Money can buy happiness: Here's how much you need and how to spend it, according to a financial therapist
You know the phrase: money can't buy happiness. It turns out, that's not entirely true. Money can buy a certain degree of life satisfaction, depending on how much wealth you have and how you spend it.
Research shows that emotional well-being rises along with income, up to a point. A 2010 study looked at surveys of 450,000 Americans and found that participants with higher incomes reported higher emotional well-being, up to an annual income of $75,000. After that, it drops off.
Beyond simply having money, here's why being able to meet your basic needs, enjoying life experiences, and having social ties are also important factors for satisfaction and happiness in life.
Basic Needs
Lindsay Bryan-Podvin, LMSW, a financial therapist and author of "The Financial Anxiety Solution" says an annual income of $75,000 may not be the threshold for everyone. Being able to meet basic needs like food, housing, and healthcare are top priorities. Then, the amount of satisfaction derived from income varies depending on factors like the cost of living in your area and your personal interests.
"The data is pretty clear that when we can financially take care of ourselves, our mental health is better," says Bryan-Podvin. "It's stressful to be on the grind all the time."
In fact, according to the CDC, adults living below the poverty level were three to four times more likely to have depression than adults living at or above the poverty level.
The ability to meet basic needs without working multiple jobs also means you are more likely to have time for your friends and family, which is important for happiness. A Harvard study, which started in 1938 and tracked hundreds of men for nearly 80 years, collected data on both physical and mental well-being. The researchers found that close relationships, more than money or fame, keep people happy throughout their lives.
Experience vs materials
Once you cover basic needs, whether money buys happiness may depend on what you spend it on, says Bryan-Podvin.
There is a common theory that spending money on experiences will make you happier than spending money on material objects. Some studies back this up. A 2014 review found that experiences make people happier because they enhance social relationships, are a bigger part of one's identity, and are less likely to be compared to other people's experiences.
A poll of more than 2,000 millennials in 2014 found that 78% prefer spending money on experiences or events compared to a material object. It's not just millennials. The same poll found that consumer spending on experience and events is up 70% since 1987.
For some people, though, it may be buying a tangible item that brings the most happiness. "What research shows is if we have a very strong affinity for something, then we do get a lot of happiness out of buying that thing," says Bryan-Podvin, who gives the example of someone passionate about cars.
When money doesn't buy happiness
One reason more money doesn't always equal more happiness is a tendency for what Bryan-Podvin calls "lifestyle creep." Meaning that when you are making more money, your expenses often go up.
For instance, you may end up spending money on things like a country club membership or dinners at more expensive restaurants. If this is happening, you may not feel like you don't have enough money even though you are making a substantial salary.
Happiness also depends on how much you have to work to make that money. "You might be pulling in $300,000, which sounds great in theory, but if you are working 80 hours a week and can't enjoy the money you are earning, then what is the point?" says Bryan-Podvin.
Bottom line
How much money a person needs to be happy varies. Happiness may depend on how much money is required to cover your own basic needs and what brings you joy personally.
For one person, that might be season tickets to the Yankees. For someone else, it might be a massage once a month or a new pair of running shoes.
Ultimately, money can increase the potential for life satisfaction, depending on how you spend it. If you spend money on experiences or items that align with your values, you will increase your happiness, says Bryan-Podvin.
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