šø A Healthier Money Mindset
Happiness depends on how you perceive your money, not just how much you have
Do you have enough money?
Most of us could always do with a little more, and therein lies a problem. The higher your income, the more you begin to spend. And when you adapt to your new spending habits following a pay rise, you feel no different to when your income was lower. You suddenly feel like you need a little more again, and the rollercoaster continues.
One solution is to keep making more money. But of course, thatās neither easy nor particularly sustainable for most people. Fortunately, thereās another way off the rollercoaster: Transform the way you think about money.
š° How to think about money
Money is a major source of worry for people, and the biggest money worry of all is feeling uncertain about whether you have enough.
Thereās some debate around how closely happiness and income are related. Some of the most recent evidenceāa study released just this year in factāsuggests that both long-term life satisfaction and daily happiness rise with household income. Previous research had suggested that daily happiness stops rising after an income of around $75,000 per year. But it seems that if you measure happiness in real-time, the connection is still there even at higher incomes.
To be more specific, happiness and life satisfaction increase with log income. This means that as your income grows, you need larger and larger increases in income to see any additional happiness. When you make $30,000 per year, a pay rise of $10,000 per year is a big deal. But when you make $300,000 per year, a $10,000 pay rise is barely noticeable.
The graphs below from the research paper show what this pattern looks like. As income rises, both experienced well-being (you can think of this as daily happiness) and long-term life satisfaction increase. With more money, people experience more positive feelings and fewer negative feelings during their day.
So richer people may actually be happier on average. But thereās more to the story. The exact same income can have a very different impact on the happiness levels of different people.
A study published back in 2006 tested whether the impact of money on happiness depends on peopleās perceptions. The researchers were particularly interested in two variables:
Perceived financial situation: How satisfied people felt about the amount of money they had.
Perceived control over life: How much control people believed they had over their life and their ability to succeed.
The researchers found that both of these variables played a crucial role in determining how a personās money translated into happiness and life satisfaction. Some people with a lot of money felt like they needed more, and some people with very little money felt like they had enough to be happy.
In other words, people at the same income level, living in the same part of town, can have very different ideas about whether their income is sufficient for their happiness. The people who embrace their circumstances are better at making their money work for them, and they feel happier as a result.
None of this means that you shouldnāt be ambitious or look to advance your career and earnings if you want to. But along the way, it pays to rejoice in the upsides of your current circumstances, rather than feeling as though you canāt be happy until you have more.
ā³ Time vs money
In a 2016 study, researchers surveyed thousands of people about whether they would prefer more money or more time in their life. The majority of people (~64% on average) chose more money over more time. However, the minority who chose time were significantly happier (regardless of their financial situation).
Itās important to interpret correlational results like these carefully, because itās not obvious exactly why people who value time over money are happier. Of course, itās also very difficult to value time if youāre scraping by on a low income. But one strong theory is that focusing on time helps to increase your awareness of which life activities make you most happy.
Supporting this theory, research shows that focusing on time rather than money makes people want to socialize more and work lessābehaviors clearly associated with greater happiness. People who value their time highly are also more likely to understand that experiences promote greater happiness than material goods do. And fortunately, experiences donāt have to cost a lot of money.
Money is great at boosting your daily happiness when it buys you more time and freedom to do the things you love. But thatās why your ultimate goal should be to find more time rather than more moneyāit offers you the more direct route to happiness. If thereās a strategy that opens up extra time for the things you love without requiring a higher income, you want to be able to notice that. When youāre too focused on money, you risk missing the forest for the trees.
āļø Takeaway tips
Value time over money: Money is linked to better quality of life, but itās essential to understand the value of your time too. At the same income level, people who prefer time to money are happier on average and use more of their energy on the things that make them happy. Itās not always worth sacrificing your time for more money, so prioritize accordingly.
You wonāt always be happy with more money: It might feel as though one more pay rise will be the answer to your problems, but it rarely is. We underestimate future challenges and weāre quick to adapt to new normals. Look for happiness today rather than expecting it to appear in a hypothetical future.
Focus on how to use your money better: Pay rises are wonderful, but theyāre often beyond your control. Your daily attention can be more focused on how effectively youāre using your existing income. Can you spend more money on things you love and less on things you donāt? Which of your regular purchases gives you the biggest and most enduring happiness boosts? We donāt pay enough attention to questions like these, which is why Iām working hard with a company called ZavFit to create an app that will help people in this mission.
š” A final quote
āA man wants to earn money in order to be happy, and his whole effort and the best of a life are devoted to the earning of that money.Ā Happiness is forgotten; the means are taken for the end.ā
~ Albert Camus,Ā The Myth of SisyphusĀ (1942)
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š Until next time,
Erman Misirlisoy, PhD
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