Research on the relationship between money and happiness is complex, but we are beginning to understand it better.
First, regarding income, research shows that having a huge salary doesn’t necessarily make people happier. Daniel Kahneman and his colleagues used a large Gallup survey and found that happiness increases along with income — but only up to a point. Happiness rises in individuals, up to an annual income of $75,000, but there is no further increase beyond that point. (Given the age of this study, we might want to adjust that income to $100,000.) Satisfaction with life, however, continues to rise with income.
The researchers also explored both the "cognitive" (satisfaction with life) and the "emotional" side of happiness — a composite of reported happiness, enjoyment, and frequent smiling and laughter. Although emotional happiness did rise up to the $75K mark (at the time of the study, only one-third of U.S. households made more than $75K), there are other factors that are better predictors of emotional happiness, such as being in good health, or not reporting loneliness.
A more recent study found that spending money to buy time leads to more happiness than buying “stuff.” In this study, participants were given money to spend on saving time, such as hiring a gardener, house cleaner, or grocery deliverer, or given the same amount to buy material goods. The results found that buying time led to a greater boost in happiness than buying things.
We might take those research findings a bit further and suggest that there are individual differences in how money can make you happy. If you value your time greatly, spending money to get more free time is likely a good expense, and buying the latest and greatest smart phone, won’t likely make you happy. On the other hand, if you are really into your smart phone and take great enjoyment and pride in what it can do for you, the reverse might be true. It may make more sense to take stock of what you value and spend your money on those things, rather than simply trying to “keep up with the Joneses” and buy what you think might make you happy.
Matz, S.C., Gladstone, J.J., & Stillwell, D. (2016). Money buys happiness when spending fits our personality. Psychological Science, (first published on-line, April 7, 2016.