The Research Has It Wrong – Don’t Make the Same Mistake

I just recently celebrated my 55th birthday, so I was amused to see a new Harris poll ask Americans: “If you could be granted one wish to change something about yourself, what would you choose?”

Their options were “richer, thinner, smarter, or younger.” The big winner was richer.

Here’s how the poll [PDF] broke it down: 43 percent want more money, 21 percent want less fat, 14 percent want more knowledge and only 12 percent want to be younger.

These results aren’t surprising, especially given the materialistic society in which we live. But apparently a ton of money isn’t necessary – according to a Princeton study recently presented in Proceedings of the National Academy of Sciences, all we really need to be happy is an annual income of $75,000. Less than that, we may suffer emotional pain and unhappiness, but more than that amount and the “happiness dividend” diminishes.

While I can’t claim a Princeton Pedigree or even a Harris poll to prove my point, I’m going to respectfully respond to both bits of research with this: hogwash. It’s not what you earn that matters, and you don’t need a magic lantern to get rich.

Consider two families: the Smiths and the Joneses. The Smiths bring in $50,000/yr. but they have no debt and $50,000 in the bank. The Joneses are much more “rich”: they bring in $200,000/yr. But to go with that affluent lifestyle, they also have a $500,000 mortgage, $30,000 of credit card debt, big loans on their fancy cars and zero savings.

Who’s happier? The Smiths. Because they’re rich. They have enough in savings to live an entire year without working at all. If Mr. Smith hates his job, he can find a better one – even if it doesn’t pay as much. If Mrs. Smith wants to open her own business, there’s nothing to stop her. They’re in no danger of losing their house, because they own it outright. If there’s a recession, they’re fine. In fact, they’re better off, because their money goes farther. They lead a richer, happier life because they can do they want to do rather than what they have to do.

The Joneses, on the other hand, are neither happy nor rich. Because despite their high income, they’re one paycheck away from disaster. If Mr. Jones’ boss is a jerk, or asks him to do things he considers stupid or unethical, too bad. He can’t quit his job – there’s no way he can find another one that will pay as much. Mrs. Jones can’t strike out on her own, because if her business strikes out, the resulting domino effect will wipe them out. If there’s a recession – and there always will be – they’re scared to death. Since they’ve now attached their self-image to material possessions, they’ve staked their happiness on maintaining them. Not only are they not rich, they’re slaves – to a job, a boss, a house, a car – and a bunch of bills. They’re so busy doing what they have to do, they can no longer remember what they want to do.

In short, happiness isn’t related to income. And if you want to be “rich” it’s not hard – because being rich isn’t related to income, either – it’s related to freedom. Want to be financially free? There are two ways to do it:

1. Earn so much income you can’t spend it all – tough.

2. Live below your means, don’t confuse self worth with material possessions and never borrow money unless it’s absolutely necessary – easy.

In my latest book, Life or Debt 2010, I say the following: “You can either look rich or you can be rich – but odds are you won’t live long enough to accomplish both.” The Joneses – along with many other Americans – may look rich, but it’s the Smiths who are rich.

So read the research till the cows come home – the simple truth is that there’s no amount of income that will make you “rich” or happy. Happiness is freedom – freedom comes from not needing much and not owing anybody anything. At least, that’s what my research reveals. I believe. What about yours?

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  • http://www.facebook.com/jesse.m.kelly Jesse Kelly

    Couldn’t agree more. Great article!