"If you want to feel rich, just stop and count the things you have that money can't buy."
I'm eating alligator while watching a group of musicians play street jazz in New Orleans. I've never been to the Big Easy before. It's really fun; it was kind of like the jazz version of Austin or Nashville - music everywhere. I'm in town for a wealth management conference.
I've done a lot of studying in the world of economics and investments and it kind of feels like everyone should make rational decisions; after all, that's what we assume in economics. At a session on behavioral finance the speaker tells us that most humans compare themselves to one another, whether they know it or not. What he said next stuck with me. He said that most people don't care if they make more than person A; they only care that they don't make as much as person B.
It made so much sense but I've never heard it articulated before. It's difficult for us to be happy with what we have. Instead, we spend our time and energy chasing more and more in the hopes of finally being happy.
What Money Is
Money is simply a tool that we use. The collection of money is not the goal. Money comes to us via income, which is kind of like turning on a water faucet. It's a flow, or a stream. It's important to understand that income is not the same as wealth.
Maybe you've heard of people who make it their quest to earn more and more income because they think that will give them happiness or make them wealthy. But income alone does not give you happiness, nor wealth.
What You Can Do With Income
Income is a flow, or a stream, of money, and we get to choose what we do with it. At the end of the day there are only four things you can do with your money; you can pay taxes, you and save it, you can give it away, or you can spend it. That's it.
Do you have friends or family members who use their income to buy stuff - better cars, a nicer house in a nicer neighborhood, fancier clothes, and so on? This is usually driven by the belief that acquiring stuff will make us happy, but stuff doesn't make us happy and trying to look rich for our neighbors doesn't, either.
Money and Happiness Distraction
Ok, so if income and consumer goods don't make us happy, why do so many people chase these things? It's a good question that's worth exploring. Being truly happy is different from chasing happiness. Being happy is more about being grateful and appreciative for what you do have. Appreciating what we have is far easier when we have our basic needs met, of course. Having our needs met, though (basic and higher-level needs), isn't very easy to see, measure, or demonstrate. On the other hand money, how much of it we make, how much of it we spend, or how much of it we've collected, is very objective. People tend to use money as a proxy for happiness because it's easy. Unfortunately, measuring happiness with money and chasing more income and more spending doesn't fill our needs.
How Much Is Enough?
If you find yourself chasing more money, more success, and more stuff, ask yourself a question and give yourself an honest answer - when will it be enough? Once we set a target, say making $50,000 per year, do you think we're happy when we get there? Nope! Once we're there we set a new target - $100,000 per year. When we get there we move the target again, and on and on and on we go. It's like having a hat with a carrot dangling in front of us that we call happiness. Unfortunately, we can't get get it because it's always just out of reach.
The Relationship Between Money and Happiness
Poverty can give us misery, but once our household income gets up to about $75,000 per year, additional income doesn't make us much happier. We're all basically born with a base-level of happiness. Most of us find that even if we get some kind of a financial windfall, even though we'll get a short term jolt of bliss, it won't take long before we get back to our baseline level of happiness.
There are ways to use your money to increase your happiness, but chasing more money or success aren't it. Be grateful for what you have, and use your money ways that support your values.
Dan Ariely, Jeff Kreisler: Dollars and Sense
Jonathan Clements: How to Think About Money
Dorothy B. Durband, Ryan H. Law, Angela K. Mazzolini (eds.): Financial Counseling
Daniel Kahneman: Thinking Fast and Slow
Dr. Brad Klontz: 4 Reasons Money Can't Buy Happiness
Carl Richards: The Behavior Gap
Behavior Gap Newsletter: "More money, more success, more stuff? Don't count on more happiness."
Thomas Stanley, Sarah Fallaw: The Next Millionaire Next Door
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