The Key to Happiness

Yahoo asks if saving is the key to happiness. Some of their thoughts from a recent survey by Ally Bank:

The size of an American’s bank account is a better predictor of happiness than the size of their salary, according to Ally Bank’s research, released this week.

U.S. adults who save money are happier than those who don’t, and those who save the most report the highest rates of happiness according to Ally’s survey of 1,025 U.S. adults over the age of 25.

Americans who have no savings are about one-third less likely to say they are happy than people who have at least some savings. Only 29% of those with no savings say they are happy, compared to 38% who have at least a little money saved up.

“Happiness continues to grow as savings accumulate,” Ally said in a blog post about the results.  “In other words, a big savings account may contribute to happiness more than a big paycheck.”

In fact, the survey hints that saving money is among the healthiest things a person can do. When asked which activities made them happy, saving money got a higher response (84%) than exercising (59%), enjoying work (68%) and eating healthy (74%).

It's a stretch, but let me rephrase the first sentence in red above as follows: "The size of an American’s net worth is a better predictor of happiness than the size of their income." Do you think that's what this is saying?

This is true for me. I would be much happier making $50,000 a year and having $1 million in net worth than I would be making $250,000 a year and having $100,000 in net worth.

But I could be wrong. That's why I'm asking you for your thoughts. :)

And just to muddy the waters a bit, for me personally, I am happier making a larger salary than I would be at a smaller one. Scores of articles I've seen say that happiness stops going up as salary increases once a person hits $70,000 or so in annual income. This was not the case for me. The more my salary goes up, the happier I am.

How about you?

Comments

[Louisa]

I'm definitely happier when I have more savings. I also note that I'm happier with earned money than money that was given me. When my husband and I bought a house, my father gave me a gift of $10,000, a gift I really appreciated and made me happy. But earning $10,000 makes me even happier, because it reinforces my sense of resilience.

[Mrs. Pop @ Planting Our Pennies]

I had understood the $70K as the optimal level of spending for happiness, rather than the amount of income. We're certainly much happier now than when we made $70K, since it's so much easier to meet savings goals while still spending more than enough to keep us indulged.

[K D]

Not having to worry about money is great, it avoids for us a stress that I see so many (well paid) people deal with every day. We have both savings and my spouse makes a a very nice income (a few times $70K). My spouse is more excited about having a (well deserved) higher income than I am, but I appreciate the freedom it buys us (the giving and sharing ability are the part I appreciate).

[CD]

Mrs. Pop is right about spending - and the reason it's likely that amount is that the median family income in the U.S. is ~53k, so if you're making 70k (and spending it all), you're going to feel much better in relation to most of your peers. If the median income were 80k, it would probably bump the "happiness" number up to 120k or something.

Additionally, as economists love to say, there's a declining marginal utility to more income - each raise will make you increasingly less happy. Someone making 30k who gets a 5k raise is going to be a lot happier, while FMF making $250k (or whatever), might be a little happier, but really not so much.

I saw a good thought (can't remember where to attribute it) that all anybody cares about is the first two numbers in your bank account / net worth. Beyond that, small changes up or down don't matter nearly so much.

[Sarah]

There may well be some correlation with life circumstances--a person who has meaningful savings relative to their salary has probably NOT just been through extended unemployment/illness/family crisis/etc. (which would have led to the tapping of an emergency fund).

The last time I got a pay raise at my previous, high-paying job, I actually had to look it up at one point--it was "only" $10,000, and at that salary, it barely affected my lifestyle or happiness at all. Now that I have taken a job with a huge pay cut, I of course find it frustrating not to be able to buy stuff I used to enjoy. However, I'm pretty sure I will recalibrate, and perhaps even appreciate those things more when I do occasionally get to have them. The real drawbacks a lower salary entails for my contentment are (a) the fact that I have to think about my budget on a daily basis [at my old job I earned more than I could really spend without an effort], which I find stressful and not fun and (b) the loss of a certain sense of security. There are definitely benefits, too--like not working 60-80 hours a week!--but I cannot lie, a significant increase in salary with the same hours would improve my happiness.

[Kathy]

I don't believe the old philosophy about money can't buy happiness. My definition of happiness absolutely includes having enough money to pay for life's necessities as well as a few luxuries from time to time. Not having to worry about paying bills is very freeing to me. Now that we are retired, our net worth is higher and our income outside of investments is lower so I suppose that my answer to the original question is the bank account/net worth making me happier than higher income. But of course, good investments are making up the difference in lost wages due to retirement.

[Old Limey]

I agree that for young people that lead a very busy life with responsibilities for children, house and car payments, student loans, etc. "MONEY" is no doubt #1 in importance.

