Thread by @AliAbdaal

Does money buy happiness?

Yes but at the same time No.

Here’s everything I learnt about money from managing 9 different income streams 👇

When we don’t have a lot of money, it’s easy to think that all we need to do to feel better is to make more money. And to some extent this relationship works fine because as @Casey explained in one of his videos, there are two types of problems:

😀 Life problems - happiness, love, fulfilment, and purpose. These are everyone’s problems. No matter if you’re poor or rich, money is not going to solve any of these. But you won’t care about this category if you’re struggling with...

💰 Money problems - things like healthcare, housing, and food. These are the necessities that can be only bought using money. And, if you’re short on income and you can’t afford those, these problems drown out all the other life problems.

So, up to a certain point, money can actually buy happiness. Now, the question is: where’s the upper limit of more money equals more happiness?

The best answer that I found is from a study from 2018 published in Nature that analysed data from 1.7 million people in 164 countries.

It turns out there are 3 possible answers to our main question.

No.1 - It depends on how you define happiness

The way scientists measured happiness or, how they call it, subjective wellbeing is by using this idea of life evaluation.

One way to do that is to imagine a ladder with steps from 0 (worst possible life) to 10 (best possible life) and rate yourself on that scale.

Interestingly, when we compare this data and people’s household income, we’ll see that after a point of $85k, money =/= a higher rating.

Another way to measure happiness is by assessing emotional well-being. Scientists do it by asking questions like “How often did you smile/laugh/had fun in the last week?” This way they get a mix of positive and negative emotions and turn it into an emotional well-being score.

If we then compare this score with people’s household income we’ll, again, find a point beyond which more money doesn’t equal more happiness. That’s on average $55,000 per household. This happens because at some point we’re left with life problems that can’t be solved with money.

No. 2 - It depends on what country you’re in

The point of $85k beyond which more money doesn’t mean more happiness varies widely depending on which part of the world you live in.

Western Europe and USA -> $100,000
SE Asia -> $70,000
Latin America and Caribbean -> $35,000

No. 3 - It depends on how many people you’re looking after

The previous numbers will change if you have more people to look after. To calculate it, take the square root of the number of people in the household and multiply it by the household income in your country.

We know that money brings more happiness but only up to a certain point. Now, even a more interesting question arises and that is Why more money doesn’t *always* mean more happiness? And there are 2 main concepts that answer this question:

🥱 Hedonic adaptation - we all have a tendency to go back to the same level of contentment even after a positive or negative event. When I bought my @Tesla Model 3 I was thrilled for the first few weeks but the excitement quickly wore off and it became my new normal.

➗ Comparison - another tendency is that we usually compare ourselves with our friends and colleagues and that affects our level of happiness. So, if I earn $50k and all of my friends earn $30k I’ll be happy. But if I make $100k and my friends make $200k I’ll be less happy.

The best summary of that tendency is this quote from a famous British philosopher and economist, John Stuart Mill:

“Men do not desire to be rich. Only to be richer than other men.”

Even in business, it’s easy to compare your company to some other “more successful” startup and strive for growth and scale. But throughout the years, I met people like @JohnONolan, the CEO of @Ghost who purposefully keeps his business small and more manageable.

As John says:

“The worst thing you could do is strive to achieve someone else's definition of success, only to arrive there and realise that it's not yours.”

If you want to read more highlights from my conversation with John, head over here aliabdaal.com/deepdive-johno…

I constantly try to remind myself of these two concepts when I’m thinking about making more money vs being happier. A book that summarizes all these ideas is You Money Or Your Life by @vicki_robin. And I have a video on that if you fancy watching

And, if you want to watch my whole analysis of the “Does money bring happiness” including graphs, studies, and techniques that I’ve mentioned in this thread, check out this video on my YouTube channel

FYI - I try to post threads like this thrice per week.

If you want more tips and strategies on productivity, studying, personal finance, and entrepreneurship, you can follow me @aliabdaal.