It’s Not How Much You Spend but How

You get the acceptance letter, the raise, the good news you've been waiting for. For a day, maybe two, everything feels different. Then it doesn't. The feeling faded, but the money didn't disappear. So, what happened?

In the famous study by Kahneman and Deaton (2010), a plateau was discovered which shows that income creates higher emotional well-being (the everyday, felt quality of your life) and life evaluation (how you'd rate your life if you stepped back and thought about it), but emotional well-being rises only until a threshold income at about $75k/year. The mechanism is that below about $75k/year, more income steadily increases daily mood and life satisfaction, but above that line, life satisfaction keeps climbing while daily mood flattens. This means that more money made people think their life was better, without making an average day feel better. This was what everyone believed, even nowadays. However, in 2023, a follow up paper by Killingsworth, Kahneman, and Sellers reanalyzed both the original 2010 data and Killingsworth's own 2021 study, which had found no plateau at all. Their answer is that the flattening pattern only holds for the least happy people and happiness keeps rising with income and even accelerates for the happiest. So, if income isn’t the only factor, what else is determining whether money translates to happiness? Spending on experiences, time, and others each outperform simply having more money. This is where the way you spend your money starts to matter more than how much you have. After a certain point, happiness stops depending on how much money you have, but on what you do with it.

Buy Experiences, Not Things

Spending money on experiences generally creates more happiness than spending money on physical products. In a study by Van Boven and Gilovich in 2003, they defined material purchases as those made to acquire a tangible object kept in one's possession, and experiential purchases as those made to acquire a life experience like an event or series of events one lives through. In their experiments, people reported receiving more happiness from experiential purchases than material ones.

The reason behind this is experiences are harder to compare and physical products can easily trigger jealousy-induced comparisons. Physical products are comparative and there will always be a better product and satisfaction of it also diminishes over time. Experiences will create more satisfaction due to the shared experiences and bonds created with others through these experiences and memories, and they are harder to compare with one another. For example, when you buy a new pair of shoes, a week later your friend bought a newer, better version, or you see a cheaper one with better reviews. Suddenly your own pair felt worse. The shoes themselves did not change; they only seemed worse because you compared them with something else. On the other hand, experiences are hard to compare. When you go on a trip to Japan, afterward it won’t bother you if your friends went to a better destination or got a cheaper flight, or at least it bothered you way less. This is because experience isn’t a fixed object you can hold up next to another to compare. It already happened, it's tied to that specific moment and people you were with. Buying experiences makes people avoid comparison and indirectly increases well-being.

Buy Time, Not Tasks

Avoiding comparison isn’t the only solution. Spending money on time-saving services is another way of increasing daily mood above the $75k/year threshold. In modern times, despite rising income, people around the world are feeling more stressed because of limited time. And this stress increases alongside people’s income. This is the underlying idea in Whillans’s paper in 2017. In the study the idea is that rising income creates an unintended side effect, which is the increased feeling of time scarcity. This scarcity of time undermines well-being. People now have more money but feel more rushed than ever.

By using large, diverse samples from the US, Canada, Denmark, and the Netherlands (n = 6,271), the research found that individuals who spend money on time-saving services report greater life satisfaction, and a field experiment found working adults report greater happiness after spending money on a time-saving purchase than on a material purchase. Buying time-saving services like delegating chores, hiring help, paying for delivery instead of doing it yourself works because it removes the thing stressing out people directly, which is the lack of time. This is another case of what you spend on (removing friction/stress) mattering more than how much you have.

Give It Away

Spending on experience avoids comparison and spending on time-saving services removes friction. Meanwhile, spending on others can increase well-being even more than spending on oneself. The study by Dunn, Aknin and Norton in 2008 shows that spending money on other people may have a more positive impact on happiness than spending money on oneself, with spending more of one's income on others predicting greater happiness both cross-sectionally in a national survey and longitudinally in a field study of windfall spending. In a small sample (N=46), participants randomly assigned to spend on others reported greater happiness than those assigned to spend on themselves.

Nevertheless, when researchers tried to reproduce the exact same experiment in 2022 on a larger sample (N=133), the effect wasn't nearly as significant statistically. That doesn't mean the idea is wrong. It means the truth is smaller and more conditional than the headline version everyone repeats because even the replication, when they looked at a more precise measure of happiness, still found an effect in the same direction. The mechanism behind spending something for yourself is a closed loop, you enjoy the result alone, but spending on others opens the loop. It creates a bond between two people and a moment of connection. Your brain feels that you are doing something meaningful instead of just acquiring something. It also lets you see a tangible effect of the spending, which can be their reaction, their gratitude, and other visible outcomes of what you gave. Giving generates its own positive feeling separate from whatever the money actually buys.

How, Not How Much

In conclusion, even after the threshold, happiness is created through spending in a way that produces connection or removes friction and not when it’s spent to give yourself more things. What actually determines if the dollar spent can bring more happiness is whether it is spent on buying fewer comparisons, less friction, or more connection. So when buying something next time, instead of asking yourself “can I afford this,” the better question would be “does this buy me time, connection, or comparison.” That $75,000 line was never really about a dollar amount but about what people were doing with the money before and after it. The plateau isn't a ceiling on happiness. It's a fork in the road, pointing toward a different question: not how much, but how.