Does Saving Money Make You Happier?
“Money does not buy happiness” is a popular rhetoric people have believed in for decades. While happiness is subjective, having or not having money has a significant impact on our lives. Therefore, the subject of this article will be to break down what it means to associate happiness with saving money.
Financial freedom and happiness
Financial freedom is the ability to provide for yourself and, if you’re lucky enough, those around you. Regardless of how it equates with happiness, it’s imperative that you have it.
While we can list down all the perks of being financially free, it does not require much to understand that affordability in today’s world is a necessity over everything else.
Every individual desires to live debt-free, with a secure source of income and a roof over their head. Even according to Maslow’s Hierarchy of Needs, you must fulfill your basic survival needs before you pursue higher levels and achieve self-actualization. Therefore, financial freedom is the basic pillar that determines all else you can achieve in life, including happiness.
Does saving money make you happy?
Let’s get to the root of the question and see what research has to say about it.
According to an Associate Professor from the University of Arizona, Sabrina Helm, the psychological well-being of people who save money is much better than the well-being of those who don’t.
During her interview to a CNBC program, “Make-It,” she said that saving money is linked to lower distress and more financial satisfaction. According to her, positive mental health has a lot to do with managing your personal finances well, especially if you’re a student who struggles to make ends meet.
According to an Ally Bank survey of over one thousand American adults, your well-being can see some significant improvement if you save money. When we break down the numbers, 38% of those who had a savings account felt happier than 29% of those who did not have one.
Another research in 2010 by economist Angus Deaton and psychologist Daniel Kahneman aimed at studying two important things. The first thing they evaluated among the participants was emotions that made their lives pleasant or unpleasant such as stress, anger, sadness, affection, joy, etc. The second thing they studied was how subjects evaluated their lives keeping the aforementioned emotions in mind.
The study revealed that money has a significant impact on how people perceive their lives. People who have more money have a better perception. However, there is also a significant link between income and emotional well-being.
There’s only a certain amount of your annual salary that can guarantee well-being. Once that limit is reached, the amount of happiness does not increase. Whatever the amount may be according to the economic scenario today, it was $75000 according to this study.
Interestingly, the study concluded that a lower income is linked to lower emotional well-being and evaluation of life. However, high income does not guarantee happiness, but it does buy you life satisfaction.
Since we have enough research to support the idea that having more money does have a more positive impact on your life than negative, we must proceed to the next most important question:
“Why should we save money after all?”
Reasons to save money
The first and foremost reason people must save money is to achieve financial independence. After all, who does not desire a comfortable lifestyle? Financial autonomy gives you the liberty to make choices in life.
It’s more than just a paycheck you receive at the end of the month. It lets you decide whether you’ll ever be able to take that vacation or not or whether you’ll be able to invest in a business or not.
On the whole, savings are the stepping stones in your quest to achieve financial independence.
The second but equally important reason to start saving money from an early age is that debt is real, and at some point, it will impact your life significantly.
You may be a little laid back with your credit card debt right now, or you may be going a little overboard with spending money, but when the debt piles up, the consequences can be ugly. It can take away various opportunities from you, such as the ability to buy a car or a house in the future.
Whether it’s a school loan or credit card debt, your finances could suffer immensely as a result of not repaying them on time. This is where saving money comes in handy.
When you put a certain amount of your income aside every month, you can cover up the discrepancy in your finances, saving yourself the horrible consequences of debt.
Life does not warn you before throwing an unpleasant situation your way, neither does it give you enough time to think about how to deal with it. In hard times, even a few dollars can save the day.
Whether it’s a medical emergency or an appliance that needs immediate fixing, you must have the funds to take care of it. Unexpected expenses can occur more frequently than you would like them to.
In such cases, your savings can help soften the blow and ensure you don’t have a pile of debt to face. Now that we’ve established why saving money is important, it makes us wonder why people have a hard time doing it.
Why can’t people save more?
Many people agree that saving is, in fact, a good thing but have a hard time committing to it. The main reason most people hesitate to save money is not because of money itself, but because of how they perceive it. They feel that there isn’t enough money to save. Many reach this conclusion because our saving strategies are flawed.
We believe in spending first and saving later, when clearly it should be the opposite. For many people, the idea of saving is synonymous to keeping money aside.
While the notion isn’t entirely incorrect, there is an issue with it. This definition justifies that you should spend money first and save it later when the better approach is to save before you spend. Hence, to improve our saving habits, we must learn how to save in the first place.
How to save more money
The hardest part about saving money is not knowing where to start. Therefore, the first step is figuring out your spending pattern. You must keep track of every expense you bear, from household items to cash tips, etc.
Once there is a set of data to look at, divide them into different categories like mortgage, gas, groceries, etc. Also, take into account your bank statement and credit card spending.
When you have a clear idea of your spending pattern, plan your budget accordingly. The budget should be a clear measure of spending less than you earn. This way, you can avoid exceeding your spending limit. Try to save at least 15% of your income every month.
Open a savings account
By opening a savings account, you can enjoy the benefit of saving and earning a little profit every month at the same time. While different banks offer different profit rates, it’s certainly safe to put some money in it every month, regardless of how much you earn on it.
How can you trim every day expenses?
If you feel that your expenses exceed your income every month, it’s time to consider cutting back. Start by identifying unnecessary stuff you spend on, such as the number of times you dine out or order in. The best way to cut back is by reducing your leisure expenditures. You can also get rid of unnecessary memberships or subscriptions you no longer use.