However it's a very different story in old age. I am 79 and my wife turned 81 last Wednesday. We are at the point in our life where money has lost its importance completely. Our biggest concern of all is staying as healthy as possible. We are both thankful that we have the best healthcare available in Silicon Valley and have doctors that really care and are doing their utmost to keep us as healthy as possible.

We are at that point in life where we couldn't be any happier in our life and don't have a single money worry since our money will outlast us no matter how long we live. Being both able to stay in our home to the very end is also one of our goals. We feel very fortunate to have bought our home in 1977 when prices were very low. Now our garden is at its best with a large emerald green lawn with many beautiful red and green maple trees around it and masses of climbing roses covering our fences. We also have a bird feeder near our patio that attracts hordes of gorgeous goldfinches that aren't bothered by our presence.

For my wife's birthday, on May 16th, our daughter has arranged to take us ut to lunch to one of our favorite places, called FILOLI, nearby in Woodside.

Filoli was built between 1915 and 1917 for William Bowers Bourn II, owner of one of California's richest gold mines and president of Spring Valley Water Company, supplying San Francisco's water, and his wife, Agnes Moody Bourn. In 1910 they had bought an estate in County Kerry, Ireland, but wanted a country place nearer home. The principal designer, San Francisco architect Willis Polk, used a free Georgian style that incorporated the tiled roofs characteristic of California. Polk had previously designed Bourn's houses in Grass Valley and on Webster Street in San Francisco. Polk's friend Bruce Porter was commissioned to collaborate with the Bourns in planning the gardens, which were laid out between 1917 and 1922. The horticulturist who designed the plantings and fixed the original color schemes was Isabella Worn; she supervised the garden's maintenance for 35 years.

Filoli served as one of the Bourns' residences from 1917 to 1936. The name of the estate is an acronym formed by combining the first two letters from the key words of William Bourn's credo: "Fight for a just cause; Love your fellow man; Live a good life."

[freebird]

Current CD rates don't exactly have me jumping for joy, my bank 1099s seem to have dropped a digit compared to a few short years ago. Fortunately my better half is in equities which have been both rising in value and paying out a decent dividend rate. My retired mother is 100% in FDIC insured CDs, and all she'll say is that at least her estimated taxes are more easily affordable!

While some people see savings as a buffer against unforeseen expenses, others use it as a tool to generate income, so how happy you are with savings today may depend upon how you use it. Among those who live close to the edge, savings implies margin between income and expenses, so this result is an obvious consequence of Micawber's principle.

[Steve]

"I would be much happier making $50,000 a year and having $1 million in net worth than I would be making $250,000 a year and having $100,000 in net worth."

I think even more interestingly most people would be happier making $50K/ year and having $1M in net worth than making $250K/year and having $1.5M in net worth.

Most people spend in close relation to what they make (whether they are bad savers and spend 100% or good savers and spend 80%, its still a pretty close relationship), and most people develop a "need" for their current spending (I know I do). Therefore the former person is much freer than the latter, even though both income and net worth is lower.

[rubin pham]

fmf:
i am glad you still write at this blog. this blog is by far the best financial blog i can find.
i appreciate every article you write here.

[Ivy]

"When asked which activities made them happy, saving money got a higher response (84%) than exercising (59%), enjoying work (68%) and eating healthy (74%)"

There is something deeply disturbing in this sentence. We are going in the other extreme now, with saving money becoming the nation favorite sport.

For me personally at my level of income, money doesn't bring happiness, it's more that we don't worry about money and can focus on other things. Last 2 years I got very large unexpected bonuses, and beyond 2 minutes for a nice surprise jolt, I just moved them into savings and forgot about them. I think the threshold is very real, whether $70k or higher. And I think there is a similar threshold in net worth, when you leave worries behind and get little marginal enjoyment from the increase. Happiness comes with goals, and once you are comfortable financially the importance of these goals decrease.

[Derek @ MoneyAhoy.com]

I heard a very insightful thought the other week around happiness that I'd like to share.

Happiness equals fortune divided by desire. To increase happiness, you can either work on improving your fortune in life or reducing your desires. If you ever desire more than your current fortune, you're destined for unhappiness.

[PJ]

We've spent years making it, but with difficulty. Now, our income has increased enough that we are experiencing "escape velocity" away from past financial challenges. We've experienced two income bumps above the $70k level, and they've made a big difference for us. I sleep better at night.

That said, in the long term net worth will matter most. We're still somewhat young (under 40) and until our net worth can carry us for several years without income, you can bet income will matter a lot.

[Mortgage Free Mike]

Absolutely because a high net worth is a sign of financial stability. I have a friend who makes $150,000 a year. Guess what? He's recovering from a bankruptcy. When he talks about his big salary, I just sit there and smile. While I don't make 150K, I have much more to show for it.

