Can money buy happiness?
Yes – but it's more complicated than that. Morgan Housel, author of global bestseller The Psychology of Money, answers four big questions about spending.
Morgan Housel's The Psychology of Money is regarded by many as one of the best finance books out there. Published in 2020, it has gone on to sell over eight million copies thanks to its engaging and practical content and accessible style. In it, Housel shares nineteen stories that reveal the different, and sometimes strange, ways people think about money, and what we can learn from them in order to make good financial decisions for ourselves. Now, he's back with The Art of Spending Money, full of lessons on harnessing the power of money to live a happier life. In this edited extract from the book, he answers four of our biggest questions about spending.
Can money buy happiness?
Yes. But it’s more complicated than many people think. In between the numbers, charts, and data sits the messiness and absurdity of the human mind. Money is a remarkable tool that can provide a better life if you know how to use it. But knowing how to use it is quite different from knowing how to acquire it.
What matters is not necessarily how much money you have. It’s whether you understand and can control the psychology and behaviors that can make the connection between money and happiness more complicated than we assume. A big, nice house might make you happier, but mostly because it makes it easier to have friends and family over, and the friends and family are actually what are making you happy.
‘A big, nice house might make you happier, but mostly because it makes it easier to have friends and family over, and the friends and family are actually what are making you happy.’
Winston Churchill famously said that he got more out of alcohol than alcohol got out of him. By the same logic: I have seen rich people whose money got more out of them than they got from it, because they spent their life desperately chasing money without any sense of how to use it to make them happier. I have also seen low-income people get tremendous value out of what little money they had, using it as a source of leverage to acquire more of what made them happy.
Everyone can spend money in a way that will make them happier. But there is no universal formula on how to do it. Debates over what kind of lifestyle you should live are often just people with different personalities talking over each other. However, I would argue that enduring happiness is found in contentment, so those happiest with money tend to be those who have found a way to stop thinking about it. You can value it, appreciate it, even marvel at it. But if money never leaves your mind, it’s likely you’ve found yourself with an obsession, where it controls you. The best use of money is as a tool to leverage who you are, but never to define who you are.
How can I get comfortable with spending money? And how can I control the impulse to spend on the wrong things?
I once heard someone say that a high-end Toyota is a nicer car than an entry-level BMW, because the Toyota is filled with things that make driving more pleasant, while the low-end BMW is mostly just bragging rights.
I love that framing. The nice Toyota decked out with all the options has utility. It makes your life better. You’re owning it for yourself. The low-end BMW has status. It (might) change other people’s opinion of you. You’re owning it for them, and their attention.
It’s such an important distinction to make when spending money. Maybe the single most important one, because it gets right to the point of whether you’re using money as a tool to live a better life or as a yardstick to measure yourself against others.
I’m not against buying things just for status. Fitting into your chosen social group is an important part of a happy life, and the social benefits of high status can be enormous for those who pull it off.
‘Ask yourself: are you using money as a tool to live a better life or as a yardstick to measure yourself against others?’
What I find fascinating are cases when people confuse the two. With everything you purchase it’s vital to identify which is which – why you actually want to buy this thing – and realize that each offers a very different outcome and benefit.
Author Ramit Sethi has advice that I love: You should spend extravagantly on the things you love as long as you mercilessly cut the things you don’t. There are so many different ways to spend money that are right for one person but crazy for another. Everyone has their 'thing.' And the only way to find your thing is to try a million different things, rejecting what doesn’t bring you joy until you find the odd thing that does.
I can’t recommend this enough: Within the confines of your budget, experiment with as many types of spending as you can, cutting quickly and without mercy the things that aren’t working for you.
Try spending more than you currently do on food, travel, clothes, sporting events, experiences, whatever it is. But immediately stop if it’s not making you happier. If you do this enough, you will find, by process of elimination, the potentially weird thing that’s right for you to spend money on, and if you cut the other stuff that brings you no joy, you’ll likely have enough money to actually spend on what makes you happy.
What’s the right balance between saving and spending money on fun?
Good advice is never as simple as saying 'Live for today' or 'Save for the future.' The only good advice is 'Minimize future regret.'
That’s it. I think that’s the best we can do when trying to find the balance between living for today and saving for tomorrow. Attempt to minimize your regrets with an understanding that different people will regret different things, and you yourself will regret different things as you age.
Since everyone’s different, I can’t tell you how to do this. But here are two ideas I think about with my own financial decisions.
1. Good memories are the closest thing to living for today while compounding for tomorrow.
I can’t be alone in realizing that as I get older, memories of things that took place ten, twenty, thirty years ago are some of my most cherished assets.
Typical advice that is nearly cliche at this point is to spend money on experiences, not things. It’s not bad advice. But the way it’s framed leads people to think the only way to do that is to spend money on a nice vacation or to travel to some distant land. That’s not always the case. I can think of many expensive experiences that would be entirely unmemorable, while memories formed with friends during high school might be some of your fondest, and likely cost nothing.
‘People love to gawk at the power of compounding when investing their money. It’s much harder to think about the value of compounding memories you get by trading money for time, but the results can be just as incredible. It could easily be the best money you ever 'spend.'’
I try to keep in mind that the things I am most likely to regret in the future are things I did not put as much time and effort into as I wish I could have, like family and friendships. It might not cost any money to nurture those things. But there are cases where money can help, just not in the way you think. Spending money on a vacation with my kids could form valuable memories. Having a career that pays less but lets me spend more quality time with my kids every day might lead to much happier memories.
It can be hard to contextualize, but say you can choose between one job that pays $60,000 per year and requires forty-five hours of work per week, or another that pays $50,000 per year and requires thirty-five hours per week. The latter 'costs' you $10,000 per year in lost income, which over thirty years invested at 8 percent is something like $1 million. But it gives you back five hundred hours per year, which, over your career is fifteen thousand hours of potential memories doing something you enjoy. And those memories compound over time just like assets.
People love to gawk at the power of compounding when investing their money. It’s much harder to think about the value of compounding memories you get by trading money for time, but the results can be just as incredible. It could easily be the best money you ever 'spend,' and the ultimate antidote to regret.
2. Saving for the future creates independence today.
If I save $100 for the future, what does that cost me today? I don’t think the answer is $100, or anything close to it. Sure, I could have used that money today to buy a $100 shirt or a $100 dinner with friends. But by saving it for the future, I gain something today: $100 in independence. One hundred dollars in options and freedom to do anything I want in the future that costs $100. That can be as tangible a benefit to me today as buying the $100 shirt.
Once you view savings as providing the benefit of independence, you stop viewing saving for tomorrow as sacrificing today.
Read more from Morgan Housel
The Art of Spending Money
by Morgan Housel
Why read this: In The Art of Spending Money, Morgan Housel reveals how to use money not just to build wealth, but to create a happier, more meaningful life. He looks at why we confuse envy with admiration, how expectations shape our satisfaction, and explains why slow, deliberate wealth-building often leads to the best results. With sharp insights and practical takeaways, Housel helps you avoid common spending pitfalls, make smarter financial choices, and use money with intention. Another brilliant finance book to complement The Psychology of Money.
If you’re looking for: an engaging, narrative approach to finance writing, practical tips, tools to navigate your own personal relationship with money, advice on how to avoid common mistakes and make smart investments, how to use money to make your life better.
What the experts think: 'Essential reading for anyone who wants their money to actually improve their life.' Mark Manson, author of The Subtle Art Of Not Giving A F*CK. 'If you're looking to understand how to use your money to make you truly happy, here it is.' Jean Chatzky, author of How To Money.
