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Money and Happiness


"Nobody lies on their deathbed wishing they spent more time with their money."

-Dan Ariely


Eating lunch at a restaurant in Denver's airport, we get an email telling us that after getting delayed three times, our flight to Las Vagas has been canceled. We're dinked. We have to get to Vegas tonight because we have a shuttle coming to pick us up tomorrow at 4 am. We consider renting a car and driving, but we have to drive through the mountains and even without any stops we wouldn't get there until 2:30 am.

Tomorrow we're supposed to be going on a rafting trip through Grand Canyon. We already paid for the trip, and we're unsure what their refund policy is. We're flexible, so we know enough to understand that rainstorms in Las Vegas that cause traffic delays are outside of our control and thus, not worthy of our worry. We've been thinking about this trip for months and don't want to miss out.

We get lucky. Just as we're about to call the company to tell them our situation, we get on a standby flight. We get to Las Vegas with plenty of time to sit in the pool, grab some dinner, and unwind before getting up tomorrow at 3 am.


As we look back on this trip we can't believe how much fun we had. We met so many cool people. We had a lot of fun hiking to places we never thought we'd be able to see. As we look back, it's kind of cool thinking about sleeping outside in Grand Canyon while getting rained on. It's fun thinking about how hot it was at camp trying to keep cool by sitting in the river having a couple of drinks with our new friends.

We didn't know we were doing this at the time, but we did a lot of things that helped make this an amazing memory. First, we spend our money on an experience. Second, we paid for it ahead of time. Third, we researched it for months.

All of these seemingly random happenings helped make us happy about our trip. I'm not saying that you should spend your money on a rafting trip, but I am saying you can use some of these techniques to increase your happiness.

money doesn't buy happiness but how we use it can

Money Doesn't Buy Happiness

Many people intuitively know that money doesn't buy happiness. Having said that many people still hold on to the belief that things will be better if they had more money.

To be sure, not having money can make you miserable, but after your needs are met, more income and wealth don't contribute to our happiness. If you aren't happy without money, you won't be happy with money.

Having and earning money doesn't make us happy, but how we use can, if we do it right.

income does not buy happiness

AEM - Anticipation, Experience, Memory

Some say that 50% of our happiness is genetic. We're all born with a baseline level of happiness. After that, 10% is a result of what happens to us that's outside of our control. That leaves 40% of our happiness that we're responsible for. Designing our lives and using our money to support this aspect can boost our happiness.

I'm going to introduce a framework through which we can think about money and happiness. There are three aspects to our lives that give us happiness. The first is anticipation. Thinking about the future gives us joy. Planning that vacation, thinking about that updated kitchen, imagining that summit of that hike - these provide us with happiness. Setting ourselves up to anticipate positive events is good for us. The opposite is true, as well. If you have to go through a negative experience, set it up so that you don't have much anticipation. For example, when my wife got eye surgery, she made a decision one day and had the surgery a week later. There was less time to imagine the stuff that could go wrong.

As a side note - and this sounds counterintuitive - surprising your loved ones with a trip they didn't get to help plan actually deprives them of happiness since they don't get any anticipation of the trip.

Next, we have the experience itself. This could be doing something, buying something, or some combination. Psychologist Daniel Kahneman thinks about us as having two different selves. The person going through the experience is the experiencing self.

Finally, we have the memory of the event. This is what Kahneman calls the remembering self. As time passes we tend to remember the good parts of the experience and forget about the bad. This is called euphoric recall.

Setting up our lives to take advantage of our anticipation, memories, and experiences themselves can make us happy. Below are several examples.

happiness, anticipation, experience, memory

The End Matters

We tend to remember the end of our experiences more than the middle. We can take advantage of that by setting our experiences up so that there is something memorable at the end. Maybe the last day of the trip is where we go on an amazing hike or go see a famous landmark. Perhaps during a dinner party, we can clean up after dinner but before dessert. This way we end the evening with dessert and conversation rather than having to wash dishes. If there is something negative that has to happen, like you have to deliver bad news to a loved one, put that in the middle of the conversation and close the conversation with good news.

Often times at the end of a vacation we have to do a lot of crumby things, like paying the hotel bill, put up with the hassle of traveling home, or just feeling exhausted. Mentally "ending" the vacation the day before will give the vacation a happy ending and thus the "bad" stuff happens after the vacation is over.

We have an easier time remembering the end, so end your experiences on a positive note, and put negative stuff in the middle.

the end of the experience matters most

Buying Stuff

Part of the reason many people think money will make them happy is that they imagine all the stuff they can buy with money. Unfortunately, buying stuff doesn't make us happy.

If we think of stuff in the context of AEM, the reason is clear. We don't get a memory of stuff. It's always there. We get some initial joy from purchasing stuff (including homes, cars, electronics, and remodels), but that wears off. The longer we have it the more likely it is that we'll see others with newer versions of what we have. Our stuff starts to fall apart. It gets old. It stops working. Better versions come out. And we have no choice but to be constantly reminded of our old and outdated stuff.

We deny ourselves the memory of our experience.

buying things won't make you happy

Buying Experiences

On the other hand, buying experiences gives us a better chance of adding to our happiness. I mentioned euphoric recall earlier. Not only do we get to keep the memories of the experiences in our minds forever, but there is also an added benefit. We remember the good times and forget the bad. Or, to the extent we remember the bad, we view it in a positive light - sometimes joking about it ("Remember when we argued about where to eat? I was so mad. Hahahaha.").

