There is a lot of debate about whether money makes people happy. Some are big believers that money will bring you more happiness, while others feel there is a limit to what money can do. There was a major study done that showed making more money will make you happier, but there is a limit to that correlation once you hit a certain income level. There was another study done that showed making more money will make you happier, and the more money you make, the happier you will be. I have done well in the real estate business with my rentals, flips, being an agent, and this blog. While I can see how making more money can have its drawbacks, I am a strong believer that making more money will make people happier. More money buys more time, more freedom, better medical care, vacations, gives people the opportunity to do what they love, and gives people the ability to help others. It is important to remember that making a lot of money does not mean you have to work non-stop and sacrifice your time with family.
Which study said there is a limit to money making you happy?
Many people have referenced a study done a few years ago that stated money does buy happiness up to a certain point. The study asked a number of people with different income levels questions about their happiness. The study found that happiness increases greatly when people make more than $75,000 compared to those who make less than $75,000. The study also stated that when people make $200,000 or more, their level of happiness levels off, and making more money after $200,000 does not equal more happiness. Many people thought this study showed that happiness can come from earning a certain amount of money, but after people make $200,000 per year, happiness does not increase with more income.
When looking at the study, they only interviewed people who make up to $360,000. From what I could tell, the study never interviewed people who made one million per year or more—or people who had a high net worth. I think being rich or wealthy is much more than just making a lot of money per year. I could see why there is not a huge difference in happiness for those who make $300,000 compared to those who make $200,000. But, there could be a huge difference in happiness for those who make more than one million dollars per year or are living off their investments and do not have to work. Some people who make $100,000 per year may even be better off than others who make $500,000 per year depending on their spending habits and investments.
What have more recent studies said about money and happiness?
More recent studies have shown that the more money you make, the happier you will be, and there is not a tapering-off effect.
- Yes, making more than $75,000 a year will make you happier
- Making more than $75,000 will make you happier
The biggest takeaway from these studies is that people who make more money are usually happier. The more money you make, the happier you will be. Money does not automatically equal happiness; you have to use money in the right ways. The happiest people are those who hire others to help with their business, chores, or other tasks. After looking at these studies, I think there are two levels of happiness money can help you achieve:
- Making enough money to be safe and comfortable. This number is probably close to the $200,000 per year, which the first study says is the point when more money will not make you happier. However, most people who make $200,000 or even $500,000 per year are still working very hard and putting a lot of time into their work. This may be why the level of happiness tapers off in the first study.
- Making enough money to have financial freedom. I think making much more money per year (one million dollars or more) or creating passive income to cover all your expenses can create financial freedom. That means you do not have to work if you do not want to, or you can hire people to take care of the things you do not want to do. This creates another level of security, freedom, and happiness. If you do not have to worry about working 80 hours per week to keep up your current lifestyle, you have the freedom to pursue whatever you want. I think a huge part of happiness is finding work that you love to do. If you are financially free, you can work on whatever you want, which greatly increases the joy in life.
One thing almost all studies on money and happiness miss is a person’s level of financial freedom. It is not all about how much money you make per year. People who make $50,000 per year could be better off than those making $500,000 per year if they save and invest better. I know people who make a ton of money every year but spend almost all of it and have no investments. It can be very stressful knowing you have to keep making an enormous amount of money to support your lifestyle and habits. I think a better judge of happiness is how much money you have invested or how much passive income you have coming in, not how much money you make each year.
How has my happiness level changed as my income has increased?
In 2006, I made about $28,000 the entire year. I had been in real estate for almost five years, and I decided to do all the manual labor on a house flip myself. It was one of the biggest mistakes I ever made in my career, but it also taught me a lot. I was incredibly stressed that year for a number of reasons: I had a lot of credit card debt, I was not making much money, I was working a ton, and I was frustrated with my career. From that point forward, I made some huge changes in my attitude and work, which allowed me to increase my income to over $100,000 in a couple of years and then to over $300,000 per year a year or two after that. While my income was increasing, my happiness level also increased greatly. Money did not magically make everything peachy; I still felt stress, and making more money per year did not magically make all my problems go away.
The most stress I can remember about money back then was thinking what if I stopped making as much money as I am now? Would we be able to survive? I also felt like I should have much more to show for the amount of money I was making per year. I had some investments and a lot of equity in my personal house, but it seemed like I should have a lot more to show for making $100,000 per year or more. There was one thing that almost immediately reduced the stress I felt about money and my life. I learned how to buy rentals properties and create passive income.
How does passive income increase your level of happiness?
When you start making a lot of money each year, it never seems to go as far as you think it would. The more money you make, the more in taxes you have to pay, and the more expenses you usually have as well. As we get older, we also start families, get married, and find more expensive habits. I am not one of those people who think you should never spend money on anything except the essentials (I have a Lamborghini after all), but I do think you have to be very careful with how you spend and save your money. It can be frustrating making more and more money but not seeing a higher and higher net worth. I saw this happen with myself and decided I needed to invest my money better. I researched everything from franchises, the stock market, businesses, and real estate. I kept coming back to real estate being the best investment. I decided to buy rentals, and I bought my first rental property in 2010.
