Can money buy happiness?
It’s a question that has been debated for centuries. Everyone from spiritual leaders and philosophers to social scientists and economists has expressed an opinion on this topic.
Yet there remains no definitive answer.
While you might often hear that “money can’t buy happiness”, the reality is that your financial circumstances are likely to shape your life in certain ways – from where you live and the education your children receive, to how you enjoy your free time.
Yet, it could be that learning how to use your wealth to achieve your ambitions is the key to happiness, rather than simply accumulating more money.
Read on to learn about the relationship between money and happiness and find out how effective financial planning could boost your overall wellbeing, whatever your financial situation is.
The effect of more money on your happiness may depend on how happy you already are
There is a significant body of research on whether more money leads to greater happiness, yet the findings are conflicted.
In 2010, Nobel Prize laureates Daniel Kahneman and Angus Deaton published a landmark study that suggested money can buy happiness, but only up to a certain point.
As a person’s income increased, so did their happiness, but only up to a ceiling of $75,000 a year (around £57,500). Beyond this, more wealth had no significant effect on their overall wellbeing.
However, in 2021, Matthew Killingsworth published findings that showed happiness continues to improve in line with earnings well beyond $75,000, potentially with no upper limit.
When the authors of both studies collaborated to review the data, they discovered that a rising income could affect people differently depending on their overall level of wellbeing.
If you’re generally happy in life, more money is likely to increase your sense of fulfilment. On the other hand, if you’re unhappy, an increase in income will only stave off this discontent up to a point.
In simple terms, money is only one determinant of happiness.
Creating a happy life starts with setting clear goals
Understanding what you want to achieve and what makes you happy is an essential first step towards building a fulfilling life.
As you read above, if you’re unhappy and unsure how to make yourself happy, no amount of wealth is likely to bring you the joy you seek.
Indeed, according to the philosopher Ayn Rand, “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver”.
So, whether you’re eager to step back from work and spend more time with your family, or travel the world, setting clear goals could help you use your wealth to create the life you dream of.
We can help you make happiness a key part of your financial plan
What brings happiness is different for everyone, which is why creating a financial plan that aligns with your unique circumstances and goals is so important.
Identifying what you’d like your life to look like both now and in the future – rather than focusing purely on wealth creation – could help you create a meaningful financial plan that you feel motivated to stick to.
Imagine that you’ve created a financial plan around your dream of retiring early to travel the world. You may be less likely to jeopardise this future happiness by dipping into your savings or pausing your pension contributions to meet short-term financial needs.
However, calculating how much is “enough” to achieve your goals in life might be complicated, especially if you’re planning far into the future.
That’s where we can help. Our financial planners can help you understand how much wealth you need to accumulate to build a life that brings you happiness, both now and in your later years.
For example, we can use cashflow modelling to explore different scenarios and forecast your future income needs.
Once you have a clear picture of what you want to achieve, our experienced financial planners can help you create a plan for working towards these long-term goals, while creating a fulfilling lifestyle in the present.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Approved by Best Practice IFA Group Limited on 15/10/2024