We can take advantage of our ability to remember experiences.

buying experiences makes us happy

Buying Time

Money is a renewable resource. By that, I mean that we can always make more money. We can get another job, work more hours, start a side hustle, and so on. On the other hand, time is a nonrenewable resource. No matter how much money you have, we all have 24 hours in a day.

Spending our time doing things we don't like (Experience) doesn't give us joy. If we use our money to buy time - that is, use our money to reduce the number of tasks we don't like doing - we free ourselves up to spend our time on more experiences that we do enjoy.

This could mean outsourcing the chores you don't like doing. For my wife and me, it meant buying a snowblower that can clear our driveway in 10 minutes versus spending 45 minutes shoveling.

Freeing up your time gives you more experiences.

buying time can make you happy

Pain of Paying

The concept of the pain of paying is about how aware we are of the money we're spending. This is often used against us by marketers and retailers who want us to be unaware of how much we're spending. Inducing the pain of paying can help reduce our spending.

On the other hand, having to pay for everything during an experience - like a vacation, for example - doesn't allow us to enjoy it as much. We can take advantage of this idea by eliminating the pain of paying in certain instances. If we prepay for an experience, we shift the pain of paying from the Experience stage to the Anticipation stage, often paying for the whole experience at once instead of in multiple smaller transactions. This takes away the pain of paying from the Experience stage, allowing us to have a better experience and contributing to a better memory of the experience.

prepaying can make you happy

Delayed Gratification

Immediate gratification is the name of the game for most of us. As soon as we get some money, we spend it. At the time of this writing, the U.S. government has been sending out stimulus checks to its citizens. Even before the money was sent we would hear chatter about how people planned to spend that money.

That's tied in with buying stuff. It won't make us happy. If we can delay our purchases we not only teach ourselves how to overcome temptation, but we also contribute to our happiness.

Assuming we buy the same thing we would have bought anyway, delaying gratification increases the Anticipation stage, making us happier.

delaying gratification can make you happy

Keep Options Limited

Some of you may have heard of the paradox of choice, sometimes called choice paralysis or analysis paralysis. The paradox lies in the idea that we tend to think more options are better than fewer options. However, the flip side is that when we have too many choices we struggle to make a decision. With too many choices, many of which are very close to one another, we suffer from a fear of regret. What if we make this choice, but another one would have been better? We suffer in the Anticipation stage, worried about our memory of our choice in the Memory stage. After all, if you have 100 choices, 99 of them aren't going to be the "right" choice.

Setting ourselves up to have fewer choices, even though it sounds silly, will make us happier. Fewer choices mean we don't suffer as much in the Anticipation state and won't have regret in the Memory stage.

Think of ways you can keep your choices limited and implement that into your systems.

too many choices make us unhappy

Systems Over Goals

Focusing on systems instead of goals makes us happier. It allows us to let go of the outcomes and live our lives in the present.

Let's use an example. If I'm a salesman and I have a goal of 20% growth next quarter, and I grow by 21%, I'm happy. If I grow by 19% I'm disappointed. But, what if I grew by 21% and 30% was possible? What if I grew by 19% and that's all that was possible? Goals are arbitrary targets.

What would happen if you decided to set a goal, then plotted your course to get there - but then took away the goal after you've plotted the course? You're going to be doing the right things, but with an attachment to a specific outcome.

focus on systems over goals

When you set goals you are setting yourself up to miss that goal. You might hit it, and you'll be rewarded with a hit of dopamine, but chances are you won't hit the target. Goals give you blinders, making it not only possible, but likely that you'll miss other opportunities while you are focused on your goal.

Through the lens of AEM, in the Anticipation stage, you have fear or anxiety around not hitting your goal. If and when you don't hit your goal, you have negative feelings around that "failure" in the Memory stage.

setting goals doesn't make you happy

Setting up your processes and systems so that you will be happy no matter what the outcome is, eliminates any negative anticipatory feelings. This lets you live your life via your systems opening up the possibility to enjoy your experiences more and give yourself better memories.

focusing on process and letting go of outcomes makes you happy

What Can Go Wrong?

Things don't always go as planned. When that happens, and it's far more often than you think, how do you handle that? Some people have what seems like a natural ability to think on their feet, adjusting to whatever situation is thrown at them. More likely, though, is that they are good at thinking on their seat. By that I mean they have thought about what they might do when things go wrong. This sounds like the opposite of positive thinking, but it's highly valuable and helps keep you from stress - in other words, keeps you happy.

If you think about what might go wrong and what you will do if and when that happens, you are rehearsing the bad. Now, when that happens - or something like it happens, you've already seen that before. Your brain has already experienced it.

Think about your plan B ahead of time.

rehearsing negative outcomes can prepare us and make us less unhappy

You might be thinking that it's easier to buy time and experiences when you have more money - seemingly disproving my whole thesis. My counter is that you don't need money to live a life that is in alignment with your values. Author Mitch Anthony says that you can live the best life possible with the money that we have. This means that you can use the money you have to create a happy lifestyle. This does not mean that you should stop making yourself more marketable, learning new skills, or seeking opportunities.

Money by itself won't make you happy. Instead, use your money as a tool to support a life that you'll be happy to live.

You only have one life. Live intentionally.

organize your financial mess

Related Money Health Reading:


Dan Ariely, Jeff Kreisler: Dollars and Sense

Jonathan Clements: How to Think About Money

Daniel Kahneman: Thinking Fast and Slow

Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.


If you like this post, consider joining the Money Health community. There is no spam, just an email every Thursday when new posts come out and every month with a recap.

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About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


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