Note: This post was written by the previous owner of this blog in 2012.
Money does buy happiness, but it depends on how you spend it which determines your level of happiness. How many stories have we heard about people who have won the lottery, but end up broke, poor, alone, and unhappy? This is known as the lottery effect. The same goes for professional athletes who come from nothing to a significant income source.
When you look closely at why these individuals end up unhappy, it is because they spend most of the money on themselves and make bad investment choices. They also alienate themselves from “family” and “friends” who come to them for a hand-out.
We also see this with individuals who create Ponzi schemes. Usually these schemes start out legitimate, but because of greed and the need to spend more on themselves, it escalates to being unhappy with what they currently possess. Being rich doesn’t always mean being happy.
How Does Money Buy Happiness
As stated earlier, happiness with money depends on how it is spent. There is strong data and a strong correlation between giving money away and happiness. According to a Gallup poll done for the Charitable Aid Foundation, it found that there is a strong correlation between happiness and giving than between wealth and giving.
In other words giving doesn’t make you wealthier, but giving makes you happier. The survey was conducted in 153 countries and essentially asked questions on charitable giving and level of happiness.
Often times, people go on shopping sprees to cheer themselves up when they are feeling down, but this practice is unlikely to help in the long-run. In fact, there is also data to show that the more sad we are, the more we will spend on a particularly good or service. Bad moods can lead to a cascade of poor financial decisions.
I agree with the data, but would also throw in that there should also be a mix of spending money on life experiences with the ones you love. Personal experiences boost our spirits in the long-term. We often remember fond memories, than we do tangible objects. Twenty years from now, you are more likely to remember that awesome vacation in Barcelona with a loved one, or making someone’s day by buying them dinner, than that iPhone you purchased.