Does money make you happy? Can money buy happiness?
Maybe money can’t buy happiness, but being broke sure can buy a lot of unhappiness. In fact, trying to use money to “buy” happiness might be path to being perpetually broke (and unhappy.) But let’s try to take these questions a little bit more seriously.
To what extent does money make people happy?
There is a famous study that showed that, when it comes to day-to-day happiness, increasing one’s income past $75,000 per year (for a family of 3) doesn’t continue to increase happiness. Up until $75,000 per year it does. But after that the improvements cease.
This study is often misinterpreted because there are at least two different things we refer to when we talk about happiness. One is day-to-day happiness, what is often called “well-being.” It’s the happiness you get from hanging out with friends, seeing your dog, eating a bowl of ice cream, enjoying your favorite TV show. The other is when you look back on your life and you’re proud of what you’ve done–what’s often referred to as “life satisfaction.”
When it comes to life satisfaction, as long as your income in some way reflects what you’ve accomplished, the more money you make the happier you will be. This is especially true if you are an entrepreneur.
But what about well-being?
What about day-to-day happiness? Why does it stop increasing at a certain point? Well-being is what that famous study examined, and well-being really does stop increasing after a certain income.
Here is something that I’ve always intuitively known, but a study made it much clearer. Scientists have looked at the brain wave activity of people eating chocolate. And they have found that rich people literally experience less pleasure while eating chocolate than poor or middle class people do. But it gets better. If you merely tell people to think about being rich, they’ll experience less pleasure from eating chocolate.
The reason is that wealth doesn’t necessarily fundamentally change our brains. We’ve still got the same pleasure receptors. So when you become wealthy, you don’t really replace the pleasure of chocolate with an even greater pleasure of…something else. Instead, you just get used to the new pleasures. Because you’ve got the same brain. In reality, you are just replacing old pleasures with new ones, and those new pleasures produce the same amount of well-being.
And in fact, it might not even be that benign. You may just be replacing old addictions with new ones. (Good-bye chocolate, hello cocaine!)
When people merely think about being rich, in their minds they are already replacing those old pleasures with new ones. And now the chocolate just isn’t good enough any more.
Understanding the way your brain processes pleasure can help you to understand where your money is going.
The first time you buy something, some little frill or pointless outfit that you’ll never wear or video game that you’ll only play for a week, it works. It works once. You get that little hit of pleasure when you buy. But then the second time that little hit isn’t enough. Now you need more. And you want to get the pleasure, but your brain is already getting used to it. And what’s worse is that once you can easily afford whatever little thrill it is you’re spending money on–now it’s not a thrill! See, part of the thrill is that you probably shouldn’t buy this. Once you can afford it, the thrill is gone.
Now let’s go back to life satisfaction, the other form of happiness. A lot of times we want life satisfaction, but we settle for status. Or, worse, we spend money on a home or car we really can’t afford in order to look like we have status. Or even just feel like we have it for a second. It doesn’t work. It can’t work. It will never work.
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Move on to the next class: What are you really trying to buy?
Spend Smart, Live Rich! 