[Mark]

@Ivy...I really don't think we're going the opposite extreme. The survey results may not be representative of the nation at large. Our savings rate is still pretty pathetic. What people say they want and what they actually do are often two different things.

[Kris]

Just love to hear Old Limey's stories and perspective. I took a moment to google FIlOLI -- it is exquisite.

[Kenny]

Money in general does not Create Happiness. So, Money =/= Happiness.

It is the Freedom that Money brings to our lives that creates Happiness.

Money is Money. Whether that comes from Income (source and cause) or Savings (net result of Income minus Expenses). It is really not really relevant. But, since you asked, what creates MORE happiness.

My answer if I had to pick one is Savings. There is another popular saying. "It is NOT what you make that counts, it is what you KEEP that counts". America is a world of plenty, but problem is that MOST people SPEND their Income before they earn. $400 payment on a new car to replace a 4 year old car is a perfect example of spending future income. If you don't have the savings, don't buy something except for a house, and your first car (period).

Today with some of the above principles, I am Financially Independent with a very good Rental Income, a good Corporate job, over $1M in taxable brokerage account, good amounts in Retirement incomes, BUT none of it came from replacing cars every 3-5 years, or buying things on future income or living like the 'Joneses'. In fact, there are more and more trying to watch our life style and live like us in America and I am happy to see that change happening.

In short, Live Under Our Means, Increase Income through Higher Education, and Save Every Penny One Can. Happiness comes through a combination and it will be HERE TO STAY with these simple disciplined rules.

Kenny

[M-19]

Fmf

I am happy to see another post too. Keep it up!

For me it is the freedom that a large net worth provides that gives me
happiness. I always hated the treadmill.

While money is certainly not everything it does provide peace
of mind. And peace of mind allows one to enjoy the other important
things like family and nature and friends.

So, yeah, I am happier with a million dollar net worth than a
large salary. The net worth can provide an ongoing income
And flexibility forever. The salary Is a 12 month proposition at best.

[B]

More money has made my spouse and I happier. Since 1995 our income has grown from about 100K to over 400k. We saved diligently throughout and now we have well over $1M in retirement assets. Everything is paid for other than a small mortgage. We are building a fortress balance sheet so that if life throws us some curve balls we can handle them. When I was young, my father told me "it's not a problem if you can fix it with money". (Certainly there are life, death and love things that can't be fixed with money.) For the things that can be fixed with money, you have to have the money to solve the problem. Now that we have more money we have less problems and more freedom. We work really hard at challenging jobs -- but that's ok right now. As the nest egg grows, we know that we have the power to decide when and where to work and for how long. Not a week goes by that we don't acknowledge how fortunate we are. Everything is awesome!

[Old Limey]

Kris
If you want to see more of Filoli's 654 acre estate and its 16 acres of formal gardens there is a "youtube" item that covers it quite thoroughly. I just watched it and learned many things I didn't know.

[MoneySheep]

It depends on who you ask. For a bank's survey, the answer is savings. For pot-smokers survey in Colorado, I am sure Weed will be one of the answer.

I think health should rank as top priority. But most people don't give it a thought until they have had a debilitating health issue, migraine perhaps? chronic back pain?

But, I wouldn't be thrilled if I was struggling to pay my bills every month.

[Kris]

Old Limey,
Thank you. I watched the aerial view video on their website and will check out the "YouTube" video as well.
Here's to you and your wife's health!

Kris

[JayCeezy]

While savings and money may not be the best source of happiness, my own experience in younger years was that being broke was a huge source of unhappiness. It is like having a really bad cold, or a broken heart; it is always with you and never far from your thoughts.

[Mark]

@JayCeezy...Yes, I agree.

I think discussions like this sometimes lend themselves to all-or-nothing thinking. Savings are not THE key to happiness, but having savings is ONE of those keys.

[JayCeezy]

@Mark, thank you. Your posts are always thoughtful and well-reasoned. Along with Old Limey's, your posts are ones I do watch for. Also, a belated thanks to you for the kind words you had on my previous guest-post; I was one of several FMF profiles, and you noted my parents' influence and credit. Here are two posts that others interested in the subject of "Happiness" might find of interest. Radio personality Dennis Prager has written extensively on the subject of "Happiness" and rightly says that everyone has a duty to try for happiness. It is a matter of Emotional Hygiene. We wouldn't go out in the world with body odor or bad breath, because it is offensive; likewise with a bad mood. It is not right to make a bad mood "somebody else's problem." Here is a great post noting Happiness = Reality - Expections. And here is a Charles Murray column on Advice For A Happy Life Hope some FMF readers (and FMF) find them of interest.

[The Wallet Doctor]

For me, savings makes me happier because I feel more secure. When I have a big chunk in the bank, I can go about my business confidently. That savings helps me feel comfortable. Thanks for the interesting post!