The Happiness Equation: How to Buy Happiness

I have lived & worked in over 25 countries spanning 4 different continents, particularly in the last 2 years. I have lived in the richest countries in the world, and one of the poorest. I've been wealthy enough to eat at 5-star restaurants, and poor enough to steal food. 

These experiences have taught me valuable lessons about happiness and money. More specifically, the true utility of money in the context of happiness.

The common adage "you can't buy happiness" is wrong. It's true, some studies have shown that past a certain income threshold, you reach a point of diminishing returns of happiness. In general, past about the middle-class level, you don't typically see increases in happiness as wealth goes up. 

However, there's a reason for this: once a certain level of prosperity is achieved, people typically spend their money on things that don't add happiness.

A recent study by Harvard Business School suggests that money can buy happiness if it's used to increase your free time. The study argues, for example, that investing in cleaning services can add to your general contentment by buying you time which you can put towards things you love doing.

However, that's not the only way.

The marginal happiness utility of increased wealth depends on four things: mobility, time, stress & fulfillment.

Forgive me for being horribly contrived here, but let's distill that into a formula: MHU = M + T - S + F

An increase in wealth (and it's corresponding investments) will either increase, decrease or leave untouched each of those 4 things. To increase your happiness, the marginal happiness utility of any investment you make should always be positive. Here are a few examples.

1. You buy your first car. It increases your mobility & time a fair bit, with a slight increase in stress and no reduction in fulfillment. Your overall MHU is positive. You have "bought" happiness in the form of time and mobility to experience and do things you want.

2. You buy a new, fancy car. It doesn't increase your mobility or your time in any meaningful way. It potentially increases your stress because of maintenance. In the long run, a fancy car either doesn't increase your MHU at all or decreases it. A new, fancy car, doesn't add to your happiness.

3. You enroll yourself in an Eastern Philosophy degree at an old age. It doesn't increase your mobility, it decreases your time and increases your stress. The ultimate MHU in this case entirely depends on why you're doing the degree: if you're truly doing it because you find it fascinating and wish to learn, your MHU likely increases. 

There are obvious flaws to this theory. Mostly, it doesn't account for taking on negative MHU in the short term to incur bigger wealth which you can reinvest in long-term positive MHU (otherwise known as college). Perhaps the best strategy for happiness is a mathematical one: take stock of your decisions from the perspective of happiness added, and aim to maximize long-term returns while keeping a short-term buffer.

Follow me on Instagram: