By Luke Erickson
“You can never have enough of what you don’t need.”
I heard this quote recently, and it’s very true when it comes to managing our finances. How much is really enough? Do you have a number for yourself? The truth is that the vast majority of us think to ourselves, “If I just had that bonus or raise, or enough to buy that certain car, or enough to pay for that one vacation, then things would be much better and I’d finally be happy.”
Then, of course, after struggle and debt we finally get those things, and immediately set our expectations on something else.
I think most will agree that our pursuit of jobs, careers, investments, and even lottery winnings is primarily a pursuit of happiness. In a previous article I shared research showing that happiness doesn’t really increase much once a household earns more than about $100k. This is because expectations for higher income offset the additional happiness that this money may buy.
So, happiness, as it relates to money anyway, is a bit of a moving target. And turns out that we’re the ones who are always moving it! It’s our own expectations that decide if the money we have is sufficient or not.
This reminds me of a profound quote that goes like this, “The most amazing things that can happen to a human being will happen to you…if you just lower your expectations.” No this wasn’t Plato, Socrates or Seneca; it was the character Phil Dunphy from the sitcom, “Modern Family.” And as it happens, Phil’s quasi-inspirational thought is actually consistent with research.
Author and neuroscientist Robb Rutledge decided to monitor test subjects’ brains with an MRI while playing a game where participants experience unexpected financial wins and losses. Summarizing the results Rutledge said, “Happiness depends not on how well things are going but whether things are going better or worse than expected.” And as scientists often do, Rutledge even came up with an equation to measure happiness. Behold, the secret to happiness:
Now you know how to be happy! The end.
Okay, not quite. But we are on to something….and maybe something we already had a hunch about but couldn’t quite put a finger on. More money can increase happiness, but only to a certain point, and only if our expectations remain constant!
When I was in college, I got a good piece of advice from my older brother about finances. He told me to avoid making large jumps in lifestyle even when my income increased a lot. What he was really saying was to keep a tight grip on my expectations. And now, looking back, I can see that the toughest times I’ve had with finances came when I expected a lot.
In 1930, renowned economist Maynard Keynes predicted that capitalism would, by 2015, raise income to levels high enough that people’s needs and wants would be sufficiently met and no one would need to work more than 15 hours per week. Well, last I checked this was far from the norm for a typical worker in 2021. So, what gives, Maynard? Were you completely wrong? Or, have typical working households simply raised their expectations beyond anything you imagined?
According to a Forbes article by Tim Worstall, the average American is actually 90 times richer than the average historical human being (the average income for measurable societies compiled by Agnus Maddison). When addiction and mental health are factored out, the author argued, life-threatening poverty is not a significant issue in the United States.
So, if we’re 90 times removed from any sort of life-threatening poverty, shouldn’t Maynard be correct? That we simply don’t need to work as much as our historical forefathers used to?
Turns out, no. Not even close. Probably because we are too busy inventing new ways to spend our money, and raising our expectations to match them. It’s likely that Maynard didn’t anticipate things like iPhones, bottled water, DoorDash, hoverboards, Teslas, and $5 morning Lattes, all of which, since we can buy them, we convince ourselves that we need to buy them in order to be happy. And when we can’t buy those things, our happiness goes down the toilet in spite of being 90 times removed from poverty.
In a book called “How much is enough?” authors Skidelsky & Skidelsky suggested that most people in western culture lead lives that revolve around money, and financial decisions. Instead, they suggest a radical approach to finances. Instead of earning money and then finding ways to spend it, they suggest first defining what a good life looks like to us, then earning enough money to support it.
The “good life” as they suggest, is defined not by asking “how much you need” first, but rather last.
So how can you determine your own “good life?” The authors boiled it down to 7 areas of life to address directly. These 7 elements are: health, security, respect, personality, harmony with nature, friendship, and leisure.
I also think it’s important to take into consideration your own personal values. If you don’t know what they are, just Google “determine my personal values” and you’ll be given a slew of websites that can help you figure them out.
The 7 areas of the “good life” combined with your core personal values may be supported by money, but the point is that the money has a specific purpose assigned to it. Instead of simply trying to earn as much money as possible, it’s about earning money to intentionally support your own values, goals, and 7 elements of a “good life.”
One of my favorite personal finance classes to teach is one on financial goal setting. It’s a favorite of mine because in its own way it rebels against the typical approach to finances that prescribes some generic notion of “wise spending.” Instead, the financial goal setting class helps learners understand what values and goals matter most to them individually, then begins to build a personalized financial plan around them. It gets right to the heart of “Why?” and the motivation behind managing our personal finances. It also helps move learners closer to that ever-important question of “How much is enough?”
To summarize, one of the most important ingredients to happiness with your money is to curb “insatiability,” or the idea that more is always better. Once we can temper our expectations, having “enough” gets a lot easier. Exactly how do you do this? Explore your core values, life goals, and figure out how to support the seven core areas of happiness with the income you already have. And, last but not least, it’s important to be grateful for what we already have. While we all want more, we need to realize that we are blessed with wealth almost unthinkable to most human beings throughout history.
Tony Robbins is credited with saying, “Replace your expectations with appreciation and your whole world changes in an instant.”
Can money buy happiness? Probably, as long as we can learn to appreciate a little more and expect a little less.
Luke Erickson, Ph.D., AFC®, REALTOR® is an associate professor of personal finance for the University of Idaho. He lives and works in the Treasure Valley. Luke and his wife Rachel have been married for 16 years and live in Meridian, Idaho with their four energetic children. Got questions or comments about kids and money? Email them to email@example.com and he’ll respond in future articles.