Home  / Articles  / Budgeting  /

Can Money Buy You Happiness? (Science Says Yes)

Ignore what your parents said. Money can bring us joy — if you know how to use it right.

by Neil Gladstone | August 13, 2021
<p>Bright yellow balloon with a smiley face against a white brick wall</p>


The Squeeze

• Most people are bad at knowing how to spend money to make themselves happy, but carefully reviewing bank statements can give you some clues.

• Research shows people with higher salaries are happier — but after around $93,000 you don’t get more happy.

• Buying things isn’t where the magic happens with money; people get more joy from the “comfort” and “freedom” money brings than individual purchases.

Spending money to make us happy seems like it should be easy, right? We express our personal preferences throughout the day: The barista checks what kind of milk you want in your morning latte. You dial in the climate of your car down to the exact degree. Netflix offers up endless viewing possibilities “just for you.” 

We have so much practice making decisions about what we want, you’d think we’d know exactly how to optimize our joy when it comes to spending (and saving) our money. Truth is, we don’t.

We are bad spenders

“We stink at knowing what’s going to make us happy,” says couples financial coach Adam Kol. The problem is two-fold: first, the joy that comes with impulse purchases quickly fades; second, we humans aren’t all that great at choosing the right long-term acquisitions, because we underestimate how much our tastes and values will change over the years. 

“Studies on whether we know what’s going to make us happy in five or ten years show we are systematically terrible at it,” says Kol.

It’s true. Almost a decade ago, Harvard professors published research showing how we underestimate how much we’ll evolve — as in not only who we’ll be but also, what will make us happy. That means spending money in a way that will make our future selves happy is pretty tough — and it’s one reason why buyer’s remorse among boat owners is fairly common

The Harvard study noted, too, that we may delude ourselves about the choices we make, partially to stay satisfied with those decisions and avoid taking responsibility for our mistakes. Who wants to readily acknowledge they bought the wrong house, got a bad tattoo or now own a boat they never use? Or let’s say you grew up wanting to be a marine biologist, took out a student loan to major in it and even spent a year working in the field before realizing it’s not the career for you. (Again with the boats!) Now you’re saddled with debt as you consider a career change. 

Even if you don’t bail on your chosen career, 52 percent of middle-aged Millennials now say their student loans haven’t been worth the long-term stress they left in their wake.

The big money vs. time conundrum 

All of which doesn’t mean we should stop spending, even if we could. Instead, now is the time to dissect our personal relationship to money — as in, understanding what ways money makes us happy — to optimize our purchasing power. 

Let’s start with what we earn. We work hard to make a living. In return, we get a roof over our heads and food on the table, both of which bring comfort to ourselves and our families. The natural tradeoff is that our jobs take up much of our time, but when it comes to happiness, time is often more valuable to us than money. 

Psychology professor Elizabeth Dunn, who runs the “Happiness Lab” at the University of British Columbia, found this to be true. She asked 1,000 graduate students to choose: Work extra for more money? Or use the time to do something they enjoy? She found that those who valued time over money reported higher levels of overall happiness, even after they started their careers. 

Wrote Dunn: “the tendency to value time over money is predictive not only of daily consumer choices” — a.k.a. the small stuff —  “but also of major life decisions.” 

So maybe gunning for that big promotion is at odds with what you really want in life. For sure, American culture encourages putting in long hours at work to keep leveling up to the next promotion (and the dough that comes with it). However, that approach probably won’t bring more personal satisfaction and indeed, can plateau. (A 2010 study found that people’s happiness does increase with salary — but tops out at about $93,000 in 2021 dollars.) 

Is it possible to actually buy more time? In a way, yes. Gig marketplaces like Hello Alfred and TaskRabbit make it easy to hire people who’ll do chores you can delegate, like house cleaning, laundry and walking the dog. These may not seem like glamorous purchases but if you use that time to do something you really enjoy, it can be money well spent. 

