Sep 29, 2023  | Tags: wealth, psychology

Our insights

Psychologists and economists have long been fascinated with the relationship between money and happiness.

There are plenty of rich people who are utterly miserable.

Some lack genuine relationships with others and look upon the lives of ordinary people with envy.

How much money do you want?

And what price are you prepared to pay to earn it?

The old adage that money can’t buy happiness is largely true.

It can’t buy you love, health, real friends or that most precious of commodities, time.

It can’t buy you the respect of your peers or relieve your stress, anxiety or depression.

Yet a published study in 2011 by Nobel prize winning psychologist Daniel Kahneman and acclaimed economist Angus Deaton concluded that while money can’t bring you happiness, it doesn’t exactly hurt either.

After analysing the responses of 1000 people, they declared all most of us really want and need are friends and money – just enough money to allow us to be comfortable.

And the magic number they settled on to achieve that level of comfort was an annual income the equivalent of A$100,000.

The findings were based on the life evaluations of the respondents – an assessment of their life’s achievements as well as their emotional wellbeing which was more heavily influenced by social connections and more prone to daily fluctuations.

The investigation discovered that while people who earned more money may have ever increasing life evaluations marked by more achievements, the emotional wellbeing of those surveyed tended to plateau at around the $100,000 mark.

Of course, it has been a few years since the study and with inflation it might be more than $100K today, but you get the point … you don’t need a pot of gold to find that elusive ‘happiness’. 

Let’s take a deeper look at how money and happiness are linked but not necessarily reliant upon each other.

The wealth paradox

As Kahneman and Deaton discovered, the notion that more money leads to greater happiness is a fallacy.

Some may work so hard for their money, they leave themselves little time to enjoy their life.

Others may be cursed with unwanted fame, suffer with addictions or be surrounded by disingenuous associates rather than real friends.

How many of the wealthiest people you know would you really want to swap lives with?

Spending rising with income

It’s human nature that when we earn more money, we tend to spend it, splashing out on material items such as a new house, car or clothes.

If those circumstances sound familiar, ask yourself what are you spending your new found money on and is it making you happier?

Try to jump off that hedonistic treadmill by steering your search for happiness toward non-material items such as experiences, relationships and personal growth which rely less on money.

It will also act as a safety net for your happiness in the event you lose your income or wealth.

Experiences vs possessions

There’s been plenty of research done to indicate experiences bring people much greater pleasure than possessions.

Think about things involving family and friends that leave you with a memory rather than a 12-month warranty.

It might still cost money like travel, dinner or a concert but it is something that can be shared.

It is time spent with loved ones rather than personal gratification.

Social comparisons

Comparing your financial position with others will bring you little joy whatever the numbers.

Trying to keep up with the affluent lifestyles of peers risks committing yourself to a miserable and toxic debt spiral.

Think about what makes you happy rather than worrying about anyone else.

Live within your means

Living within your means is good for your happiness and wellbeing.

Equate your spending with your own values and priorities.

Budget accordingly and periodically reassess your spending to ensure it remains aligned.

The gift of giving

Still more studies have revealed another fascinating insight into the human psyche.

That is that the act of giving your time, money or gifts to others and donating to charities is associated with a greater level of happiness.

Consider setting up regular donations to a favoured charity or volunteer your time with a community group in need.

Delaying gratification and saving

Try getting into the habit of delaying gratification for desired purchases and putting that money towards saving or superannuation instead.

It takes some discipline but can lead to a real sense of accomplishment.

Set some long-term savings goals and stick to them.

Take control of your finances

Having control over your finances and plotting a course to growing your wealth can bring you some real satisfaction.

It will boost both your self-esteem and happiness.

Work hard to grow your knowledge base, set your financial goals and make informed decisions for your long-term benefit, working hand-in-hand with a trusted financial advisor.

Seek professional guidance

If either money or happiness are in short supply in your life, or the relationship between the two are imbalanced, it could be time to seek professional help.

Consider consulting a financial adviser or a psychologist to help you regain your fiscal and emotional equilibrium.

The value of financial security

Financial security is more important than riches you’ll never spend.

It brings you peace of mind and happiness by reducing stress and anxiety about your future.

To achieve it, all you need to do is start saving now, be it a deposit for your first house or planning for your retirement.

Creating an emergency fund is also a great idea, and ensuring you have the right insurances is key.

Talk to a financial adviser today to get started or to review your plan.

Get advice today

If you’re seeking that perfect mix of money and happiness, creating a rock solid financial future for yourself is a great way to put you on the right path.

That’s where Calder Wealth Management are specialists.

CWM are financial experts who can act as your financial mentor, helping you start your savings plan from scratch or manage one you’ve already established.

We’ll work with you to devise and implement prudent investment strategies whatever your financial goals.

No-one should go without quality financial advice from someone personally invested in their wealth accumulation.

At CWM, we pride ourselves on leading our clients into the future with structure, financial stability and confidence.

Contact us today to discuss all of your financial needs and concerns.

Written by James Herriman

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.