Money and Happiness

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With the surging inflation, declining asset prices, and early signs of an economic recession, many people – including me – are on edge about money. If you're one of them, know that you're not alone.

Today, I wanted to address one small piece of the money equation: the relationship between money and happiness.

Money and Happiness

Growing up, we didn't have much money.

Like most people who don't have money, I thought that money would solve most of my problems. If I could find a way to make enough cash to buy what I wanted worrying about it, I would be able to enjoy my life.

I heard people say "money doesn't make you happy," but when you're cash-strapped, that sounds like a useless half-truth from people who have given up or who are too rich to know what it's like to be poor.

The reality is that when you don't have money, you're hyper-aware of all of the things that you don't have or can't do.

Those things can be unnecessary wants, like fancy cars. They can also be vital needs, like being able to access healthcare or fix your car when it breaks down.

What I learned early in my career is that after you have the means to pay for the vital necessities of life, money does not generate happiness by allowing you to buy more things.

Instead, money increases your happiness by giving you increased control of your life and slack for when things inevitably go wrong.

For example, when I was growing up, I never went to the doctor. We could not afford health insurance, and I learned that the doctor was an expensive luxury that I should avoid unless I was dying. And even then, I should wait a few minutes to see if I was really dying before seeing a doctor.

Because we could not afford healthcare, getting injured or sick – normal life events – became times that might sink us financially and physically. That led to a lot of uncertainty, mental stress, and resentment toward the healthcare system.

Even today, a time in which I have health insurance and can afford my medical bills, I'm still stressed out by the idea of going to the doctor. I feel guilty and anxious anytime I need to get checked out.

But the fundamental difference between today and my childhood is that I have enough money to go to the doctor when I need to.

I'm still psychologically uncomfortable with getting medical help, but I'm able to get the care I need. That's been particularly important this year, when I've experienced a number of unexpected health scares.

Being able to afford medical help gives me more agency over my health than when I was a kid. And exercising that agency no longer means that I'm at risk of not being able to afford groceries or this month's rent.

These are the moments when money really impacts happiness by giving you the ability to navigate a difficult situation without worrying about how money limits your options or adds to stress in other areas of life.

I believe this level of wealth is available to most people in developed countries. And while the path to getting there is easier for some people than others, it's there if you want to move toward it.

Let's imagine you've gotten yourself to the point where you’re free of debt and have 6-12 months in living expenses saved up.

You're not “rich,” but this level of wealth can have a tremendously positive impact on your quality of life. And that impact doesn’t come from using this financial cushion to buy a new car or a slightly bigger house.

Instead, it comes from the ability to:

• Be less fearful of a terrible boss, as you know you will be able to get by for a while if something goes wrong or you decide to leave your job.

• Help a family member who’s in a tough situation without it breaking your bank.

• Choose a job that you enjoy and that has more flexibility, even it pays a little less.

• Take a few days off of work if you’re sick or want to do something fun with your family.

• Invest in things that can make you healthier and happier, like therapy, coaching, personal training, and higher-quality food.

• Deal with an unexpected medical emergency without worrying about how to pay for it.

As you climb the wealth ladder, the biggest boon to your happiness comes from the increased level of control you have to design your life and your ability to better endure unexpected events that cost money.

Some people are born with this level of financial security and never know that life could be otherwise.

I find that many of these people have strong opinions about what we need to do for “poor people,” and often those opinions are completely out of touch with what it means or feels like to have no money.

For those of us who weren’t born into such circumstances, it’s a more difficult path.

You have to find a way to make a good income, become financially literate, learn how to control your spending, avoid becoming saddled down by interest payments on debt, and make prudent investment decisions.

And you have to get lucky. You have to avoid getting duped into something that puts you in a big financial hole. You have to stay relatively healthy for a long period of time. You have to maintain the mental equilibrium required to continue putting in the effort.

None of these things are easy, especially if you’re starting without money.

But I’m optimistic that far more people can get to the place of having 6-12 months of a financial cushion than exist today.

If you put in the work, learn how to avoid mistakes, and mitigate the influence that consumerist culture has on your purchasing decisions, you can get there, even if it takes decades.

And getting “there” is a better goal than “becoming a millionaire” or adopting a lavish lifestyle to impress other people.

Because “there” is the point where money can significantly improve the quality of your life.

Additional Resources

​The Psychology of Money by Morgan Housel: A great book about developing a better relationship with money.

​It's Time to Leave the Casino: Some thoughts if you have found yourself swept up in the game of active investing. Steph and I also recorded a more detailed podcast episode on this topic.

— Cal

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