FINANCIAL WELLNESS: A 5-PART SERIES ON MANAGING MONEY WISELY
Buying Happiness: Three Lessons for Physicians from the Literature on Happiness James M. Dahle, MD FACEP FAAEM
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here 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.
#1 The Relationship of Happiness to Income 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 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 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.
#2 Spend Your Money on Experiences with Those You Care About 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 such as
“The additional bump in happiness that comes from buying a new thing of any kind fades just as quickly as that new car smell.”
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 in order to get the largest increase in happiness. You should spend your money on shared experiences with people that 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 an experience helps build relationships and provides 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.
#3 Giving Money Makes You Happier 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
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COMMON SENSE JULY/AUGUST 2022