Create The Good Life - Simple and Slow Living by Design

Money and Your Happiness

rose made from 100 dollar bills

What's the relationship between money and happiness? Our cultural myth is that money plays an important and direct role in our well-being. For poor people this is certainly true. Not having enough money for adequate housing, food, clothing, health care, etc. is a very heavy weight to bear and significantly diminishes quality of life. However, according to studies, once your family is earning at least $30,000-$40,000 a year, the story is more complicated and encouraging. And if your family's income is twice that amount—about $75,000-$80,000 a year—the question shifts from how much you have to how you spend it.

Those dollar amounts may come as a surprise to people here in the U.S. where we have begun to think of six figure incomes as the necessary norm for the good life. While people earning hundreds of thousands of dollars a year do report a high level of satisfaction with their lives in that "I've made it!" kind of way, a person's emotional happiness on a day to day basis does not significantly increase after the $75,000 mark. Even at $40,000 we can make choices that will impact our sense of fulfillment more than additional earnings might.

In fact, psychology professor Sonja Lyubomirsky, author of The How of Happiness, maintains that a mere 10% of our happiness is due to life circumstances including income. (Other factors in this category are marriage status, physical health, and attractiveness.) Fifty percent of our personal well-being is the result of genetically determined factors which pre-dispose us to certain emotional set points independent of these circumstances. But here's where it gets interesting and hopeful: a whopping 40% of our experience is based on our behavior and attitudes and how we choose to live our lives. In other words, how much we focus on relationships, set meaningful goals, help others, savor the present, practice self-care, exercise regularly, and cultivate optimism matters more than how much money we make over $40,000.

These findings are echoed in Happy Money: The Science of Smarter Spending by Elizabeth Dunn and Michael Norton. Their point is how we spend our money determines how much happiness it buys. They describe five principles for monetary happiness:

  1. Buy Experiences (which offer more long lasting enjoyment than 'things')
  2. Make It a Treat (avoid overconsumption and normalizing what you enjoy by indulging less frequently.)
  3. Buy Time (pay for things you'd rather not do and free your time to do the things you love)
  4. Pay Now, Consume Later (delayed gratification is enhanced gratification)
  5. Invest in and Give to Others (the emotional benefits of generosity and sharing with others)
coffee drinks with heart decorations

The last point comes up again and again in discussions of well-being and money. The emotional boost we get from giving even small things, like coupons for free coffee, is enormous. And the most powerful combination is creating a shared experience, as in taking someone out for coffee, where we feel the gratification from both a personal connection and from being generous.

Giving to others doesn't always have to involve money either; there are lots of ways to share without spending a dime.

We would add eliminating debt and building financial security to the list of monetary practices that enhance quality of life. Studies show how big a psychological hit we take when carrying a large financial burden, and how freeing eliminating it is. The amount you need to feel and be financially secure varies from person to person, but generally it entails setting aside sufficient funds to handle the unexpected, including the need to live off savings for a while.

many colorful roses

So what does all this mean in terms of the relationship between money and your happiness? While having enough is essential, enough is not a lot. Eliminating debt should be a priority as well as building up a financial cushion. After paying for necessities, focus on how spending your money in the most rewarding ways. For us personally, time is what's important now, compared to experiences like travel which we valued more when we were younger. Ultimately money plays a significant, but minor, role in our overall happiness. How we choose to think about and live our lives—that malleable 40% we mentioned above—is the most potentially powerful way we can impact our sense of well-being, and that hardly costs a fortune. So while we may not always feel like we have boat loads of money, it's always a good idea to pay attention to the ways in which we are choice-rich.


How are you spending your money? If you don't already know, it's good to figure this out and even track it for a while to help you determine if you are getting the maximum benefit from your hard earned dollars.


This week give something to someone and see how it makes you feel. Extra points if you can share the experience with them.

Happily sharing our thoughts with you,

Beth and Eric

This monthly slow essay is from Beth Meredith & Eric Storm of Create The Good Life.

Please pass this along to other interested people. Your feedback is much appreciated.

If you find our work useful or inspiring, consider making a gift via PayPal.


You can use these links to subscribe or to unsubscribe from our monthly essay.

Like Create The Good Life on Facebook!