Can money buy happiness? Yes, if you spend it right.

Most people have an opinion on whether money buys happiness, and it usually depends on how much they have. Those with little tend to say obviously yes; those with a lot tend to say it’s complicated. Both are partly right, and over the past twenty years psychologists and economists have made real progress on working out which parts.

The short version: more money does tend to go with more happiness, further up the income scale than was once thought. But how you spend it matters nearly as much as how much you have, and a few specific kinds of spending do far more for people than others. That makes this less a philosophical question than a practical one for your budget.

The $75,000 study, and the update

In 2010, Daniel Kahneman and Angus Deaton, both Nobel laureates, published a study of 450,000 Americans that became famous for one number. People’s overall evaluation of their lives kept rising with income. But their day-to-day emotional well-being, how much joy, stress and sadness they felt, seemed to level off at around $75,000 a year. Beyond that, the study suggested, more money made you more satisfied but not happier moment to moment.

In 2021, Matthew Killingsworth at the Wharton School published data from over a million real-time mood reports that found no such plateau: happiness kept rising with income well past $75,000. Rather than argue in journals, Kahneman and Killingsworth did something rare in science. They teamed up, with psychologist Barbara Mellers as an arbiter, to work out who was right.

Their joint paper, published in 2023, found that both were, for different people. For most people, happiness keeps rising with income, well beyond $75,000. But for the least happy fifth, it does plateau around $100,000. For them, money can fix the miseries that money can fix, and past that point their unhappiness has other causes. Money is a real lever, just not a universal one.

Why it often doesn’t feel that way

If more money helps, why do so many people with raises feel no better off? A big part of the answer is that we adapt, remarkably fast. In a classic 1978 study, psychologists found that lottery winners were, months later, not much happier than people who hadn’t won. The new house and new car became the normal house and normal car. Researchers call this the hedonic treadmill.

The treadmill is what drives lifestyle creep: each raise lifts spending to match, the new level quickly feels ordinary, and you’re no happier and no more secure than before. The second force is comparison. We judge our income against the people around us, and there’s always someone with a bigger house.

The best story about this comes from Kurt Vonnegut, who later told it in a short poem in The New Yorker. At a party thrown by a billionaire on Shelter Island, Vonnegut asked his friend Joseph Heller, the author of Catch-22, how it felt that their host had made more money in a single day than Heller had ever earned from his novel. Heller replied that he had something the billionaire could never have: enough.

What the research says to spend on

Elizabeth Dunn at the University of British Columbia and Michael Norton at Harvard Business School have spent years testing which kinds of spending actually make people happier. Their findings, summarized in the book Happy Money, are surprisingly consistent.

• Buy time. In a 2017 study across several countries, Ashley Whillans and colleagues found that people who spent money to save time, on cleaning, takeout on busy nights or outsourcing errands, reported greater life satisfaction, and it held across income levels. Yet only a minority did it, and many millionaires in the study didn’t either.
• Buy experiences. Research going back to Leaf Van Boven and Thomas Gilovich in 2003 suggests experiences tend to bring more lasting happiness than things. They become part of your identity and stories, they’re often shared, and they’re harder to compare against someone else’s.
• Spend on other people. In a study published in Science in 2008, Dunn, Lara Aknin and Norton gave people $5 or $20 to spend by the end of the day. Those told to spend it on someone else were happier that evening than those told to spend it on themselves. The amount made no difference.
• Pay now, consume later. Anticipation is part of the pleasure. A Dutch study found that vacationers were happiest in the weeks before a trip. Booking early and paying ahead lets you enjoy the looking forward without the bill hanging over the trip.
• Make it a treat. Things you have all the time stop registering. Rationing a pleasure, like the good coffee or the takeout, keeps it a pleasure.

Security is underrated

One of the most practical findings is also the least glamorous. In a 2016 study, researchers Peter Ruberton, Joe Gladstone and Sonja Lyubomirsky found that the amount of money people had in their checking and savings accounts predicted their life satisfaction better than their income or their investments did. It wasn’t about being rich. It was about not worrying: having enough cash on hand that an unexpected bill wasn’t a crisis.

The flip side is what financial stress does to your head. In the book Scarcity, Sendhil Mullainathan and Eldar Shafir show how money worries crowd out mental bandwidth. In one experiment, simply prompting lower-income people to think about a large, unexpected car repair measurably lowered their scores on reasoning tests, an effect the researchers compared to losing a night’s sleep. The same people performed as well as anyone when the worry wasn’t triggered.

That makes an emergency fund a happiness purchase, not only a financial one. So is paying off the credit card that makes you wince, and so is a plan that tells you what you can spend without guessing.

Save, but not forever

Most personal finance advice pushes in one direction: spend less, save more. For most people, that’s the right push. But there’s a small, serious counterargument, made most forcefully by Bill Perkins in Die With Zero: that careful savers often keep saving long after they need to, and miss experiences that only make sense at a certain age.

Perkins calls the lasting value of an experience its “memory dividend”: you keep drawing on it for the rest of your life. A backpacking trip at 25, a year of long weekends while the kids still want to come with you, a trip with parents while they can still travel. These have windows. Money arriving at 80 can’t buy them.

You don’t have to agree with Perkins entirely to take the point. Once retirement saving is on track and the emergency fund is full, spending on experiences you’ll remember is not a failure of discipline. It’s what the discipline was for.

Putting it into a budget

1. 1

   Secure the base first

   An emergency fund, bills covered and high-interest debt handled. This removes the most unhappiness per dollar.

2. 2

   Decide your “enough”

   Pick the level of spending that makes you comfortable, and send raises beyond it to savings and goals rather than letting lifestyle absorb them.

3. 3

   Give yourself a guilt-free line

   Ramit Sethi’s rule: spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.

4. 4

   Budget for time, experiences and generosity

   A line for help around the house, one for trips, and one for gifts or giving turn research findings into habits.

5. 5

   Stop checking what others have

   Comparison is the fastest way to make any income feel small.

This is the thinking behind Foundation’s safe-to-spend number. Bills, set-asides and goals come off the top, and what’s left is money you can spend on the things that make your life better without a second thought. That’s not a restriction. It’s permission.