Buying my first rental property did a number of things to increase my happiness:
- I was excited and nervous at the same time. It was a new adventure, and that in itself made me happier.
- As I was learning about rentals, I was bettering myself. Even if I never bought a property, it felt good filling myself with knowledge.
- It felt amazing when I signed the closing papers, found my first renters, and had an income-producing asset.
- After buying the property, I knew I had gained net worth immediately because I got a great deal.
- After getting the house rented out, I knew I had about $500 per month in income coming in without doing any work.
As I bought more and more rental properties, my level of stress decreased greatly. I knew I was building a passive income that would basically come in forever. I was also increasing my net worth, and I was motivated to save more money to buy as many houses as I could. I knew that if I lost all of my income, I would still have a lot to show for all my hard work, and I would still have income coming in.
Passive income also gave me the confidence to build my flipping business bigger and spend more money on my other ventures. It was a safety net that allowed me to take more chances and have more fun, like flip 15 to 26 houses a year. The passive income allowed me to feel comfortable spending money on:
- My dream house.
- A Lamborghini, Aston Martin, Lotus, Supra, Etc.
- Amazing vacations.
- Charities, like Make a Wish and the local food bank.
How does your attitude affect your happiness more than money?
Buying rental properties was not the only thing that helped me become happier. I also got a life/business coach, read self-help books, and listened to as many CDs on how to better myself as I could. I was able to change my attitude about money and the stress that can be involved with making money. I will also add that, while it can be stressful making money and worrying about squandering it, it is much more stressful to not have enough money to pay the bills. I think it is a given that making money, enough money to cover all your bills and be comfortable will make you happier than not having enough money. Here are some of the things I learned about my own attitude and how it impacted my happiness.
Does stress solve anything?
Feeling stressed or worried about money does not help anything. I can get stressed and mad, but a better choice would be to think about how I can change things. When I started feeling stressed or worried about things, the first thing I did was identify what is bothering me. The second thing I did was figure out how to improve the situation. Many times, once we figure out exactly why we are mad, annoyed, or upset, we feel better because we realize we can fix things or it is not a big deal. As soon as I know what is wrong, I go to work fixing the problem. If I am stressed about money, I look at all my accounts, look at my investments, and try to figure out where I can improve things, cuts costs, or increase income. Taking action makes you feel better as well.
What if I lost everything?
Another huge breakthrough I had was realizing that things would be okay if I lost everything. Plus, it does no good to worry about these things anyway as I just discussed. The challenge in making a lot of money is not the physical work it takes to make that money: it is learning how to make money. If I were to lose all my income and investments, it would suck. Think of all that time I worked and built up my net worth, my income, and my investments. It is all wasted! That is one way to think about things, but there is another way. I did not waste that time because I was learning every day how to do things better and improve my business. While it sucks that I lost all my money, I still have the knowledge to make it back. Knowledge is much more valuable than material possessions and money.
I also wrote a book on attitude and success that goes into much more detail on all of these subjects and how attitude has made me very successful. How to Change Your Mindset to Achieve Huge Success: Why your attitude and daily habits have more to do with making more money and having more freedom than anything else.
How does the way you run your business and life affect your happiness?
- One huge takeaway from the most recent study on money and happiness was the importance of hiring help. The people who hired others to help out with their business or even mowing their lawn were much happier. The more money you have, the more people you can hire, and the happier you are. I see this all the time in my business and other businesses as well. The more people I hire, the more time I gain to do what I want to do. The more I do what I want, the happier I am. I also end up making more money when I hire more people as well because I have more time to think about the big picture of my business. I am not stuck doing busy work and day-to-day tasks.
- I was the unhappiest in my career when I was doing all the work on that flip myself. It was horrible, and my personal and professional life suffered because of it. I see others try to save money doing everything themselves as well. In the long run, you are costing yourself money because your time and happiness are so much more valuable. The best businesses are set up to run by themselves without the owner. Most business owners will never get to this point because it is hard to convince yourself to spend money hiring people, and it is hard to let go of control. It is also safer financially to have others running things because what happens if you get sick or can’t work?
- The more free time people have, the more successful they will be (as long as you are making money and don’t have free time because you are unemployed). Free time allows you to think of new ideas, work on improving your business, start new businesses, or simply have fun. Money can buy free time, and that is why people with a lot of money are usually very happy.
- How to create a business that runs without you.
A lot of people love the study that shows making a lot of money does not bring more happiness. Why? Because they do not make very much money or know how to make a lot of money. They feel better if they can convince themselves that they will be happier where they are now instead of trying to reach something they may never get to. However, it is much better to try and fail than to never try at all. Many people hurt their own chance at success by convincing themselves they do not need or want to be rich. Common sense and most of the recent studies on wealth and happiness show it is better to have a lot of money. Don’t hold yourself back from being happy because you doubt your own abilities. Money alone will not make you happy, but if you use it in the right ways with the right attitude, it will.