How you can improve your financial well-being in a few simple steps
Does money buy happiness? Sort of, says research—but only to a point.
Improve your financial well-being in a few simple steps
By Jessica Martel
In 2010, researchers from Princeton University published a now-famous study on the topic of money and happiness (PDF, 515 KB). It concluded that more income can lead to better emotional well-being — but only up to a point. After a certain threshold, the researchers found no significant correlation between money and happiness.
A 2018 study out of Purdue University published a study of similar results. The bottom line: to achieve peak emotional satisfaction, a certain level of income is ideal — but after you hit that amount, salary increases won't make you feel more fulfilled.
So, why don't the feelings of joy, happiness and excitement that usually accompany a large sum of money persist? It's rooted in a fancy term: hedonic adaptation.
Also referred to as the hedonic treadmill, this phenomenon occurs when things that initially make you really happy become your new normal. That big raise becomes business as usual. The thrill of winning the lottery is fleeting. People simply adapt.
So, if more money is not necessarily the key to greater happiness, how can our finances impact our well-being in more nuanced ways? Below, we explore.
How does money affect your brain?
To get a better understanding of the psychological impact of money, let's dig down to the neuronal level.
According to researchers, there's little that excites the brain more than money. In fact, the brain responds to the prospect of making money in the same way that it responds todelicious or addictive foods.
What does this mean? In short, while large sums might not increase our dose of daily happiness, there's no question that it can cause a lot of excitement.
Using your money for your own good
For a longer-lasting sense of satisfaction, below are a few financial habits you can build that actually have long-term effects.
Spend on others. If you want to use your money to be happier, stop buying things for yourself — and start spending on others. Research shows that engaging in pro-social spending, and giving to others can make you feel warm and fuzzy. When we willingly spend on others, our brains get an increased surge of oxytocin and dopamine, feel-good hormones. So, if you want to feel happy, pay it forward by buying a stranger a coffee or giving to your favourite charity.
Choose experiences over things. If you're going to spend money on yourself, opt to buy experiences over things. Doing things is proven to bring us more joy and lasting happiness than buying things or having things. A good experience provides lasting happiness in the form of fond memories. You can look back on an experience for years or even decades to come and relive the joy.
Trade your money for time. Time is our most valuable resource, so when you can, use your money to free up precious minutes, hours or days. The time it takes you to DIY your home repairs might be better spent calling a pro to do it quickly and get the job right the first time. Using a handyperson app like Jiffy for those tasks that take you a long time to complete because you don't have the tools, skills or time may be well worth the cost. Outsource the things that don't bring you joy, and fill that time doing things with the people that make you happy.
While money may not buy happiness outright, there are things you can do with your financial habits that will make you feel on top of the world — like giving to others, choosing experiences over things and using your money to buy back your most valuable resource: time.