursuit of happiness is much more complex.
TWO COGNITIVE BIASES
Pursuing happiness by focusing on a magic number or material goal, only to be left dissatisfied, is something I’ve seen frequently in my practice. Clients have often told me, “Once I attain _________, then I will truly be happy.” This mindset reflects a cognitive bias called Focalism.
Focalism is a bias that leads individuals to overemphasize the role of money in their happiness or well-being, often at the expense of other significant aspects of life.
Focalism might cause people to mistakenly believe that increasing their wealth or income will directly lead to an increase in happiness, and lead to an unhealthy obsession with wealth accumulation, resulting in neglect in other areas of life.
This bias ties in with another cognitive bias known as the Affective Forecasting Bias.
The Affective Forecasting Bias relates to the frequent mismatch between how we predict we'll feel vs. how we actually feel when we attain a certain financial goal.
For instance, individuals might predict that a significant increase in income or wealth, such as from a promotion or lottery win, will dramatically increase their overall happiness and satisfaction. In reality, research often shows that our emotional responses to these events are usually less intense and more short-lived than we expect.
HOW THIS PLAYS OUT IN REAL LIFE
In my clinical practice, I’ve witnessed how each pay raise, each promotion, and each new purchase only raises lifestyle expectations, creating a never-ending cycle of desiring more, more and more. What clients figured would make them happy, never does. Each lifestyle upgrade ultimately does little to satiate their desire for contentment.
The desire for “more” or “better” is not necessarily a bad thing. If we examine our lives over time, having initial goals replaced by grander ones is part of natural growth. But in our society today, it’s easy for this healthy human drive to become toxic. I’ve even seen the pursuit of more “responsible” financial goals, such as eliminating student debt, paying off a mortgage, and being able to retire early leaving clients feeling empty once those goals are achieved.
REDEFINING THE QUESTION
So are we doomed to chasing happiness that is ultimately beyond our grasp?
The critical realization that many people eventually come to is the need to change the question from “How much is enough?" to "What is enough?”
In my own life, this perspective shift guided me to focus on my personal needs, values, and passions, instead of falling into the trap of endless comparison and material aspiration. It involved disentangling the false relationship embedded in my mind that money = happiness and becoming less vulnerable to what society, marketing and social media was telling me.
When we overemphasize the role of money in happiness or well-being, disregarding other crucial elements such as health, relationships, and personal fulfillment, we set ourselves up for disappointment. So while it can remain valuable to set personal money goals, think of what achievement of that goal means for you in terms of important personal values - particularly values that are not dependent on social comparisons. For example, think about how reaching a financial goal will make you a more generous and compassionate person, allows you to invest in important relationships, and buys you time to pursue your passions.
FINAL THOUGHTS
In writing this blog, I’m reminded of a particular scene in the film “Up in the Air,” starring George Clooney and Anna Kendrick. The main character, an avid traveler, becomes single-mindedly obsessed with accumulating 10 million frequent flyer miles. His ambition prompts an inquiry - will these miles translate into a leisurely trip to Hawaii or an escapade in the South of France? His retort is simple yet striking, “The miles are the goal.”
When money becomes the be-all and end-all, we risk losing sight of what truly matters. Just like accumulated air miles, money possesses no inherent value in of itself. It is merely one tool among many that can assist us in realizing our goals in achieving a well lived life. When we shift our focus from “how much” to “what,” we can align our financial pursuits with what genuinely brings us joy, fulfillment, and purpose. The question then becomes less about hitting a certain dollar amount, and more about how our wealth can serve our broader life vision. So, when you next consider your financial goals, think not just of 'how much', but 'what for'. This shift can lead to a profound transformation - from chasing an ever-moving target of 'enough' to creating a rich life where your financial resources are the tools that help build your true happiness and satisfaction.
This is really insightful.