Dunn’s research also finds that buying experiences like vacations and meals are more satisfying purchases than gadgets or clothes. Part of the reason for this longer tail of reward is that experiences tend to be distinctive — and you can tell from the memories they create. Even miserable trips can inspire funny, rewarding stories you will share — and turn into social capital — for years to come.

You can become a happier spender

How do we change our habits to be happier spenders? Turns out, that’s a complex question — and there’s a reason we have no idea how to answer it. 

Our families. 

Psychotherapist Joyce Marter, author of “The Financial Mindset Fix,” says our belief systems about money — Is money good or bad? Is it better to save it or spend it? — develop at an early age as a result of our family dynamics and other formative experiences, and they are deeply ingrained. 

“We all unconsciously recreate the familiar until we become aware,” she says, noting that many of us will look to externals — say, a relationship, job, car or house — to make us feel good about ourselves. “It actually works the opposite way. When we do our inner work, psycho-spiritual work, and have some deeper reflection, we live our life authentically, and then those outside things are going to fall into place.” 

Marter pointed to married physicians she counseled who were living in a “ginormous” house on Chicago’s North Shore that cost more than they could afford: “They were experiencing a lot of imposter syndrome, as well as shame and stress, in their relationship.”

The couple worked on what their big house and its possessions meant to their ego, and what was truly most important to them. “Together they made a decision to downsize and to shift their lifestyle to live within their means,” recalls Marter. “That decreased a tremendous amount of stress and anxiety for each of them personally, and in their relationship.”

Build a budget for joy

Another way to optimize your purchases is to reflect on the joy each of them brings. In one exercise, Kol advises couples to look back at old bank statements and then sort purchases into categories like “totally worth it,” “nice to have, but not worth it,” and “essentials.”

For instance, one couple Kol coached were both first-generation Americans who grew up in countries where dining out is considered a huge luxury. So for them, going to restaurants still feels like a rewarding and worthwhile splurge. 

“They decided to spend less money at the restaurants that were just okay and reallocate that money toward the restaurants they really love,” explains Kol. Such a purposeful approach to spending can make it easier to prioritize what matters so you can budget — and enjoy — accordingly.

The innate satisfaction of saving

Of course, money isn’t just about spending; it’s about saving too. A 2016 University of California study — aptly called “How Your Bank Balance Buys Happiness” — found that people derive more satisfaction from seeing money collecting in their bank accounts than from their salary itself. (Research from the Happiness Lab agrees, finding that people who have as little as $500 in cash reserves report a 15 percent higher level of happiness than those who don’t.)

Unless you’re that rare person who has a massive cash reserves and can afford everything you see, you’ll likely have to make a tradeoff of paying for what you should (as in, this month’s student loan payment or credit card bill) and what you think you want (like the latest iPhone). 

Both Kol and Marter say the key to convincing people to save more is to focus on a savings goal — such as a vacation, house downpayment or car — instead of the act of saving, which can feel like deprivation. 

Kol recommends setting up automatic savings that put aside a portion of your earnings for you, so you’re never tempted to use the money — or hiring a financial planner or accountant to add some financial accountability to your bottom line. (For those who may not be able to afford a financial planner or therapist, Marter recommends the Consumer Credit Counseling Service, a non-profit that can help clients work through difficult budgeting decisions. Many banks and credit unions offer similar advice for their customers, free of charge.)

Of course, when you’re planning for a long life, not all the rewards you’ll envision will seem like a trip to Disneyland. You may need to help your parents with extended care or pay for your child to attend a private college where they’ll thrive. With the right planning, you may even get the chance to retire young.

These are the meaningful long-term rewards that money can buy. So maybe dock the hopes for that boat. After all, you can see the whole horizon right from where you’re standing.

About the Author

Neil Gladstone is a writer in New York City. He's penned articles about tech, personal finance, health, entertainment, travel and food for publications such as The New York Times, GQ, New York Magazine, Thrillist and Travel & Leisure.

View more by this author →
Articles& Insights