Wealth Is Not a Route to Happiness. What Is?

I recently read a great article by Peter Singer on the general topic of effective altruism entitled The Drowning Child and the Expanding Circle, which was originally published in New Internationalist. In the article, Singer’s primary focus is on personal happiness and whether helping others is aligned with it. The article contained a key quote that really stood out at me:

“We live in a time when many people experience their lives as empty and lacking in fulfillment. The decline of religion and the collapse of communism have left but the ideology of the free market whose only message is: consume, and work hard so you can earn money to consume more. Yet even those who do reasonably well in this race for material goods do not find that they are satisfied with their way of life. We now have good scientific evidence for what philosophers have said throughout the ages: once we have enough to satisfy our basic needs, gaining more wealth does not bring us more happiness.”

The idea that happiness doesn’t increase with income once you have a certain level of income (and, by many measures, it actually declines) is something I’ve talked about before on The Simple Dollar. A few years back, I

wrote about a well known research study by Daniel Kahneman that a family income above about $75,000 per year (adjusted for income, of course) does not bring any additional happiness whatsoever and, in many cases, actually results in a slight decrease in happiness.

The reason is easy: once all of your needs are met and many of your desires are met, you’re at a crossroads. You can begin to chase desires that produce smaller and smaller returns in your life at a cost of putting more and more pressure on your career, which ends up at best producing neutral happiness. Or you can seek out other approaches.

This is a crossroads I’ve found in my own life. Sarah and I worked hard to achieve some level of financial security in our life over the past ten years. We paid off our student loans and our mortgage incredibly quickly and we found ourselves at the point I described above. We could meet all of our needs. We could fulfill a lot of our basic wants.

What’s next after that? Let’s dig in.

Finding Happiness in More

One route forward from this point is to keep pushing to fulfill lesser and lesser wants. We could own things like a constant cycle of new cars and new gadgets. We could go on spectacular trips. We could enjoy a ton of great meals at restaurants. It sounds good, right?

Often, these wants were incredibly expensive and, yes, sometimes we fell into those traps. We would prioritize a really expensive vacation, for example, over a low cost one. We went to Disney World instead of going to a national park. We looked at expensive household items. We spent more on our hobbies, buying things that were very much in the realm of “more and better versions of stuff we already have.”

We realized pretty quickly that in general these things might bring short bursts of joy, but they didn’t really bring anything that was long lasting. Sure, we have memories of our Disney World vacation, but we also have great memories of our summer vacation spent camping in Door County or at Gooseberry Falls, too. Sure, we have a lot of neat things for our hobbies, but I still spend a lot of my actual hobby time reading books from the library or playing some of our favorite board games that we’ve owned for many years or making some sort of complex recipe using tools we’ve had since we were first married.

This isn’t to say that all such expenses aren’t worth it, but we’ll get back to that in a minute.

Finding Happiness in Less

The other route was to simply preserve what we have and push ourselves toward ever more personal freedom within that space. In other words, we started working for financial independence and early retirement. Our goal wasn’t to keep pushing up our relative lifestyle, but to stick at our current lifestyle and instead stock our retirement savings so heavy that we could walk away from our work much earlier than we might have otherwise.

In other words, we make a concerted effort to lock in our lifestyle at a certain level and keep it there, and when extra income arrives, we use it to preserve that lifestyle rather than expand it.

What that means is that rather than buying a new car every three years (or leasing one), we buy cars and drive them until they’re about to completely wear out. Instead of going on a huge summer vacation and “getaways” every few months, we go on a modest family summer vacation that’s still fun and memorable. Instead of buying everything we could possibly want for our hobbies, we own modest bicycles and (mostly) reasonable collections of hobby items. Instead of having a huge house in the country, we have a modest house on the edge of a small town that provides plenty of room for us and our stuff.

Through the Lens of Vacations

Let me expand on this a little bit using the vacation example above. In 2014, my family went on a summer vacation throughout the Southeast that culminated in five days spent at Disney World. We took my parents along on the trip, as they had never seen the Southeast of the United States at all and this would give us all some great bonding time.

It was an expensive trip, no doubt about it. Our final total bill for the whole trip was several thousand dollars. (Remember, we have three children and were also taking my parents along for the ride, too, and the vacation was fairly long.) We all deeply enjoyed ourselves and had tons of memories.

The next summer, we camped in Door County in Wisconsin at a pretty ordinary campground. We explored a ton of trails, visited lighthouses and forests, and spent some time in Green Bay doing things like visiting the city’s free zoo. On that trip, we all deeply enjoyed ourselves and have tons of memories from that trip.

The difference? The trip to Door County cost several thousand dollars less than the trip to Disney World.

The Door County model is the one we’re adopting for most of our summer vacations going forward. This summer, for instance, we’re going to drive to Yellowstone and camp there, visiting Badlands National Park on the way. We’re using the program that gives every fourth grader in America a national parks pass for their family. The entire trip will be a tiny fraction of the cost of the Disney World trip – I’ve already budgeted for it.

