{"id":266,"date":"2023-05-29T12:00:00","date_gmt":"2023-05-29T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/investing-for-money-vs-investing-for-happiness\/"},"modified":"2025-08-29T20:43:13","modified_gmt":"2025-08-29T20:43:13","slug":"investing-for-money-vs-investing-for-happiness","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/investing-for-money-vs-investing-for-happiness\/","title":{"rendered":"Investing for Money vs. Investing for Happiness"},"content":{"rendered":"
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If your instinctual response to that title was, \u201cWait, but aren\u2019t those the same thing?\u201d, your training is complete. I\u2019ve successfully brainwashed you into the relentless pursuit of wealth.<\/p>\n

After all, like Jonathan Haidt says in his book The Happiness Hypothesis<\/em><\/span><\/a>, \u201cThose who think money can\u2019t buy happiness just don\u2019t know where to shop.\u201d<\/p>\n

But happiness research can be interesting, mostly because we can\u2019t research it empirically: Every happiness study I\u2019ve seen uses self-reported measures of happiness, which means there\u2019s no really objective<\/em> way to gauge it across cultures.<\/p>\n

For example, you\u2019ve probably seen the 2010 study that claims happiness begins to plateau after you receive an annual income of $75,000<\/span><\/a>, an idea that has now been more or less disproven<\/span><\/a>.  Another study goes so far as to claim (hilariously) that people with $10m<\/span><\/a> are measurably happier than those with a paltry $1m\u20132m. Those poor little millionaires!<\/p>\n

Is it even possible to objectively assess something as complex and personal as happiness, let alone money\u2019s impact on your subjective experience of it?<\/p>\n<\/div>\n

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Financial goals, sacrifice, and taking the steepest path up the mountain<\/h2>\n

If you take home $5,000 per month and your goal is to save $2,500 (a 50% save rate, for those keeping score) because a 50% save rate makes intuitive sense on your journey to financial independence, you\u2019ll likely find yourself in situations where you\u2019re forgoing small luxuries or experiences to stay under your self-imposed budget.<\/p>\n<\/div>\n

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\n \u201c<\/span>It begs the question: What\u2019s the point of reaching financial independence?\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
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This is the point where I, as the self-proclaimed millennial money guru, tell you that a 50% is unquestionably a good thing. Discipline! Sacrifice! Focus!<\/p>\n

But it begs the question: What\u2019s the point of reaching financial independence? Is it to never work again and tap-dance out of the boardroom, middle fingers extended? Maybe\u2014but you\u2019re likely trying to achieve something else. Happiness.<\/em><\/p>\n

Our biggest challenge is striking the balance of \u201csacrifice in the short term\u201d and \u201chappiness in the long term.\u201d And when taken to its logical extreme with the best of intentions, it\u2019s easy to assume this relationship is linear: The more I sacrifice now, the happier I\u2019ll be in the future.<\/em> <\/p>\n

But that\u2019s not how the sacrifice\/happiness lever works.<\/p>\n<\/div>\n

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\u201cIt\u2019s not the destination, it\u2019s the journey!\u201d<\/h2>\n

Research suggests humans overestimate how much incremental happiness they\u2019ll feel from large changes, because we often return to our baselines<\/span><\/a> after big, circumstance-altering shifts. That\u2019s fancy scientific talk for the idea that your baseline level of happiness may not change<\/span><\/a> as much as you think once you summit your personal financial mountaintop. <\/p>\n

So let\u2019s run a thought experiment: Say I estimate that my life will get roughly 20% better when I hit financial independence. It won\u2019t change everything, but it\u2019ll change enough<\/em> of the things that actively annoy me on a daily basis and give me a lot of time back. On a scale of 1\u201310, if I\u2019m a baseline 7 every day now, I don\u2019t think it\u2019s outrageous to assume I\u2019d be closer to a baseline 9 if all pressure to generate my income evaporated. <\/p>\n<\/div>\n

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\n \u201c<\/span>These little dopamine bumps are capable of making you just a little bit happier in your day-to-day life.\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
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So today, I want to measure just how much small<\/em> sacrifices<\/em> materially change the time it takes to reach a financial goal (in this case, financial independence).<\/p>\n

You\u2019re going to have to suspend disbelief with me for a moment and pretend that we could also assign a value to your Happiness Quotient\u2122<\/em><\/strong> (HQ\u2122<\/em><\/strong>) on any given day. For example, let\u2019s pretend the mornings when you buy a fancy coffee and a scone from the shop down the street and start work a little later give you a 10% boost in HQ.<\/p>\n

If we\u2019re measuring happiness on the same set scale of 1\u201310, maybe this ritual takes you roughly from a 7 to an 8. <\/p>\n

Normally, I\u2019d be the voice of reason in this scenario and remind you that purchasing pleasure is a slippery slope and it requires constant swiping to be satisfied and blah, blah, blah\u2014but not today. Instead, we\u2019re acknowledging that these little dopamine bumps are capable of making you just a little bit happier<\/em> in your day-to-day life. <\/p>\n<\/div>\n

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So how much does a little #light hedonism slow us down?<\/h2>\n

I should clarify two things right now: Spending more will absolutely result in you having less money, or, at the very least, the same amount of money, but later. And that\u2019s okay<\/em>, because the point isn\u2019t<\/em> to accumulate as much money as possible (or even to be financially independent as quickly as possible), but to achieve the most total cumulative happiness<\/strong>.<\/p>\n

Rather than taking the steepest, hardest path up the mountain, we\u2019d want to find the most enjoyable one: the path where we get the most marginal utility for our sacrifice, but stop short of diminishing returns.<\/p>\n

The framework and numbers<\/h3>\n

All right, #RichGirl. Let\u2019s get hypothetical, shall we?<\/p>\n

Using our earlier $5,000\/mo. income and 50% savings rate, that means we\u2019re allowing ourselves to spend $2,500 so we can invest $2,500 per month.<\/p>\n

At that rate, our hypothetical rich girl would need $750,000 to be financially independent (ignoring inflation, raises, etc. to keep this point illustrative).<\/p>\n

If she saves $2,500\/mo., she\u2019ll reach financial independence after about 15 years (assuming an average 8% real rate of return). That\u2019s 15 years of sacrifice, assuming staying under her $2,500\/mo. budget requires sacrifice to maintain.<\/p>\n

How much extra money would she have to spend each month for some happiness units?<\/h3>\n

I\u2019m going to use my own life as an example here and rack up some happiness charges that will make her life better.<\/p>\n