Money influences where we choose to live, what we do for a career, and even what we eat for dinner. Having enough money frees us from issues like hunger, housing insecurity and medical debt.
The relationship between money and happiness, though, is quite complicated.
It seems that even psychology researchers can disagree on the effect that money has on people's sense of well-being and happiness.
Does money make people happier?
The primary benefit of earning more money is that it serves as a buffer when you're hit with negative life events, says Jon Jachimowicz, a professor of business administration at Harvard University.
"Money is not just a way that people can buy themselves happy moments; it is also a crucial tool for safety, security and stability," said Jachimowicz. "Money can help soften the blow of bad times; a lack of money can make even benign things much more distressing and painful."
While a previous study by Princeton's Daniel Kahneman and Angus Deaton found that people's sense of well-being leveled off when they made $75,000, followup research by Wharton School professor Matt Killingsworth, found there was no plateauing: People with high salaries reported higher levels of day-to-day and overall life fulfillment
Kahneman and Deaton measured happiness by asking people to share their evaluative well-being, or their measure of happiness after an event occurred.
Killingsworth examined experienced well-being, or people's emotions as they occur. With this new metric, he determined that as income increased, people's evaluative and experienced well-being rose accordingly.
But some researchers say Killingsworth is looking at the wrong end of the equation:
"It might be that if we worked on our mental health and burnout, we'd perform better at work," said Laurie Santos, a psychology professor at Yale and host of the podcast The Happiness Lab. "This might lead to more positive outcomes in terms of our job success and salary.".
There are multiple studies backing this idea that happiness and positive emotions precede higher pay, not the other way around.
Find out what works for you
Regardless of how much money you earn, taking stock of your finances is a good way to understand whether your current income allows you to achieve your financial and life goals, whether that's owning a house or being able to take vacations regularly.
If you have the resources, hire a certified financial planner to help you reach your money goals.
If you're not in the position to hire a financial planner, consider creating a budget and tracking your spending. Apps like YNAB and Monarch can help you understand how much money you're spending and what you're spending money on.
You Need a Budget (YNAB)
Cost
34-day free trial then $109 per year ($9.08 per month) or $14.99 per month (college students who provide proof of enrollment get 12 months free)
Standout features
Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as the "zero-based budgeting system" where no dollar is unaccounted for). Every dollar is assigned a "job," whether it's to go toward bills, savings, investments, etc.
Categorizes your expenses
No
Links to accounts
Yes, bank and credit cards
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Security features
Encrypted data, accredited data centers, third-party audits and more
Terms apply.
Monarch
Standout features
Customizable transaction categories, net-worth tracker, investment portfolio tracking, financial forecasting
Cost
$8.33/month (billed $99.99 annually); $14.99/month (billed monthly). Get 50% off your first year of Core Plan with code CNBC50
Categorizes your expenses
Yes, but users can modify
Links to accounts
Automatically syncs with bank accounts, credit cards, loans, retirement plans, investments and more at over 13,000 institutions
Availability
Offered for both iOS and Android. Web version also available
Security features
Maintaining only read-only access, Monarch utilizes AES 256-bit encryption and multi-factor authentication. It is SOC2 Type 2 certified and syncs accounts via Plaid, MX and Finicity.
Terms apply.
Pros
- Seven-day free trial
- Easy-to-navigate dashboard with fully customizable reports and visuals
- Connects with more than 13,000 financial institutions
- Couples or partners can budget together in collaboration mode (each with their own login at no extra cost)
- AI Assistant lets you ask questions about your finances
- Can track property value via Zillow
- Ad-free experience
- Consistent product updates with new features added regularly
Cons
- No free version
- Subscription is more expensive than competitors
- Investment tracking is solid for most users but lacks advanced tools like retirement modeling, fee analysis or Monte Carlo simulations
- Recommendations in the "advice" tab are generic
- No undo feature when reallocating money across budget categories
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