There’s nothing that we deeply want that these types of more modest vacations don’t fulfill. Going on huge elaborate trips would merely fulfill some relatively small wants at a huge price tag.

Through the Lens of Housing

During the early years of our marriage, our big shared dream was to own a giant house in the country with a small barn and plenty of room for our kids to roam and explore. We designed floor plans and talked about the attributes of the land we’d like to buy.

As we had children and our incomes and financial state became more stable, one might expect that we were building toward this goal, but what we came to realize is that the modest home on the edge of a small town that we currently lived in actually met all of our needs and many of our wants quite well.

It has plenty of room for all of us. It’s close enough to a grocery store and a library that I can walk or bike to both of them. We all have friends that live literally a stone’s throw from our house. It has a big basement and garage for ongoing projects and storage.

There’s nothing that we need or deeply want that this house doesn’t fulfill. Buying a big house in the country would merely fulfill some relatively small wants at a huge price tag.

Through the Lens of Hobbies

I have several hobbies that could easily turn into huge expenses if I allowed that to happen. I enjoy home brewing and the cost of home brewing equipment can basically go as high as you want it to until you’re basically building a microbrewery in your garage. I enjoy riding my bicycle around town (both with and without my family), and it would be easy to invest thousands in a bicycle. I enjoy reading books and it would be easy to have an enormous library of books (in fact, I sometimes slip into that trap). I can go on and on like this.

Here’s the thing, though: many of these hobbies eat up only a small sliver of my free time. I don’t have a ton of free time to pursue hobbies and the time I have is pretty precious to me, so I’m selective on how I spend it. If I’m choosing to not spend my free time on a particular hobby in any significant amount, why should I spend my extra money on a particular hobby in any significant amount?

It’s that logic that keeps me from buying an expensive bicycle or turning my garage into a miniaturized microbrewery. The only area where I’m challenged by that logic is with my core hobbies, the ones that eat most of my hobby hours in a week: reading books and playing tabletop games.

In both cases, I do slip up and spend more on those hobbies than I should, but when I actually reflect on them, I realize that even in those hobbies, spending more pretty much always leads to diminishing returns in joy within the hobby paired with less money for other life goals. A new book when I have nothing new to read is a real joy; a new book when I have fifteen unread books at home and I’ve got a few on reserve from the library really doesn’t bring much to the table. A new board game when I’ve played everything on my shelf is amazing; a new board game when I have five on my shelf that are unplayed and a bunch more that I want to play many more times isn’t really all that great.

I’ve learned, over time, that with my core hobbies, I’m better off collecting experiences rather than stuff. I keep a list of the books I’ve read and the games I’ve played and I realize I actually get more joy from adding things to that list than from adding books and games to my collections.

Finding Your Happiness Without Diminishing Returns

One pattern that’s pretty obvious from all of these experiences – and something you’ve probably observed in your own life – is that once you reach a certain point, investing more money in it brings diminishing returns in terms of happiness. Even if I had all of the money in the world, I’m going to get far more joy for my dollar out of a book if I have nothing else to read than if I have a bunch of unread books on my bookshelf, so it makes sense to read those unread books first before buying a new one. I’m going to get far more joy for my dollar out of a modest vacation (like camping in a national park and making my own meals over a campfire) than an elaborate one (like, say, going to Disney World or going to London).

That’s not to say that the more expensive options aren’t going to bring me more total joy from the experience. They probably will, honestly. The difference is that once I creep above a base level of spending, the joy I get out of it doesn’t increase at the same rate; it slows down.

If I can spend $1,000 on a family summer vacation and get 75% of the enjoyment that I would out of a summer vacation that I spent $10,000 on, then the $1,000 seems like a better option. If I can spend $50 a month on a hobby and get 75% of the joy that I would get compared to spending $500 a month on a hobby, then that $50 seems like a better option.

Furthermore, the more you spend on something, the greater the financial impact on the rest of your life. Whenever you spend more money, you have to either cut back in other areas, sink into debt, or push yourself to earn more money. Those are really the only three options out there that don’t rely on some kind of outside luck.

To me, that kind of financial pushback is a negative, one that eats up some of the diminishing returns. I might enjoy that trip to France more than that trip to Yellowstone, but that enjoyment isn’t five times as much, and when I go to France I do have this vague financial worry in my mind that doesn’t exist with the trip to Yellowstone. That financial concern further erodes any “joy advantage” that the more expensive option has.

I’ve actually talked about this very concept of diminishing returns of joy and fulfillment before. I like to use the term that Joe Dominguez and Vicki Robin use for the concept – the “fulfillment curve.” In an earlier article, I quoted their book Your Money or Your Life on the subject:

“One of the deep problems of consumerism is that the average American tends toward buying more. They would rather have more stuff that, per item, they have less time to enjoy than less stuff that, per item, they have more time to enjoy.

This is connected directly with the clutter problem, also discussed here. This tendency to buy extra luxury items gradually fills a home with lots of clutter – unnecessary stuff that just sits there taking up space when the money invested could be used to help build a more fulfilling life.”

