Money. It talks, makes the world go round, doesn’t grow on trees and is the root of all evil. Whatever your proverb, one thing’s certain – unless you live in an off-grid eco-lodge on a faraway island (and if you’re reading this, you’re probably not there yet) – there’s no escaping it.
Like it or not, every decision about how you earn, save and use your cash can alter your happiness for better or worse. And, sorry to be the one to tell you this, but you’re probably getting it all wrong.
After all, many of us focus on the wrong type of happiness in the first place, says psychologist and happiness consultant Dr Christopher Boyce. Picture a happy life and you might see the finest food, a luxurious home, and anything you want whenever you want it.
That brings what’s known as hedonic happiness, characterised by a buzz of satisfaction… but only in the short-term.
“We buy things and feel the dopamine, but often this deteriorates and we move back to our standard level of happiness,” Boyce says. We endlessly seek more of this feeling, leading us to get trapped in a phenomenon psychologists call the ‘hedonic treadmill’.
But we rarely strive for the longest-lasting type of happiness – the one that’s associated with our own fulfilment and sense of reason. Achieving this purposeful happiness (known by researchers as ‘eudaimonic happiness’) brings long-term satisfaction that helps you jump off the treadmill.
Your money, and how you spend it, is probably getting in the way of your purposeful happiness – but it doesn’t have to. Here are the biggest financial mistakes you might be making, and what to do instead.
Forget the higher salary
Ever heard the theory that – above a salary of $75,000 (approx. £56,000) – more money doesn’t make you happy? Well, that’s pretty much been debunked.
In fact, many psychologists (including those behind the original theory) now think that money absolutely does boost your happiness. They realised that only the unhappiest people experience the ‘ceiling effect’, whereas most people will experience accelerating happiness alongside an increasing salary… with seemingly no limit.
So, it would seem, working for a higher salary is a surefire path to eternal joy. Except it’s not that simple – and a lot of it comes down to how you earn your money, and how much it increases.
In fact, research has shown that most of us overestimate just how happy money will make us – yes, it will boost our happiness, but it often falls short of our expectations. A 2018 study by psychologists at Harvard Business School found that even millionaires think they’d be happier if they had more money. (The same study found that millionaires who earn – rather than inherit – their wealth report higher happiness levels.)
And, on the flipside, not having a lot of money won’t make us as unhappy as we think it will. When asked to predict other people’s happiness levels, most respondents vastly underestimate how happy people are on salaries of under $20,000.
What that means is that higher salaries bring diminishing marginal returns. Say you earn $25,000 and then get a pay increase to $50,000 – it’s likely to make you pretty joyful. But an extra $25,000 when you earn $200,000? Not so much.
“The same sort of boost that made a real big difference for you earlier isn't going to make as big a difference later,” says Prof Elizabeth Dunn, a psychologist at the University of British Columbia, in Canada, and co-author of the book Happy Money: The Science of Happier Spending.
The more you earn, Dunn says, the more you should question what you’re gaining against what you’re losing. Since those relatively smaller increases won’t make you as happy as before, accepting a job that might cause you stress or take away from family time will counteract its benefits.
In fact, Boyce’s research has shown that taking a promotion can even have a detrimental effect on your psychological wellbeing.
“The key takeaway here is not that we should all just chase money. Take the raise if you're offered it, but consider the trade-offs – really consider them,” says Dunn.
“And regardless of how much money you have, you can get more happiness out of that amount of money by rethinking the way that you spend it.” More on that later.
Compare downwards
Would you rather earn $50,000 and everyone around you earns less, or $100,000 but everyone around you earns more?
No judging – and you wouldn’t be alone if you choose option A. One classic Harvard study from 1998 found that half the people answering this question would rather live in a world where everyone earned less overall, as long as they were earning more than others.
This is a critical hurdle to the pursuit of happiness, according to Prof Bruce Hood, psychologist at the University of Bristol and author of The Science of Happiness. And it's worsened by how our brains are primed to size ourselves up to those around us.
“We pay more attention to negative than positive information, and we’re generally on the lookout for anything that is potentially a threat,” he says. “This is known as a negativity bias, and it clouds a lot of our decision-making processes.”
