Does Money Buy Happiness? How to Budget for Joy
Yes, Money Buys Happiness… But Only Up to a Point
Research shows happiness rises with income up to about $100K to $150K a year, then it levels off.
Why? In the beginning, extra income makes life easier. You can cover bills, buy food, and reduce financial stress. But beyond that, spending more doesn’t guarantee happiness.
Why? Because most of us use extra income on bigger houses, newer cars, and other fixed costs that increase monthly bills but don’t deliver lasting joy.
After a certain point, happiness depends less on how much you make and more on how you spend what you have.
Are You Spending to Be Happy?
Most people aren’t. When income rises, many of us automatically upgrade to a bigger life with larger homes, nicer cars, expensive memberships. Social pressure and habits push us to “bigger and better,” but here’s the truth: these fixed costs lock you into higher bills without adding long-term happiness.
Why Buying Stuff Doesn’t Work
New things feel exciting at first, but the thrill fades fast (a phenomenon called “happiness fade”).
Big-ticket items like homes and cars rarely improve life satisfaction and often create stress through debt and upkeep.
Research shows homeowners are not happier than renters and people with big car loans report lower life satisfaction.
What to Spend on Instead
Focus on what research shows truly makes people happier:
Experiences over things: vacations, day trips, concerts.
Social connection: coffee dates, family meals, celebrations.
Giving: donations or surprise gifts.
Health and growth: wellness activities, learning, and hobbies.
Why does this work?
You enjoy fewer bills and less financial stress.
You stop impulse buying and align spending with your values.
You create memories and meaning, not just short-term thrills.
Here’s How: Hedonic Budgeting
Most budgets focus on cutting back. Hedonic budgeting focuses on getting more happiness from the money you already have. It’s not about restriction. It’s about intention.
Instead of:
“Where can I spend less?”
Ask:
“How can I spend so my life feels richer and more joyful?”
How Hedonic Budgets Work
Cover Your Essentials First
Housing, food, transportation, and insurance are needs. Keep them reasonable so you’re not drowning in fixed bills. Bigger isn’t always better.Minimize Costs That Don’t Add Joy
Look at recurring expenses like luxury upgrades, streaming services, high car payments. Ask: Does this make life better every single month? If not, reduce or cut it.Build a Safety Net
Emergency funds and insurance prevent financial stress from derailing your happiness. (Credit cards are not an emergency fund.)Prioritize Joy Spending
Redirect money from “stuff” to experiences and connections: family trips, hobbies, meaningful events, and causes you care about. All within your budget and affordability.Add Flexibility for Fun
Create a “fun money” or “me fund.” Even $50 a month can turn into guilt-free coffee dates, concerts, or spontaneous adventures so you can say “yes”, within your affordability.
Practical Shifts That Add Up
Here’s how that might look in real life:
Skip the nicer, more expensive car and use that money for a family vacation or padding your holiday gift savings fund.
Cancel unused and unnecessary subscriptions, redirecting that $50 per month toward date nights, concert tickets, or hobbies.
Pay off credit cards using a debt-paydown strategy, then put those freed-up credit card payment funds into a high-yield savings account. For example, if you were paying $400/month to a credit card balance, you’d have nearly $5,000 saved in a year for something you’ve always wanted to do.
Add “joy spending” to your monthly budget for things that matter.
Manage your money mindfully. Before buying, ask: Will this matter in three months? Does this match what truly makes me happy? Would I rather put this toward an experience I care about?
Spend on What Truly Brings Joy
Take a quick look back over the past few months. Which moments made you happiest? Compare those to where your money went. Are you funding what matters, or just paying for things that don’t?
Once you know, plan your next joy purchase. Choose something meaningful, set a budget, and schedule it. It doesn’t have to be big. Maybe a family day trip, a creative class, or coffee with a friend. Spend less on things that fade fast and more on experiences and connections that last.
Budgeting for happiness isn’t about cutting back; it’s about redirecting your money toward what matters most. Every dollar you prioritize is a chance to create connection, memories, and meaning, not just more stuff.
Sources: Inspired by research by Dr. Matthew Goren, and happiness studies by Kahneman & Deaton in 2010 - adjusted for inflation.
Further Reading: I Will Teach You to Be Rich by Ramit Sethi