Try to plan your schedule for eating out and stick to it. Whenever you find yourself tempted by a new item in the market, wait for some days. Eventually, when you see the total sum of your savings, you may be glad for not spending on it. The benefits of holding back are certainly more than giving in.
How to spend money the right way
Just like saving money is linked with greater well-being, spending money is also linked with happiness, but only if you do it right.
Buying experiences contribute to your happiness more than buying physical products. In other words, clothes or gadgets may bring satisfaction for the time being, but a bungee jumping experience will live in your mind forever.
Nonetheless, we all have occasional relapses where we fall into the pit of buying material things. While the need is a different matter, buying something for the sole reason to compare it with what you had previously is what can get you into trouble. It’s an endless pit where we believe that nothing we have is good enough.
Consider an iPhone, for example. Every year or so, Apple launches a new and updated model of an iPhone. Now imagine you have an iPhone 7, and you’re perfectly happy with it, but just because the new and shiny iPhone 10 has just been launched, you may find yourself enticed with the idea of buying it.
The phenomenon is not new and also backed by research, which shows that as soon as an upgrade becomes available, most people do not care much about their existing product.
How does buying time make us happy?
Buying time is not as easy as it sounds, especially if you’re already juggling numerous responsibilities. However, there are still ways to do it.
Consider the pandemic, for example. Many people had to give up their traveling plans but what they got instead was a lot of free time on their hands.
While staying at home for a prolonged period is not something we glorify, it did allow people to find ways to spend their time better than overworking themselves at a job.
How does investing in others make us happy?
Have you ever spent on a cause and felt happy about it? Or have you ever bought your significant other a gift? How did that make you feel?
While spending on yourself is tempting, doing it for someone else is a different feeling altogether. This is not to say that giving will always make you happy, but it’s more about the decision that led you to it.
Sometimes, people who are struggling themselves find solace in spending on those who are struggling. Sometimes, it doesn’t even matter how much money you spend, as long as doing it brings you happiness.
Managing finances: The key to happiness
While managing your finances well is not the only way to achieve happiness, it does put you in a more comfortable position in life. Here’s how.
- If you learn the art of saving from an early age, it will help clear off your debts easily in the long run.
- You may consider retiring one day. If you don’t have enough funds to live the rest of your life comfortably, you may regret not saving up when you were young.
- In case of medical emergencies, your personal savings will help you a great deal, even if you have insurance.
- There’s no guarantee where the economy might be by the time you get old. It means that your money now may be worth more or less in the future. It’s definitely not worth the risk to see where the economy goes because what costs a dollar today may cost double in the future. Therefore, having some bucks in hand will save you big time.
The list is not exhaustive in the least, but even if money can’t buy happiness directly, it can buy necessities, comfort, and luxury.
Is having too much money a problem?
Having too much of anything is a problem, whether it’s time or money. However, the latter is always the worst. Having more money than you need means you’re probably spending on things that are detrimental to your health.
Consider an example as small as ordering food. When you have a certain budget to allocate to ordering food from outside, you choose not to go beyond it.
On the other hand, having a lot of money means there’s no reason for you to allocate a budget, which means you can order as much as you like and whenever you like. Not only will it have an impact on your saving habits but will also lead to health issue such as diabetes, or in worst cases, obesity.
Wealth and happiness: Are happy people also wealthy people?
As we have already discussed previously, a higher income buys comfort and luxury, but both components cannot always guarantee happiness. This is because life is defined by a lot more than just money.
It is defined by your experiences, your childhood, a good or bad relationship with a family member, the amount of emotional security you receive as a child, and a lot more. More happiness is not always a result of more money. In fact, more money can also bring more stress.
For instance, there have been numerous cases where some of the wealthiest and famous individuals succumed to to high levels of stress and depression. It does say something about how the link between money and happiness is not as credible as we consider it to be.
The modern misconception
The modern-day media has successfully convinced young as well as old Americans that wealth can lead to happiness, but reality says otherwise. Living the “American Dream” is what entices most people to come to America in the first place.
The television shows you how getting a huge mansion in the countryside can guarantee a good future for your children. The newspapers are filled with stock market updates.
Social media, on the other hand, is another story. Expensive anti-aging creams make us believe that losing our youth is a bad thing. The idea behind cosmetic surgeries is that there is something your face is lacking. Either the nose is too big, or the eyelids are non-existent.
Heavy costs associated with diet plans and weight-reducing gadgets tell you that your body is far from ideal. Everything around us is designed to make us believe that only by spending more money can we achieve more happiness. But alas, we see people that have it all and still be unhappy.
If managing your personal finance was as simple as dealing with numbers, people would never get into debt or overspend. Hence, both emotional and psychological factors influence our decisions when it comes to saving or spending money. However, the answer to the question “does money buy happiness?” is not as straightforward as we would like it to be.
You can be rich, poor, or somewhere in between and still be happy, unhappy, satisfied, or dissatisfied from time to time. Happiness or sadness is never a permanent state because it’s bound to change with life experiences. It’s only natural to assume that those who have wealth are happier than the rest since that’s the rhetoric media has fed us since consumerism has set foot into our society.
However, happiness is only yours to define and does not come with too much or too little money. It can come with spending time alone or with people. It can come with a new job or a new dress. It can come with the birth of your first child or getting a degree.
In the end, there is no scale to measure it. Saving money is a sustainable practice you must adopt regardless of its relationship to happiness. If it doesn’t buy you happiness, it can definitely bring you financial security that makes achieving happiness a more realistic reality.