Essentially, we want to be at the top – even if we’re less happy for it. Negativity bias means that we’re more likely to compare upwards (say, to Taylor Swift or David Beckham) and feel like we don’t have enough, rather than compare downwards to those less fortunate and feel grateful.
Back to the opening question, then: ideally, you’d take option B and the $100,000, and not concern yourself with what others earn. Easier said than done, right?
Part of the problem is how we show off to others. We link our property to our identities and self-esteem, feeling superior when we have more than the people around us.
This is what Hood calls the ‘extended self’, but it’s a mindset that’s doomed to fail. The moment someone has something even bigger, better and costlier, your sense of self – and any happiness tied to it – collapses.
Hood’s solution? Try not to compare yourself to others… but if you do, consider those less fortunate than yourself.
Buy subjective experiences
That pair of shoes you’ve wanted for ages. A weekend away. Replacing the blender you’ve been doing without. A gift to cheer up a friend. Saving for a bigger house.
If you have some extra cash, there are about a billion things you could spend it on – but you’ll likely reach for the physical product that will land on your doorstep rather than something less tangible.
Our brains are biased to prefer the material over fleeting, temporary experiences. Yet overwhelmingly, studies show that memories of experiences generate longer lasting happiness, often due to feelings of connectedness – especially with other people.
It’s what led Boyce to quit his job as a happiness researcher and cycle to Bhutan – the only country to focus on a Gross National Happiness (GNH) Index instead of gross domestic product (GDP), the standard measure of economic growth.
Meaningful experiences, Boyce says, are the most surefire way to access your purposeful happiness – that longer lasting type that aligns with your deeper values.
“You don't think ‘My life is meaningful’ and then get used to it and think ‘I hate having a meaningful life. It’s so average,’” he says. “That’s why I packed in academia and cycled to Bhutan. It’s about having a goal that brings a sense of purpose.”
Experiences are also the best way to counteract negativity bias and comparative spending, because the meaning you take from an experience can’t be stacked against someone else’s (like a shiny new phone can).
When choosing an experience, Boyce says nature and community are central to meaningful memories. In fact, having a social element might be the most vital part, with one study by researchers at the University of Rochester, in the US, suggesting that solitary experiences offer no more joy than material things.
A perfect – and inexpensive – example would be taking someone out for coffee in your local park. You get to gain a new positive memory while also giving a gift (a well-researched ticket to happiness), getting out in the elements and boosting your social engagement.
Whatever your purchase, the anticipation of it can be a joyful experience in itself. One US study showed that materialistic people feel more positive when contemplating a future purchase than when they finally acquired the item. Another, conducted by researchers in the Netherlands, found that vacationers were happier before going on their holiday than after it.
The more you can draw out, the better, says Dunn – even if it means skipping a good deal. “I don't like last-minute vacations because then you miss out on the pleasure of anticipation, which I think is an underrated source of joy.
“If you’re going to buy something you enjoy, put it off and get that free source of anticipatory pleasure.”
Tackle time poverty
Calculating your hourly rate and applying it to your personal life is a fun way to justify charging a fee to collect your pal from the airport, but it’s likely to cost you happiness (and friends).
Research shows that more you value your time, the scarcer it feels – even if you actually have the same amount of spare time as those around you.
This is rooted in our ingrained perception that something valuable is scarce, like diamonds or vintage cars. Except value doesn’t actually cause scarcity – it’s the other way round.
Take water: if you live in a dry country, it’s likely that it’s a valuable commodity because there isn’t much of it. But in the UK, where it rains all the time, we value it much less. Yet we wrongly apply this logic when it comes to money – we reverse it.
Just as you’re more likely to fear a leaking tap when you’re in the desert, when you assign a financial value to your time, you begin to see every moment as a dwindling, precious resource. The difference is, it doesn’t matter to our brains how much time we actually have.
To illustrate this counterintuitive phenomenon, scientists at the University of Toronto asked university students to complete the same piece of work, but randomly assigned them different rates to charge a company for it. The study found that those who had costlier billable hours felt more pressed for time – despite doing the same tasks as the others.
