March 24, 2023

[Editor’s Note: Deadine alert! Tomorrow (August 31) is the final day you can apply for the WCI Medical School Scholarship, which will give away thousands of dollars to professional students in the US. For all the details of this year’s scholarship (or to find out how you can donate and/or become a volunteer judge), all the information is here. As of this writing, more than $78,000 is set to be awarded to 10 scholarship winners. Apply by August 31 for an opportunity to set yourself up for the start of your financial journey!]
By Dr. James M. Dahle, WCI Founder
There is scientific, peer-reviewed literature on all kinds of subjects. One of the most interesting subjects out there to study is how to be happy. Academics have been studying this for decades, and the conclusions they have reached have important applications in your personal financial planning. In this column, we’ll examine three lessons from the happiness literature that you can apply in your financial life.
Many people have heard the statistic that additional income beyond $75,000 per year does not increase your happiness. If you go back to the primary literature, you will find that this is not entirely true for three reasons. First, that number was not indexed to inflation. It is probably now in the low $100,000 range. Second, that number was not adjusted for high cost of living areas. It simply takes more income to have the same life in San Francisco as it does in Indianapolis. Third, the relationship between additional income and additional happiness was not flat after that $75,000 mark; it simply changed to a much lower slope. Making $200,000 a year does make you happier than making $100,000 a year but not by nearly as much as increasing your income from $50,000 to $100,000.
There are still two important personal finance lessons to take from these studies. The first is that when you have a low- to middle-class income, additional income can really have a dramatic effect on life satisfaction. Thus, you should do all you can at those income levels to boost your income. You can also help friends, family, and others at lower income levels to increase their income and financial resources through giving, mentorship, and job creation, knowing there will be a lot of bang for your buck. The second lesson is that happiness continues to rise with additional income but not nearly at the same rate. Thus, you should do what you can to increase your income, so long as what you have to do to increase that income does not make you noticeably less happy. If raising your income from $350,000 to $400,000 means asking for a raise, hiring a scribe, or lobbying for a more efficient electronic medical record, that’s probably a good thing. If it means working three additional night shifts every month, that may not be worth it.
More information here:
The Why and How of Happiness
There are a lot of ways to spend money. You can buy homes, automobiles, jewelry, clothes, handbags, airplanes, boats, and snowmobiles. You can pay for someone else to do your chores, such as home cleaning, snow removal, and lawn care. You can pay for experiences like European vacations, bottle service, heli-skiing, or eating out. Different people have different values, but as a general rule, the happiness literature is very clear on where you should spend your money to get the largest increase in happiness.
You should spend your money on shared experiences with people who you care about, such as friends, family, or a romantic partner. The additional bump in happiness that comes from buying a new thing of any kind fades just as quickly as that new car smell. But experiences help build relationships and provide great memories, both of which contribute to long-term happiness. So instead of buying that BMW, consider taking your family to Paris, Costa Rica, and your local national park this year.
More information here:
Finding Your ‘Why’ for Your Desired Financial Behavior
You would think that since additional income makes you happier, giving that income away to someone else would make you less happy. But that is not what the data suggests. In fact, charitable giving can make you even happier than doubling your income. Thus, every person at any level of income or assets should find a way to give something away to others—including high-quality charities—each year. Giving more frequently increases happiness.
money happiness
Although it takes more work to give something each month than a larger amount once a year, it is likely worth considering for the happiness benefit alone. Even better, you do not need to give very much money to get that happiness boost. Giving even a tiny percentage of your income will make you happier. Giving anonymously without any public recognition increases happiness even more. Using a Donor Advised Fund (DAF) is a particularly powerful way to give anonymously to registered charities since it ensures the charities you give to will not spend any of your donated money lobbying you for additional donations (since the DAF doesn’t give out your contact information).
More information here:
You Want to Start Donating to Charity? Here’s How to Find the Motivation to Actually Do It
We all seek happiness in this life, and paying attention to the scientific literature on happiness can help shape your personal finance plan in a way to maximize that happiness. Boost income, purchase experiences with people you care about, and give money away in order to increase your satisfaction with life.
How else do your personal finances help you find happiness? Has making more money made you happier? Have you made other changes in your financial life to find more satisfaction? Comment below!
[This article originally appeared in the American Academy of Emergency Medicine’s Common Sense magazine.]
“Finland holds the rank of the happiest country in the world for the fourth consecutive year. It is followed by Denmark, Switzerland, Iceland and Netherlands.”
When I talk to patients and ask them to rate their happiness from 1-10 where 1 is “completely dissatisfied and very unhappy with their life” and 10 is “completely satisfied and very happy with their life”, I get quite a range:
Psych inpatients 1-5, average ~ 2-3
Psych outpatients 4-7, average ~ 5.5
Friends and coworkers 6-9, average ~ 7.5
I call answers of 1-4 the “misery index” as most of these folks are miserable.
In my social network, I rarely get any 9-10 range answers. In fact, only two women ever have answered 10. Men in general…I’ve never gotten one to give me a number greater than 8/10.
I asked myself this question at age 52. I gave myself a 6/10. Then I asked, “where are my other two points” given that men almost never say > 8 and the average in the USA is about 6.8. In “Best in the world” countries, the average is about 7.6.
My answer was: I’m not retired (loss of one point) and I’m not living in NC on the mountain (one point). At about that time, I read your book.
Fast forward to now. I am working two days a week, I have sold the expensive McMansion (with its high bills, taxes, and upkeep) and am living in the mountains of North Carolina in a home on four times as much land with one half the taxes that is one third smaller (2900 square feet).
