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How Much Money is Enough? - Daviman Financial - Fiduciary Advisors Serving Indianapolis & Indiana
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There is a familiar line of questioning when it comes to money. It goes something like this. How much money would you need to not worry about it anymore? Sometimes the answer is concrete like $10 or 20 million dollars. Other times the question is answered somewhat sarcastically with “more than what I have now”. Coming up with an exact answer is impossible for most people and depressing for others who realize they will never reach the number in their head. Worrying about money is ingrained in most of us who weren’t born into a lot of it. That’s what makes this question more of a psychological one than a financial one.

Can money buy happiness?


Yes and no. There is a lot of research in this area, and while it doesn’t all agree, it generally points us in the direction of more is better up to a point, and that point is lower than you probably think. A 2018 research paper published in Nature titled “Happiness, income satiation and turning points around the world” used data from a Gallup World Poll of over 1.7 million people to measure happiness by income level. In US dollars they found a significant increase in emotional well-being with rising income up to about $60,000 – $75,000, then it leveled off. From there rising incomes increased personal life evaluation scores (your personal feeling of success), but not emotional well-being, up to about $95,000 before leveling off.

In layman’s terms, once you have enough money to meet your basic needs and have some left over to spend on things you want happiness plateaus. Research from economists Betsey Stevenson and Justin Wolfers found similar themes with slightly higher upper thresholds of $105,000 of income. Beyond this point there was very little difference. It can be hard to imagine that someone with $10 million dollars doesn’t feel happier than someone with $1-2 million, but survey results of millionaires done by the Harvard Business School show that on a scale of 1-10 they score only .25 higher. If you asked someone with $1 million dollars if they would be a lot happier with $10 million or asked someone making $100,000 a year if they would be significantly happier making $150,000, people always give a resounding YES. Yet time and time again the research shows that this just isn’t the case.

One of the most logical explanations to this discrepancy is how we derive our feelings of happiness and success. Simply put, how does what we have compare to our peers. Our culture is one of comparative success that follows a pretty predictable pattern.

• Step one – Make more money
• Step two – Feel better about our relative status in life (happiness & success)
• Step three – Buy a bigger house and a nicer car in a new neighborhood
• Step four – Realize that we are again middle of the pack compared to our new peers
• Step five – Happiness and satisfaction drop down to previous levels
• Step six – Repeat steps one through five

In the financial planning world, we generally call this lifestyle creep. As your income and net worth rise, so does your expenses, taste, and expectations. This creates a viscous cycle of never feeling like we are getting ahead, or worse yet, actually falling farther behind as debt and spending rise faster than income.

How do we break the cycle of lifestyle creep?


This is a tough one that we certainly won’t solve here, but it doesn’t mean we can’t try. We recently read a great piece from Dr. Daniel Crosby, Chief Behavioral Officer at Brinker Capital, on the formula for happiness. He had a ton of good advice and insight into the problem. I recommend you follow the link to his article and read it for yourself, but I’ll summarize a few major points here:

Dr. Crosby first lays out the PERMA model describing the five basic needs that contribute to our happiness.

• Positive emotion – We need fun
• Engagement – We need deep work
• Relationships – We need other people
• Meaning – We need to be working for something bigger than ourselves
• Accomplishments – We need to be better today than we were yesterday

These apply to us all and it is easy to identify when one or more are not being addressed. Next he lays out the case for how our happiness is tied to our expectations. When our reality doesn’t meet our expectations, it makes us unhappy.

Why is that a problem? If we tie it back to lifestyle creep, when our income and expectations are rising as fast as, if not faster, than our reality our life seems rather lackluster by comparison. Our happiness is tied to our expectations and our expectations are tied to our peers. Now imagine our peers feeling the same pressure and you have a waterfall effect of lifestyle chasing.

The obvious solution, as Dr. Crosby points out, is to want what we have. For us, this falls into the “simple but not easy” camp. Taking time to appreciate what we have is important. It provides perspective, gratitude, and more empathy towards those less fortunate.

In our experience this helps, but it isn’t a silver bullet. We can’t help how we feel. If you have a stable job and are diligently saving for retirement you are allowed to still feel anxious about not saving enough. If you are retired and living comfortably off your investments, you are still allowed to be nervous about running out of money. We know there are things in life we can’t control, and no amount of retirement projections can guarantee results or absolve us of fear.

Despite this lack of control, a little perspective to reset our expectations in life can go a long way. Understand that a dramatic increase in wealth isn’t what will drive happiness. Our relationships, passions, and attitude will. Maybe the answer to how much is enough shouldn’t be measured in dollars, but rather in moments well spent with the people we love.