Money Can’t Buy Happiness - But, How It’s Spent Still Matters

Saving money on money can buy happiness does not have to be complicated. We rounded up the essentials so you can spend less and skip the guesswork.

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Can money purchase happiness? Not exactly , but how you spend it might. While chasing a higher income alone rarely leads to lasting fulfillment, research shows that money can boost happiness when it’s used with intention , especially on things like time, experiences, and generosity.

Written by Jen Smith Last Updated: May 13, 2025 Reviewed by Jana Lynch

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When my husband and I were spending every extra penny of income to pay off our student loans, I assumed the financial freedom that came with being debt-free would allow me to be happier.

I would dream of starting a family, buying a home, and taking trips to places I never thought I could afford. Because even though we had enough money to pay our bills every month and make extra payments toward our student loans, I still felt broke no matter how much our income increased.

We finally paid off our debt, bought a house, and started our family. And while I’m a lot less stressed now, if I’m honest, I’m no happier now than I was then. I love my life, my friends, and my husband, but life isn’t the carefree dream I imagined back then.

In the last few years, I’ve watched others come to the same realization.

Personal finance experts who I admire have opened up about their struggles with depression and anxiety. And I’ve witnessed several couples end their marriages after paying off debt and building wealth together.

Making money has become the new currency of happiness. But money for the sake of having more still doesn’t produce the type of happiness that leads to long-term fulfillment.

The Link Between Money and Happiness

Since World War II, there’s been a dramatic increase in real income (income after taxes and inflation). But even with more prosperity in the workplace, life satisfaction in the United States has been virtually flat.[1] And it’s not just in the U.S. A similar pattern can be seen in the data from other developed nations.

To an extent, money can purchase happiness. Daniel Kahneman and Angus Deaton’s famous 2010 study on income and wellbeing showed that more money increases life satisfaction. However, there’s no further progress to our emotional wellbeing beyond an annual household income of about $75,000 (~$108,000 adjusted for inflation in 2025).[2]

Yet movements like FIRE (financial independence, retire early) and entrepreneurs that promise to help you 10x or 100x your business income are everywhere. They sell the dream that if you make more money, you can reach more people, change more lives, and become a better person in the process.

Licensed clinical counselor Joseph Tropper sees this frequently in his practice. “People who do side hustles and rush into opportunities that maximize their time and energy are validated by the extra income they earn while compromising physical and mental wellbeing,” Tropper said.

Source: Beyond Money: Toward an Economy of Well-Being - Ed Diener, Martin E.P. Seligman, 2004

Professionals agree that as long as our basic needs are met, more money doesn’t make a person happier. So why do we still think it will? And more importantly, if we don’t make a lot of money, how do we use what we have to increase our happiness?

What Money Can’t Purchase

Thankfully, dozens of scientific studies have identified key components of long-term happiness. Keeping these ideas in the back of your mind can help you make better decisions with how you spend your money and time.

Relationships

Think about your wedding day, the birth of your child, or reuniting with friends or family you haven’t seen in a while. For most of us, our happiest days aren’t the days we spent making big purchases or going on shopping sprees. Our happiest memories are the ones that include other people.

Dr. Edward Diener, also known as Dr. Happiness, has studied happiness for decades, trying to isolate and replicate the factors that happy people have in common. In his research, he’s found one factor that’s overshadowed all others in creating happiness: quality relationships.[3]

He discovered that factors like education, IQ, and age have little impact on individuals’ happiness and that after a certain income, happiness leveled out. But those with strong ties to family and friends showed the highest levels of happiness and fewest signs of depression.

Diener says that to improve happiness, we should focus on improving social skills, nurturing close relationships, and cultivating social support.

Additionally, a 2017 study from the American Psychological Association found that higher-income earners exhibit more self-oriented feelings of pride and contentment while lower-income earners exhibited more others-oriented feelings like compassion and love.[4]

Money allows us independence and self-sufficiency, but a special bond is created when you receive or give support to those around you. As a result, higher-income earners were less likely to report feeling “sad” but no more likely to report feeling “happy” than their lower-income counterparts.

Related: All-Star Cheer Costs a Fortune, but I Pay for It Anyway. Here’s Why

Generosity

Recent studies show generosity not only increases happiness, it begets more generosity.

It might sound contradictory to say money can’t purchase generosity, but the amount of money you give doesn’t necessarily equate to more happiness. Giving for tax benefits or a recurring donation you don’t think about won’t make you happier. Your generosity must be intentional.

A study published in Nature Communications looked at the neural link between generosity and happiness.[5] Researchers found that people who made intentional generous decisions engaged the parts of the brain that are directly related to changes in happiness while those who didn’t saw less engagement.

Yet people still fail to realize how powerful the link is between generosity and happiness. When asked what would make them happiest, most of the same study participants still thought spending money on themselves would make them happier than spending it on someone else.

Health

Health is one of the most key predictors of happiness. When you’re healthy, active, and energetic, you can fully experience the things that bring you joy. You don’t have to be the perfect picture of health to be happy. In fact, science shows the opposite is true.

A George Mason University study found that people with serious health conditions, including cancer, could score just as highly as healthy individuals in happiness tests as long as their condition didn’t impact their day-to-day actions.[6] Cancer patients who were in remi

Final Thoughts

The bottom line: a little research on money can buy happiness goes a long way. Compare your options, watch for seasonal offers, and never pay full price when a better deal is one click away.

Originally published at dollarsprout.com.