Money allows us to meet our basic needs—to buy food and shelter and pay for healthcare. Meeting these needs is essential, and if we don’t have enough money to do so, our wellbeing  suffers.
Beyond that, as Tom Rath suggests in his book, Wellbeing, “money can increase our short-term happiness by giving us more control over how we spend our time.” For example, it can give us the option to live closer to work, work fewer hours, and spend more time on leisure activities with friends. Money can be used to make our lives easier.
But the fact is that most of us don’t use money to buy more free time. Instead, we spend it on more expensive possessions.
Sally’s story is somewhat typical. She worked downtown as a buyer for a major retailer, and when she got a promotion and a large raise, she and her husband Drew bought a large home in an outer suburb. Sally soon found that the additional commuting time, on top of the increased demands of her new position, left her little time to fit in exercise  or see friends, so she cut back on those activities. When Drew also got a good promotion, they thought about moving closer into the city to reduce their stressful commutes, but decided instead to remodel their kitchen like the beautiful one they had seen elsewhere in the neighborhood. The mortgage they took to do the remodeling added $300 to their monthly expenses, taking up all of Drew’s raise, which also meant that they couldn’t afford to hire someone to come and clean their home twice a month.
Like Sally, many of us may not be using money in a way that maximizes our wellbeing.
Contrary to what most of us believe, once we have enough to meet our basic needs, a higher income may not significantly increase our wellbeing and may even have a negative effect in some cases! The data to support this is interesting. For example,
Other studies have associated higher incomes with higher levels of stress , increased likelihood of divorce, and less enjoyment of small activities. Ed Diener, a researcher who has spent over 30 years studying wellbeing, postulates that a higher income may mean more work, less leisure time, and fewer strong social connections. In other words, the benefits of having more money might be offset by the sacrifices people are making in other aspects of wellbeing—Sally is one example of this.
Furthermore, we are forever comparing ourselves to others who are doing better. If our income goes up but everyone else’s does too, we are not happier. A person who earns $30,000 a year will be dissatisfied if his friend makes $50,000 a year. You would think a raise to $50,000 would make him happy, right? Not if his friend gets a raise too—he will be equally unhappy making $50,000 if his friend is now earning $70,000! Many times our dissatisfaction with our financial situation comes from the perception that we’re not stacking up to the people around us.
We humans don’t always know what makes us happy! Because our society values it so, we believe that money will bring us happiness and so we don’t pay attention to what is actually going on. Consider these facts:
The title of the 1976 book, The Joyless Economy, captures this perfectly. In reality, most of the important pleasures in life cannot be bought. What really bring us satisfaction in life are relationships , purpose , meaning , and connection to nature . We seek personal fulfillment and are disappointed when material things don’t provide it.
Moreover, money can actually detract from our ability to connect to others. University of Minnesota researcher Kathleen Vohs conducted a series of studies showing that when money was on people’s minds, they became less helpful, wanted to work on their own, and didn’t mind being socially excluded.