Some people are more prone to this false perception than others, and it affects how they use their time. If you tend towards prioritising money over time, you’ll likely feel you can barely squeeze moments for yourself – whether a relaxing bath or a project you never seem to make progress on – into a packed day. Known as time poverty, these feelings are linked to worse physical health and wellbeing.
In contrast, those who put their time first end up happier, says Dunn. In a 2019 study, she found that students who prioritised time in their last year of university rated themselves significantly happier two years after graduation than those who put money first – likely because they chose career pathways that they found intrinsically rewarding.
“When you're making these pivotal choices, if you prioritise time instead of money, you may make happier decisions for yourself,” she says.
What if you followed the money? A practical and effective way to combat time poverty is to outsource your chores. Hiring a cleaner or upgrading your commute may seem excessive, but, once again, psychologists think it could cause a reliable boost to your life satisfaction. Mostly, that’s because – you guessed it –the time you gain can be better spent on other people, experiences or projects that bring you joy or purpose.
And the research shows it: in one of Dunn’s studies, she and her colleagues gave participants 40 Canadian dollars (approx. $29, or £22) to spend on outsourcing a chore one weekend, and then the same to spend on a material object the following week. When the participants spent to save themselves time, they reported significantly higher moods and lower feelings of time stress.
Meanwhile, a 2025 study conducted at Harvard Business School suggests that making time-saving purchases could even improve your relationship satisfaction.
But Dunn also encourages us to give our time away for free. Not only will it help you shake the pesky feeling that you’re worth more, but 2025 research shows that spending time on others, such as through volunteering, also lowers your risk of depression as you get older.
Simply being more generous with your time to close ones is likely to pay dividends. So next time your pal asks for a lift to the airport, say yes without question. You can buy them a coffee while you’re at it.
Get comfortable with loss
Here’s another one: would you risk losing $10 if it increased the chances you’d gain $20?
For many people, losing money causes an altogether worse feeling than positive feelings from winning it. In fact, some research suggests the pain of losing money can be almost twice as powerful as the joy of gaining it.
But this cognitive bias (known as ‘loss aversion’) can, ironically, cause us to lose out even more, impairing our ability to take well-calculated risks that could bring bigger returns. For example, you’ll likely be unwilling to sell your house for less than you bought it – even if the estate agent tells you now’s the best time to gain the maximum profit.
When it comes to our happiness, this bias means that small losses can act as counterweights against the effects of larger gains. You might avoid a pay cut, even when a lower paying job with more purpose or more free time could make you happier.
The truth is our brains are inclined to focus more on risks than potential benefits. MRI scans conducted in Italy show that our brain’s striatum (the region linked to prediction) lights up more when anticipating loss than calculating profit – skewing us more towards risk avoidance than motivation.
Interestingly, the part of our brain linked to pain and disgust (the insula), is also activated when we lose money or make a purchase. In other words, losing and spending money can physically hurt us.
Hood explains this via the ‘endowment effect’ – a bias where we assume that the things we own and control are worth more than other peoples’. In his studies, he showed that when a child is told a brand new toy is theirs, they value it more positively than an identical toy that isn’t theirs.
Because of this bias, we form emotional attachments to our things and money, causing us discomfort when we have to part with them (including when we sell them for less than they’re worth). This effect is so strong that taking paracetamol has been shown to make the act of spending or giving away your things less painful.
But, aside from painkillers, what can you do? Well, it’s more difficult to endow non-physical money with an emotional connection. Another brain imaging study suggests paying via card is less painful than departing with cash – the pain receptors are dulled.
At the end of the day, it’s likely that our positive association with money comes down to control.
“It’s not so much the luxury that money buys you, but the certainty, security and not being under stress that I think are really the benefits of wealth,” Hood says.
He recommends reframing how you see your spending and becoming more involved in your own decision making. Do an audit of how you use your time and money and plan out how you’ll spend it. Or, consider outsourcing this chore to a financial advisor.
For some, the first steps will be starting a savings pot to build a feeling of security.
But for many of us, reaching that truly satisfying, purposeful happiness will mean cutting the emotional threads you’ve tied around your money and things, and shifting your spending onto life’s best experiences – whatever your salary.
Read more:
