{"id":201,"date":"2021-10-25T12:00:00","date_gmt":"2021-10-25T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/how-to-invest-for-the-most-happiness-not-the-most-money\/"},"modified":"2025-09-03T20:25:33","modified_gmt":"2025-09-03T20:25:33","slug":"how-to-invest-for-the-most-happiness-not-the-most-money","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/how-to-invest-for-the-most-happiness-not-the-most-money\/","title":{"rendered":"How to Invest for the Most Happiness, Not the Most Money"},"content":{"rendered":"
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If your instinctual response to the title of this post was, \u201cWait, but aren\u2019t those the same thing?\u201d<\/em>, your training is complete. I now feel 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, \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 it feels like one of the only things on earth we can\u2019t research empirically: All of the happiness studies I\u2019ve seen use self-reported measures of happiness, which means there\u2019s no real objective way to gauge it. <\/p>\n

You\u2019ve probably seen the 2010 study that claims happiness begins to plateau after you receive an annual income of $75,000<\/a>, an idea that has now been more or less disproven<\/a> \u2013 one study going so far as to claim (hilariously) that people with $10M are measurably happier than those with a paltry $1-2M<\/a>. <\/p>\n

Those poor little millionaires! <\/p>\n

What are we to make of all this happiness research and its ties to income? <\/p>\n

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

Financial goals, sacrifice, and taking the shortest, hardest path<\/h2>\n

I\u2019ve been thinking a lot recently about the psychological pressures we put on ourselves when we set financial goals. <\/p>\n

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

This is the point where I, as the self-proclaimed millennial money guru, tell you that this is a good thing. Discipline! Sacrifice! Focus!<\/p>\n

And sure, to an extent, those traits will #behoove you on your financial journey to freedom. <\/p>\n

But it begs the question: <\/p>\n

What\u2019s the point of reaching financial independence? <\/h2>\n

What\u2019s the point of financial independence? To never work again and tap-dance out of the boardroom forever? Maybe. <\/p>\n

Ostensibly, the point of achieving financial freedom is to facilitate happiness. <\/p>\n

In the short-term, you may be willing to make some sacrifices to eventually end up in your hypothetically happier, financially free state. <\/p>\n

But what if that\u2019s not the case?<\/p>\n

You know that old saying, \u201cIt\u2019s the journey, not the destination!\u201d What if that applies here, too? <\/p>\n

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

I would estimate that my life will get roughly 20% better when I hit FI. It won\u2019t change everything<\/em>, but it\u2019ll change enough of the things that actively annoy me on a daily basis and give me a lot of time back. <\/p>\n

If I\u2019m a 7 every day now, I don\u2019t think it\u2019s outrageous to assume I\u2019d be an 8.5 or 9 when I hit FI. <\/p>\n

Today, I want to measure just how much small sacrifices materially change<\/em> your timeline to FI. <\/p>\n

To help us do this, you\u2019re going to have to suspend disbelief with me for a moment and pretend that we could assign a value to your happiness level on any given day.<\/p>\n

For example: <\/p>\n

Let\u2019s pretend the mornings where 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 happiness. <\/p>\n

If we\u2019re measuring happiness on a scale of 1-10, 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<\/em> \u2013 but not today.<\/p>\n

Nope \u2013 today, we\u2019re acknowledging that these little purchase hits (let\u2019s call \u2018em dopamine bumps, for fun) are capable of making you just a little bit happier in your day-to-day life. Sure, there\u2019s a price associated \u2013 but you\u2019re trading money for happiness, right?<\/p>\n

So often we look at two factors: money and time. <\/p>\n

What about the third? What about happiness?<\/p>\n

Those happiness measurement points we mentioned above? We\u2019re going to carry those forward in this analysis. <\/p>\n

How much does #light hedonism slow us down?<\/h2>\n

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

The framework<\/h3>\n

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

Using our earlier $5,000\/mo. income and goal 50% savings rate, that means we\u2019re allowing ourselves to spend $2,500 so we can invest $2,500 per month ($2,500 per month is $30,000 per year). <\/p>\n

I\u2019m afraid to make this overly complicated since we\u2019re already involving literally imaginary variables<\/em>, so instead of bringing inflation, average raises, and more changes into this, we\u2019re going to hold the $5,000\/mo. income and $2,500\/mo. savings consistent. <\/p>\n

(We\u2019re illustrating a point here, not publishing an academic paper.)<\/p>\n

At that rate, our hypothetical rich girl needs $750,000 to be financially independent (to spend $2,500\/mo. forever; $2,500\/mo. * 12 months * 25, to calculate FI). <\/p>\n

If she saves $2,500\/mo., she\u2019ll reach financial independence with $822,493 after 15 years (assumes an average 8% rate of return). <\/p>\n

That\u2019s 15 years of sacrifice, assuming she\u2019s avoiding purchasing #HappinessUnits to hit her $2,500\/mo. goal. <\/p>\n

How much extra money would she have to spend each month for some happiness units? <\/h2>\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