Earning a good living might allow you to eat well, enjoy experiences and purchase other goodies. But does money really buy you happiness? The answer, it turns out, is yes, but not in the way most people think. According to research, it’s saving money – not just spending it – that increases people’s well-being.
“There’s a feel-good connection,” says Jacquette M. Timmons, a financial behaviourist based in Brooklyn, New York, of the power of saving. “It boosts your confidence that you are prepared for the future.”
“Having a financial plan and clear retirement goals can help bring peace of mind and increase feelings of happiness,” adds Tom Reid, senior vice president of Group Retirement Services with Sun Life Canada.
Meanwhile, a study published in the Journal of Economic Psychology concluded that people surveyed were happier about their financial situation later in life. Why? True, their income had dropped. But increases in assets and decreases in debt contribute substantially to financial satisfaction, says the authors of the report.
So, how can you save more and feel better? We explain.
It’s not about how much you make
Most people think that the more they make, the happier they’ll be. That’s not the case. A 2018 study from Purdue University found that emotional well-being on a day-to-day basis starts to drop off after someone makes about $75,000 a year. While life satisfaction – an overall view of how you’re doing related to your goals – taps out at $95,000 for individuals.
The Purdue study found making more doesn’t lead to more happiness, because as your income increases you tend to start comparing yourself to others. It’s also hard to get that saving and spending balance right. “Spending money brings us joy,” says Reid. “It’s not that people shouldn’t spend money and enjoy life. But I think it’s important to make smart financial decisions, spend wisely and stick to your budge.”
Set financial goals
Well-being increases when your money serves a purpose, notes Timmons. Knowing exactly how much you need for retirement, a vacation or a beachside condo can help you feel more satisfaction as you get closer to reaching those goals. “How do you know if you’ve saved enough? You need to be clear about what you want,” she says.
She’s a fan of saving separately for different goals, and putting that money in specific registered or non-registered accounts. “It also tells you what to do with the money you’ve set aside,” Timmons explains.
Reid suggests working with a financial advisor to create a sound financial plan. A professional can make sure people are taking advantage of the resources that are available to them, including their workplace savings plan.
Pay down debt
The Journal of Economic Psychology study also found a connection between lack of debt and happiness. The more debt you’re in, the worse you’ll feel. “It just makes you aware of how fragile your financial situation is,” says Timmons.
While paying off debt is important, she suggests even those who owe money need to save whatever they can. “If you do both, you can see something growing on the asset side of your balance sheet at the same time as your debt going down.” Just attacking the debt can deplete you mentally, she adds. “If you just pay off your debt, it’s exhausting.”
Why saving works
When surveys ask people what setting money aside has done for them, most say its helps them face the unknown, gives them peace of mind, allows them to feel proud and lets them be independent.
Timmons adds that money in the bank or in investments make people feel prepared and secure. But it also ensures they’ll have choices available to them in the future. “It’s about having freedom and flexibility,” she says. “We like to feel in control.”
Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.