Money, Happiness, and How Much Money is Enough

By Stuart Robertson

Many of us know, or think we know, that money can’t buy us happiness, yet we still think that more money can make us happier at this time in our life. What’s the truth? What makes us happy and does money help? How much money is enough? What's the difference between being rich and wealthy? Here's our insights and perspectives.

Research suggests that in the United States, money can make you happier until you reach about $75,000 or $80,000 in annual salary according to the World Happiness Index or even going back to the early 2010 Princeton research. That’s because for most of us, earning around this amount is when we can take care of our core needs of food, shelter, and perhaps a bit more.

If, or once you exceed this amount of earnings, it’s all on you to figure out what drives your happiness. This may be sharing with your friends, spouse, kids, community, working on a purpose, controlling more of your time, or other. For most, some combination of these will truly fuel our happiness.

What’s the Difference Between Rich and Wealthy?
I’m sure you’ve read stories of people who made tons of money but then drastically changed their lifestyle with lavish material things. Then something goes sideways, and they lose it all. In the extreme, some started committing felonies to try to either keep up, hide their financial woes, or grow their money to new heights (e.g. Bernie Madoff, Elizabeth Holmes) because enough was never going to be enough.

In the book Psychology of Money by Morgan Housel (good read for those that want to go deeper on money, happiness, and behavior), Morgan relates the story of Jack Bogle (founder of Vanguard) about attending a billionaire’s party with Kurt Vonnegut and Joseph Heller. Vonnegut tells Heller that their host, a hedge fund manager, made more money in a single day than Heller made on his successful book Catch-22 over its entire history. Heller responds, “Yes, but I have something he will never have; enough.”

That is too the point of this blog. Rich is basically earning a lot of money. If you spend it all or most of it, you will never be wealthy. If enough is never enough, you are not wealthy either. In fact, you may live unsatisfied and stressed out always obsessing to make more money.

Ambition is most often a good thing, but I would argue not for the pursuit of solely having more money or more things. Plus, most of us will never earn tons and tons of money, but we can still be wealthy!

Becoming wealthy starts with saving, spending below your means, having enough to cover emergencies, the option to retire on your terms, and the financial independence to choose how you spend your time. This sounds pretty great to most of us.

A Perspective on How to Become Wealthy
Beyond the obvious that you must spend less than you earn, we need to save. And when we save, we must use good common sense, reason and understanding to build our money and get on track for financial security. You may ask, what makes good sense when it comes to saving?

Well, here’s a short list of a sound approach to help you get on the road to financial freedom:

  1. Spend less than you earn. Hard to be financially independent when you’re in debt.
  2. Only take on debt for essential big purchases like a house or car. But don’t drown in it. It’s suggested you don’t take on house or rent payments of more than 28% of your earnings.
  3. Avoid credit card debt! Interest rates are higher than you can historically earn in the stock market or other assets classes, so it can be very hard to overcome large credit card debt.
  4. Build an emergency savings of 3-6 months of your income in a high interest savings account or high yielding money market. A job loss or financial shock event (e.g., big medical bill, refrigerator quits), won’t force you to tap other investments or savings, so you stay on track.
  5. Contribute 10-15% of your salary to a 401(k) or an IRA if you don’t have access to a 401(k). Over a career of 30-40 years, you can benefit from compounding interest and investment growth and have a meaningful nest egg and retire if you choose.
  6. To this point, start contributing to an IRA or 401(k) as early as you can. Compounding over 40 or 50 years is much more impactful than over 10 or 20 years.
  7. Stick with your investing strategy through market drops. Staying with your strategy and buying during stock and bond down markets are what will give you the greatest returns in 10 to 20 years. This can be key to funding your retirement. If you get out of the markets and move to cash when the market drops, you will miss what are often sudden, unpredictable upswings in the markets and miss the returns. Buy low and sell high!
  8. Invest 90% of your monies in index funds if not 100%. Index funds tend to have the lowest fund expenses and are not influenced by human decision making on what companies will fail and which will be super successful. No one we know can time the market. Its why index funds and low-cost investing are so hard to beat by the pros. Knowing which sector or companies will do well over the next 10 years is like predicting the weather over a year from now – darn near impossible.
  9. Find what truly brings you joy and how much money does it take to do these things. Beyond your cost of living needs, if you take these into account, you can define what is enough for you and achieve your version of wealthy.

Do know that this list isn’t meant to be an end all be all list. It’s simply to help you get focused on behaviors, actions, and guideposts that can increase your ability to be financially independent. It is also not intended to be investment advice and do know that Investing in the markets is never guaranteed and is most definitely unpredictable.

For more insights on savings, budgeting, and debt management, you may find these blogs helpful:

How to Budget and Manage Your Money Smart
How to Manage Loans and Credit Cards Successfully
How Much to Save and How to Prioritize Competing Budget Needs

Wishing you joy and wealth on your terms.

Meet the Author

Our low-cost 401k plans are easy to setup online and are supported by our 401k advisors and specialists. ShareBuilder 401k serves small business and medium-sized companies, as well as the self-employed. We offer Roth 401k, Safe Harbor 401k, Traditional 401k, and Solo 401k options. Your 401k plan is paired with investment management expertise and employee education to help you save more.