It’s often said that “money doesn’t buy happiness” and you should instead focus on more important aspects of your life such as your family and friends, your work, or your hobbies.
Yet, in reality, there does appear to be a relationship between wealth and life satisfaction. Many researchers have studied this link over the years to determine how increasing your income affects your happiness levels and if there’s a unique formula for improving your wellbeing.
The results of these studies are mixed, but the latest research suggests that building more wealth typically makes you happier, regardless of your current net worth.
Read on to learn more.
A previous study suggested that increases in happiness plateaued at a certain level of income
A 2010 study published in Proceedings of the National Academy of Sciences measured “life satisfaction” and “happiness” in a group of over 450,000 people.
The researchers, including influential psychologist and economist Daniel Kahneman, concluded that increased income could improve life satisfaction and emotional wellbeing. Additionally, they found low income was associated with lower levels of happiness.
However, the study found that once annual income reached around $75,000 (£59,000), the effect on happiness would plateau. So, increasing your earnings beyond this amount wouldn’t make you feel any better.
Now, new research appears to dispute the idea of a plateau.
New research shows that life satisfaction continues growing with wealth
One of the key criticisms of the 2010 study was that it didn’t contain any data about exceptionally wealthy people and their levels of satisfaction.
However, a new study from the University of Pennsylvania included responses from individuals with a wide range of incomes, including those with a net worth between $3 million and $7.9 million.
According to the Guardian, the study showed that the happiness gap between the wealthiest individuals and those earning $70,000 to $80,000 was larger than the disparity between middle- and low-income households.
In other words, the results show that there may not be a plateau in wellbeing once earnings reach a certain level. In fact, the gains in happiness could be even greater as you generate more wealth.
Indeed, the researchers discovered that the wealthiest individuals in the study were “substantially and statistically significantly happier” than people earning $500,000 a year.
Matt Killingsworth, the leader of the study, is quick to remind you that wealth is only one factor that affects your happiness and increased income can’t protect you from distressing life events. Yet, the results of the research demonstrate that building wealth could improve your overall wellbeing.
Additionally, Killingsworth believes he has identified why there is such a strong relationship between wealth and happiness.
Researchers believe that “freedom to live the life you want” is the key to happiness
You may assume that wealthier people are happier because it’s easier for them to buy whatever they like. While it’s true that purchasing lots of luxuries might bring you some happiness, Killingsworth believes that it is more complex than that.
He says the reason that wealth provides happiness is because it gives people more “freedom to live the life they want to live”.
By increasing your wealth, you may be able to achieve more of your goals in life.
Additionally, wealth could give you a greater sense of control over your own life. You may find it easier to deal with unexpected costs such as home repairs or losing your job. Furthermore, you might be less likely to make sacrifices to your lifestyle because of financial limitations, meaning you’ll have more opportunities and wider life choices.
Killingsworth believes that this sense of freedom and control accounts for around 75% of the relationship between wealth and happiness.
A robust financial plan could give you more freedom and control over your life
Increasing your earnings could help you gain a greater sense of control over your life, to some extent. However, you may feel more freedom to live your ideal lifestyle if you have a robust financial plan.
This is because you can ensure that you’re using your wealth to work towards the aims that are most important to you in life. Conversely, without a plan, you risk spending increased income in ways that don’t further your progress toward your goals.
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Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
