Blog | Personal Finance

Can Money Buy Happiness? Yes!

The necessity of understanding what is really important to you in life, and how money is the means to achieve it

Every once in a while a new study crops up talking about money and happiness.

Take this new Purdue University study that says the happiest people in the world make $95,000 a year on average (that’s individuals, not families). They surveyed more than 1.7 million individuals from 164 countries.

Or look at this survey of 2,000 couples by online dating site, eHarmony, which says the happiest couples make over $200,000 a year combined. (It doesn’t hurt to be highly educated and have three kids too, apparently).

These types of surveys are fun, but I think we all know that you can’t take too much stock in them as really true. After all the surveys are mostly people’s opinions of how happy they are, and the definition of happiness can vary a lot from person to person.

Happiness is a personal measurement that is hard to apply universally. Plus, the data is always changing. Just eight years ago, the happiest people in the world made $75,000. That was from a study of Gallup surveys of 450,000 Americans in 2008 and 2009. According to the Purdue University survey, that “is just paying your bills and having enough to stay afloat.”

Can money buy happiness? Studies answer: maybe.

While these types of studies on money and happiness make good news, they aren’t very helpful for assessing your own personal happiness—unless you get happy by comparing yourself to others.

But one good thing all these types of surveys do reveal is that it’s important to understand what kind of happiness you’re looking for in life. And part of that is understanding what money means to you and why you want it in the first place. After all, money is just a tool. It can’t, in itself, do anything. It can only be leveraged to do other things.

So, it’s important to determine what money means to you.

So, does money buy you happiness?

Most people don’t take the time to sit down and understand what they really believe about money. For some, money is the root of all evil, to be avoided at all cost, not talked about, and demonized. People who make money are the enemy. It’s the rich against the poor.

For others, money is everything. They’ll sacrifice friends, family, and integrity to get it. It’s a dog-eat-dog world.

For better or for worse, our understanding of money often shapes our life. And our understanding of money is often something that is passed down to us from a young age, received without a critical eye, and lived out in unseen ways. Because of this, money often rules us in ways we can’t understand, because we don’t truly understand money and the way in which it works.

Money is evil?

My poor dad had a strong belief that the love of money was evil and that excessive profit meant you were greedy. He didn’t believe that money could buy happiness.

As the head of the Hawaii school system, he felt embarrassed when newspapers published how much he made because he felt overcompensated in comparison to the teachers who worked for him. He was a good, honest, hardworking man who did his best to defend his point of view that money wasn’t important in life.

My highly-educated, yet poor, dad constantly said:

• “I’m not that interested in money.”

• “I’ll never be rich.”

• “I can’t afford it.”

• “Investing is risky.”

• “Money isn’t everything.”

The old view of money and happiness

In many ways, my poor dad held to what I call the old view of money.

When I was a young man, the world of money was fairly straightforward. For the most part, you could do ok if you followed the old advice of go to a good school, get a good job, buy a house, save money, and invest in a diversified portfolio of stocks, bonds, and mutual funds. It was modest advice for modest living...just like my poor dad wanted.

As I got older, the world of money became more and more complicated. The dollar was taken off the gold standard, creating volatile swings in its value. Defined benefit plans, aka employer-funded plans, were abandoned in favor of defined contribution plans, necessitating investment in the stock markets by employees not financially educated. The financial adviser class rose as a result. And the world of money became increasingly global, making it harder to keep up on the markets.

For many people like my poor dad, though the rules of money changed, their views of money did not. They held steadfastly to the old rules of money, even when they didn’t work to supply an average standard of living, let alone a comfortable retirement.

Later in life, my poor dad regretted many things, including the fact that he didn’t have much to leave his children or pass on much financial knowledge to his children. I still remember him tearfully apologizing to my siblings and me when he was sick in the hospital.

The generational money knowledge gap

Unfortunately, much like my poor dad and his children, many parents have not passed on knowledge to their children about money or how to make it.

According to a 2016 poll by Harris, "Nearly 80 percent of millennials are not invested in the stock market."

When asked why:

• 40% said they don't have enough money

• 34% said they don't know how

• 13% blamed student debt

All of these are the symptoms and excuses of those who lack a financial education.

If you don't have enough money, it's because you have never been taught how to make money outside of getting a good job—old money advice.

If you don't know how to invest it's because you weren't taught how money works and were probably told to save and buy a house—old money advice.

If you have so much student debt you can't afford to invest, you believed the lie that you needed to go to a good school to be successful—old money advice.

Top that off with the fact that millennials love to spend. In fact, a recent study shows that millennials “...over three-quarters of millennials want to have the same clothes, cars, and technological gadgets as their friends and that around half of them have to use a credit card to pay for basic daily necessities such as food and utilities. Over 25% of them had late payments or are dealing with bill collectors, and well over half are still receiving some form of financial aid from their parents.”

And finally, as I wrote before, the state of financial education is abysmal. Only 13% of Americans received any education about money.

The good news for any generation is it's not too late to change your money mindset from the old rules of money to the new rules of money. All it takes is starting with a different view of money—that it’s an important tool.

Money is an important tool

My rich dad had a different point of view than my poor dad (and most people when it comes to money). He thought it’s foolish to spend your life working for money and to pretend that money wasn’t important. Rich dad believed that life was more important than money, but that money was important for supporting life.

He often said, “You only have so many hours in a day, and you can only work so hard. So, why work hard for money? Learn to have money and people work hard for you, and you can be free to do the things that are important.”

To my rich dad, what was important was:

• Having lots of time to raise his kids

• Having money to donate to charities and projects he supported

• Bringing jobs and financial stability to the community

• Having time and money to take care of his health

• Being able to travel the world with his family

“Those things take money,” said rich dad. “That’s why money is important to me. Money is important, but I don’t want to spend my life working for it.”

My rich dad understood that money was just a tool that enabled you to do the things that brought you the most happiness. Rich dad’s aim in life wasn’t to make the most money so that he’d be happy. Rather his aim was to fully understand what made him the happiest in life, and then to make enough money to allow him to pursue those things. That is why he believed that money could buy happiness.

What’s important to you?

Most people find the same things to be important that my rich dad did. I know my poor dad did.

The problem for my poor dad, however, was that his attitude towards money kept him poor. And because he was poor, he didn’t have the ability to fully do the things that were important to him.

The truth is that money isn’t everything, but it does help us do everything we love.

So, what’s important to you? Are you freely able to do the things you love? Or are financial struggles holding you back?

And how do you view money? Is it evil or is it a tool to help you do what’s important?

How you answer that question changes everything.

If you’re ready to start putting money to work for you, here are three practical steps you can take.

Invest in financial education

Take charge of your financial future. Don't rely on or expect someone to do it for you. Examine your schedule and ruthlessly cut out activities that suck up your time but provide little value. Then, fill that time with a prescribed course of financial study. Read books and blogs, listen to podcasts, attend seminars and network, and find a mentor.

Stop saving for retirement

And start saving for investments. With your newfound financial knowledge, don't just sit on your savings. Put it to work in investments. And don't think that means just the stock market. Look into all four asset classes: real estate, commodities, paper, and business. Start small, learn, and build from there. Treat it like a real life video game.

Learn to delay your gratification

Once you start seeing some success investing, it will be tempting to "treat yo self." Don't. At least not yet. Rather, use your earnings to invest more. Once you master investing, then use your cash flow to cover your liability purchases like cars, vacations, and more. But only once you've replaced your salary with investment income. Until then, delay your gratification.

If you do these three things, you will change your financial fortune. And you will be light years ahead.