My finances, my projects, my life
November 26, 2020

Do you have “happy money”?

Can money actually buy happiness? The answer appears to be yes, at least when we use it in a way that aligns with our deepest hopes and dreams and when we see it for what it is: a means rather than an end. In this article, myLIFE will help you to identify how you feel about money, which plays a pivotal role in determining whether your financial decisions are “happy” or “unhappy”.

As the old saying goes, money can’t buy happiness. While there is a grain of truth in this, most of us recognise that this proverb is a little naive. That’s why we often tweak the phrase slightly, saying “money can’t buy happiness, but it helps”. In modern society, we all need to generate a certain level of regular income to meet our basic needs and ensure a stable home life. These two factors are essential to our well-being.

While that much goes without saying, gaining a deeper understanding of our relationship with money and learning to spend and invest based on the things we really care about can make our whole family happier. The key question is this: what kind of relationship do you have with money?

Here are a few ideas to help you find the answer so that you can turn money into a source of satisfaction rather than frustration. Let’s start with a simple exercise suggested by Japanese author Ken Honda in his book Happy Money.

Ready? Pull up the list of transactions in your online bank account and assess what you see: incoming payments, outgoing payments, standing orders, etc. Instead of focusing on your account balance, try to look at each financial movement and its root cause. How do you feel? Is what you see causing you satisfaction, contentment, worry, anger or frustration? In short, do you have “happy money” or “unhappy money”?

If frustration is your overriding emotion when you look at your bank account, it’s time to think carefully about your lifestyle.

Frustration: a red flag

Don’t dismiss your emotions – this exercise is more consequential than it seems. In fact, it’s the first step to recognising the disconnect between the way you use money and your deepest hopes and dreams. If frustration is your overriding emotion when you look at your bank account, it’s time to think carefully about your lifestyle.

When it comes to having our car serviced or making monthly repayments on the mortgage for the home we’ve chosen to buy, everyone should be able to pay with a smile, or at least a certain degree of indifference. If that’s not true for you, you need to stop thinking that your issue is a lack of money. It’s better to take a moment to ask yourself whether your car actually matches your needs and aspirations. Similarly, if your house is too big and always in need of renovations, ask yourself whether it’s causing you more hassle than happiness!

Our relationship with money and lifestyle preferences are dictated in large part by social norms.

Do you think questions like these are only for people who don’t have actual money troubles? You’re mistaken. Whether we’re aware of it or not, our relationship with money and lifestyle preferences are dictated in large part by social norms. And it is this very fact that stands in the way of us having a happy relationship with money. Are you working towards your own hopes and dreams or just trying to keep up with the Joneses?

Improving our understanding of the relationship between money, wealth and happiness is a subject that fascinates economists, and decades of research have yielded interesting findings. One key figure is the father of the economics of well-being, Richard Easterlin, who identified his eponymous paradox in 1974. He demonstrated that the happiness of the inhabitants of a country increases as its GDP rises, but only up to a certain threshold: the point at which citizens have all of their basic needs met. Once this is achieved, the relationship between wealth and happiness is no longer so clear-cut and it can even reverse. An even stranger finding is that raising everyone’s income doesn’t increase everyone’s happiness. In fact, the opposite is true.

In short, it turns out that interdependent preferences and social norms are key.

How to keep money in perspective

The social norms we try to conform to change as our resources grow. Specifically, as your income increases, the material standards on which your assessment of your own well-being is based are likely to shift accordingly, and your aspirations will move closer to those of a “higher” social class. Why? Because you’ll be comparing yourself with a different social group whose lifestyle is at least as luxurious as your own, if not more so. And depending on the group you’re comparing yourself with, you may become increasingly frustrated despite having a higher income.

Sure, you were able to splash out on the new car you wanted. But after you’ve moved to a posher neighbourhood, you’ll discover that your neighbour has just bought an even flashier model. This can make you feel disappointed, despite the fact that your circumstances have objectively improved. If you’re not careful, you may fall into the trap of thinking that a higher income is the key to happiness. This will set you off on an endless rat race of “more, more, more” with no hope of satisfaction.

What will happen if you carry on down that road? You’ll manage your finances on the basis of sadness, anger and frustration. Rather than seeing spending as a necessary, positive process that moves you closer to your long-term goals, you’ll experience each outflow as another hurdle in the rat race and each inflow as never enough. Slowly but surely, you’ll develop a very unhappy relationship with money.

What makes us happy is not earning more, it’s being able to control our relationship with money.

If you have followed our reasoning thus far, you’ll see why it’s not the simple fact of earning more money that makes you happy. Instead, it’s the extent to which you are able to control your relationship with money. When you make a financial decision, you should always bear in mind that money is a means and not an end in itself.

In this regard, it’s always helpful to take a step back to ask yourself whether the money you’re making is enough to meet your most deep-seated needs or whether, instead, it’s actually standing in the way of your happiness. It’s crucial to be able to identify your emotions when it comes to money. If negative emotions crowd out everything else, they’ll have an adverse effect on the way in which you make financial decisions. You will run the risk of chasing after a social norm rather than calmly progressing with your plans and aspirations. How would you rather live? The choice is yours.