Guess what? I’m an 8.5/10 man now. I got my two points back and then some. It took asking the question, being honest with myself, making a plan, executing the plan, and it worked. I’m just about the happiest man I know.
This past three weeks I’ve been able to swim a half mile five times, been to two mountain vineyards with my wife, twice each, taken a vineyard tour, done water aerobics with my wife and one of my daughters, eaten at several of our favorite restaurants, been hiking at three of our favorite spots, had my kids over for a fire pit on the deck and smores, and been to a bonfire at my daughter’s house. All this while unpacking and becoming a junior mycologist having identified over seventy local mushroom species on the mountain trails.
I’m “above average happy” in a country where the average has tended toward 6.8. I’m at the top of the “man scale”…given I’ve never met one who will answer 9 or 10. In fact, 10 is frequently a situational anomaly.
Now, here on the WCI blog, I’ll bet there are some 9/10 people. They generally don’t have a “mental illness burden” and have incomes in the “likely to have enough plus” range over $150,000.
My income in retirement is in this range, but only because I still work two days a week and one long weekend a quarter.
Ask yourself the question, quantify where your lost points have gone, and get them back.
For the last point and a half…well, I’m not sure how to get there exactly. I’m pondering that right now. We are going to Costa Rica in October, the Gulf coast of Florida in November, and am planning a trip to Portugal. I may be a nine by early 2023…
Interesting scale. I think I’d put myself at 9/10 and I bet a lot of other WCIers would too. Wish I could figure out how to just be content! My life is great by any objective measurement yet I keep trying to figure out how to make it even better.
If you were the type to be content, there would probably be no WCI, fewer great adventures, etc. so don’t wish too hard!
You are officially the only male I’ve spoken to (well here it’s letters on a page) who has allowed himself a rating greater than 8/10.
It’s hard to be at 10/10. Illness, injury, occasional setbacks, a yearning for more (of anything), children challenges, and we have our life in relation to others…so relational issues. No one can entirely meet the needs of their other.
Right now I have a yearning for an old truck in great shape. The more I look at them…the more I want one. My wife and I share a car. I doubt a nice old Chevy or Ford truck would provide any long term bounce.
My only current regret is not being FULLY retired. Good news…it’s coming in perhaps a year or two,
A wonderful unmarried coworker of mine was recently diagnosed with metastatic cancer. She died in two months. The last time we talked she said she had to work to age 66 to get a “better social security amount”. Now she gets nothing. Ever. It’s a darn shame. Luckily she did love her work.
Tried paying my kids to let me sleep in once. Would really make me happy … didn’t work. Guess they are right when they say somethings money can’t buy!
Thank you for your thoughts. I am an hourly, fee-only financial advisor (Garrett Advisor), and my wife is an endodontist (both in our 60s). I regularly read your blogs as you provide well-researched and practical financial advice.
I agree with your comments, but I always smile when you talk about spending money on experiences and, simultaneously, in other posts, question the cost of private schools. Not all private schools are the same, but my wife and I comfortably put both of our kids through 12 years of a private school in suburban Chicago (Elgin Academy). I would describe it as the ultimate example of a shared experience with my loved ones. School is not just about education it is about family, belonging to a community, children taking risks, shared experiences, developing relationships (peers and teachers), personal challenges, and learning. We had a great family experience, and my kids received a great education.
While I admit you do not necessarily need to send your children to a private school to have a similar experience, I do know where I can find it, and I would rather spend my money on a shared life experience with my kids.
Money well spent.
As you know, the most important thing is to spend money on what you value most.
If you’ve read my thoughts on private school carefully, you’ve seen that I think a lot of people send their kids to private as a knee-jerk reaction to hearing public schools are bad or as a status symbol, not after making a carefully researched decision and evaluating their children’s needs carefully.
I don’t understand what those things (shared experience, family, community, relationships, learning, etc .) have to do with a private school.
Concerning private vs public schools, I recken you could get similar or better experiences for free at a good public school then private school. Question is as to how one define “good” and “experiences”. Public schools all the way for my 3 kids. Two in med school, and third on on her way in 2 years (hopefully).
That “things vs experiences” comparison does not work for me. I think people take a general trend and pretend it applies to everyone, everywhere.
Even the framing of “what generates lasting memories” presumes that is the appropriate measure. Many of my happiest times do not generate much in the way of unique memories. A trip to an exotic destination would be memorable but that does not mean I would be happy about it.
I usually find myself regretting my expensive experiences. I dislike fancy restaurants, food and clothing. I remember several meals as miserable hours at fancy restaurants. Memorable, but that is not a good thing
I hate to travel. The vast majority of trips I take, I wish I had stayed home. That continues now, when I have learned to keep trips short and do everything in my power to minimize the unpleasantness. I would still rather stay home.
On the other hand, I USE the “things” I buy. I use our dishwasher, our washing machine, our water heater and our cars. All things that have been replaced in the last 15 years. They are not luxury items. We did not buy them to have fun. But I am much happier we have them than I have been about any trip I have ever taken.
My satisfying experiences are cheap or free. A good night’s sleep in my own bed. Hard workout. Clean shower. Healthy meal. Quiet walk. Good book. Those are all between free and cheap. They are also my idea of a vacation.
I would prefer a day like that to any trip I could take anywhere in the world, no matter what kind of seats on what kind of plane or how fancy a hotel room when I got there.
A reliable iron or a first class trip to Paris, 5 star hotels and 3 star restaurants? No comparison. I’ll take the iron.
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