So, what is that “more fulfilling life”?

Addressing “Emptiness and Lack of Fulfillment”

Let’s go back to that quote from Peter Singer that started this article:

“We live in a time when many people experience their lives as empty and lacking in fulfillment. The decline of religion and the collapse of communism have left but the ideology of the free market whose only message is: consume, and work hard so you can earn money to consume more. Yet even those who do reasonably well in this race for material goods do not find that they are satisfied with their way of life. We now have good scientific evidence for what philosophers have said throughout the ages: once we have enough to satisfy our basic needs, gaining more wealth does not bring us more happiness.”

So far, we’ve clearly covered that consumption above a certain point brings rapidly diminishing returns in terms of joy and happiness, possibly even being completely counteracted (or more) by the relative cost of that more expensive option. Yet, in so many ways, our culture encourages us to chase that sense of “more and better.” I’ve certainly fallen prey to it at times. It’s easy to sometimes have a sense that buying that “better” thing or going for that “better” experience will bring a deep joy that I don’t currently have. Time and time again, it really doesn’t do that at all; sure, it might happen in the short term, but it rarely lasts, and it very rarely happens in the long term with enough quality to make up for that larger cost.

The key, then, is to find sources of lasting happiness and fulfillment that don’t involve buying more and “better” experiences and things.

I don’t have some magic recipe for this. I can tell you what makes me happy and brings me fulfillment – spending time with my family, learning new things, challenging my mind, exploring nature, and so on – but that doesn’t tell you what makes you happy and brings you fulfillment. It is something you have to find for yourself. All I can really do is tell you how I found those things in my own life.

One big thing that has always helped me is reflecting on and writing down my thoughts each day. I make sure to write down the best things that happened that day, which means I have to think back through my day and look at what really brought me joy. When did I feel happiest that I clearly remember?

The funny thing is, when I reflect at the end of the day, I usually don’t remember the burst of temporary joy I get from buying something or receiving something in the mail. What I remember is something like laughing with my oldest son while playing a game with him, or that feeling I had when I realized I had been lost in working on a task and when I became aware of how much time had passed, I felt great and had produced a ton of good work.

Each week or so, I like to go back through those things and see which ones continued to stick with me. Again, I find some very common patterns in the things that brought me joy that continues to resonate. They tend to involve my family. They tend to involve learning and mentally challenging myself. They often tend to involve nature. They often tend to involve achieving or completing something that I’ve invested my time and energy into. Again, those are things that resonate with me, not necessarily with you, but you’ll discover what things resonate with you by doing this regularly.

By doing that over a long period of time – I’ve literally been doing this for years on a nearly daily basis and weekly basis – you can start to see some patterns in terms of what makes you happy. When you start to see those patterns in terms of what brings you lasting, memorable happiness, you can shape your life to include more of those things and less of other things.

The thing is, literally every person I’ve ever talked to who has done something like this has discovered that the things that brought them lasting joy rarely had much cost involved at all. Sure, they sometimes found lasting joy in things that were expensive, but they just as often found it in something that was free.

Why Be Frugal or Earn More, Then?

If the “secret to happiness” isn’t found through money, then what’s the purpose of trying to earn more money or to be frugal? If you earn enough to meet your needs and a few wants and you find joy in the life you already have, why be frugal? Why earn more?

I have two answers for that: security and opportunity. When you bring in more money without expanding your spending, you add both security and opportunity to your life.

You enhance the security of the life you’ve built by having money on hand to handle life’s unexpected events and emergencies. Bad events are less likely to knock your life for a loop. If you earn more than what you need to spend to be consistently happy, then you can use that extra money to protect yourself against things like a job loss or an illness or a car breakdown, things that would disrupt that happiness.

Once you have good security, having more money on hand increases opportunity. It leads to things like the possibility of retiring early or of changing careers without having an abrupt change in your lifestyle. You can try something new with your whole life for a while without worrying so much about making ends meet and whether you can financially do it. If you’re already in a career you’re pretty happy with, you can push toward retiring early, which can either let you truly retire and pursue other things without a financial objective, or make career choices that aren’t financially wise but are more fulfilling to you (like, for instance, leaving your stable engineering job to jump into a truly exciting startup, or getting out of your current job to avoid the world’s worst boss).

Both security and opportunity bring happiness. Security brings happiness when something unexpected happens; knowing that this job loss won’t kill your lifestyle for years is an enormous relief compared to the alternative. Opportunity brings bundles of happiness because you feel much more in control of your own destiny.

Final Thought

If there’s one take-home message in this article, it’s this: spending more money won’t bring more happiness. The things that bring happiness are probably already in your life or already within your power to grasp. If you’re not sure what those things are, spend some time discovering them, and when you do know, fill your life with those things. Earning more money and being more frugal is still useful, though, because it increases the security of that life and the opportunities available to you, giving you more control than you might otherwise have.

I don’t know what your path to happiness looks like, but I hope that you can discover it and that when you do find it, you let it lead you to a great life.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.