Can money buy you happiness?

Happiness is something we all strive for, yet it often plays a hidden role in the way we make financial decisions. The link between emotions and money is complex, and CHRIS BUDD explains how our pursuit of happiness can sometimes lead to poor investment choices.

Research in behavioural finance shows that our brains are not naturally wired for optimal decision-making when emotions are involved. Feelings like excitement, fear, or overconfidence can cloud our judgement, leading to risk-taking or overly cautious behaviour that may harm long-term returns.

In this short video, you will learn how understanding your emotional drivers can help you become a more disciplined and rational investor. Watch below to explore the surprising ways happiness can shape – and sometimes sabotage – your financial future.

Key takeaways

Happiness can influence investment decisions, sometimes in negative ways.

Emotions like fear and excitement can distort rational judgement.

Being aware of emotional triggers can lead to more disciplined investing.

Looking for a reliable guide to financial planning?

The award-winning book How to Fund the Life You Want by Second Life Financial Planning founder Robin Powell and Jonathan Hollow offers valuable insights into building a secure financial future.

Transcript

Robin Powell: Many people assume that having more money would make them happy. 

But it’s not necessarily true, especially if you’re relatively wealthy already. Chris Budd is an expert in financial wellbeing.

Chris Budd: If you don't have any money, clearly some money to enable you to eat is going to make you happy. We could use Maslow's hierarchy of needs. 

So if you don't have food and shelter, some money to get food, food and shelter would clearly make you happy. But as we go up Maslow's hierarchy of needs, we get to the top.

Self-actualisation money has very little part to play. In fact, I would suggest it's a barrier if we're still focused on money and not focused on the things that bring us joy and self-actualisation. 

RP: A famous US study in 2010 found that while life satisfaction rises with income, daily emotional wellbeing levels off at around $75,000 a year — or about  $110,000 a year in today’s money.

A later study found no such limit, showing that both overall satisfaction and daily happiness generally keep increasing with income, though gains are smaller for those who are already unhappy.

CB: Then something very interesting happened. The two academics got together, and rather than arguing with each other, who was right, they said, let's do another survey and see if we can realise why we're different. 

And so they came to the conclusion that more money will make you more happy if you're that sort of a person, if your short term shots of happiness need money to get them. 

Whereas if you were a very purposeful person, it's less likely to make that much difference. So that leads us to the conclusion that more money will make you more happy. If you need money to be happy. 

RP: So the obvious question is, why are we always wanting more money, even when we already have enough?

The reason, says Chris Budd, is that we’re easily distracted.

CB: There are many, many distractions in life that would encourage us to see money as an objective, just to take one. Advertising the role of advertising is to make us unhappy. 

That's its job to give. Make us a little bit unhappy so that we'll buy that product to get us back to our level of happiness again. 

Images of success. If you ask somebody a question of success, it's probably going to have something to do with wealth, to do with achievement, maybe. And it's going to be images like Dragon's Den, Wolf of Wall Street, The Apprentice. 

Our whole society is geared around success and money being synonymous with actual success of somebody sitting quietly at home, with children or with a book to read when they've retired, or doing something purposeful like going out for a bike ride. 

These things aren't necessarily seen as success. And yet they are the sources of joy and happiness. So in many ways, financial well-being is about getting over those barriers, those distractions to well-being and focusing on what really does add to long term well-being. 

RP: These are fundamental issues, and many of us don’t give them sufficient attention. 

If you haven't already done so, it really is worth exploring them, perhaps with the help of a financial planner.

Ultimately, how much money you have is far less important than whether or not your life has meaning and purpose.