Happiness and IncomeRE
Going along with the "money and happiness" theme set in a few of my previous blog posts, I recently came across an article that went hand in hand. It turns out that money CAN buy happiness, BUT it has its limits. For instance, once you reach roughly three times the poverty level, increased income does very little for increasing happiness.
According to the study, "When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000."
Those of you familiar with Maslow's hierarchy of needs will agree with this conclusion. Once your basic needs are met (food, shelter, security, etc.), there's little value that extra income can easily contribute.
I think that the recent string of posts by people excited to be leaving the industry echo this conclusion. Where they were working easily met their basic needs by providing the necessary income (and then some), but failed in meeting other less purchasable needs, such as a sense of belonging or self-actualization.
So what does this mean for those that have reached the happiness threshold that their income has provided?
Most people don't know the basic scientific facts about happiness — about what brings it and what sustains it — and so they don't know how to use their money to acquire it. It is not surprising when wealthy people who know nothing about wine end up with cellars that aren't that much better stocked than their neighbors', and it should not be surprising when wealthy people who know nothing about happiness end up with lives that aren't that much happier than anyone else's. Money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don't.
It's clear that having extra discretionary income allows you to spend your money on things that those less fortunate cannot. But how you spend that money and what you spend it on plays a large role in how much extra joy your six figure salary can bring you. An article by Jeff Atwood of codinghorror.com believes there are eight things you can do to get the most happiness from each dollar you spend.
1. Buy experiences instead of things
"Travel is the only thing you buy that makes you richer". Think back to your most enjoyable experiences as a child. Do they involve things of value or experiences of value?
2. Help others instead of yourself
Tired of people complaining that your banking job creates nothing of worth to society? Join a community service program and donate even a little bit of time or money each month. Next time your societal worth is questioned, pull out a picture of you helping build a house, and be sure to let them know you ordered a venti, not a grande.
3. Buy many small pleasures instead of few big ones
I have two very different people that work in my office. One recently bought a brand new flashy car and paid cash. Yet within a week, he's back to the same old grumpy person he was without the car. Compare that to the other person I work with. Every Friday without fail, he comes back from his lunch break with a plain, small ice cream cone from a shop down the street. The guy is the happiest, most joyful guy I know. Simple? You bet, but he finds joy in something as simple as a dollar ice cream cone while others spend half a years salary chasing a smile.
4. Buy less insurance
The writer claims that purchasing insurance and extended warranties actually leads to decreased happiness because the policies avoid being fully committed to possible loss and therefore you will never fully appreciate what it is you currently have (knowing it'll be replaced).
5. Pay now and consume later
Impulse buying will only grant you momentary joy. Later on you're likely to look back and wonder why you have all these things you never use.
6. Think about what you're not thinking about
Before making a major purchase, consider the mechanics and logistics of owning this thing, and where your actual time will be spent once you own it. Try to imagine a typical day in your life, in some detail, hour by hour: how will it be affected by this purchase?
7. Beware of comparison shopping
When buying something, know what it is about a product that matters to you. Too many times we're goaded into purchasing something more expensive because of some aspect that doesn't truly matter to us. Never take pictures with your phone? Then don't let the better camera resolution of one phone play into your decision.
8. Follow the herd instead of your head
Simply put, if something makes a majority of other people happy, it'll likely make you happy as well. People tend to be able to easily identify what doesn't make them happy, but struggle to identify what does.
If money can only buy happiness to an extent, you might as well spend it wisely to maximize the benefits of it. Do you agree there is a limit to the happiness money can buy?