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Will Being Rich Make us Happier?

Is having lots of money the key to financial security and happiness? Many of us seem to think so. More than 140 million Americans buy lottery tickets each year. By winning that $100 million jackpot, we can finally buy our dream house, quit our job, and travel the world! We feel we would no longer have to argue about money with our loved ones. But is having more cash really the way out of daily life stress?

A play I recently watched, Timon of Athens, shows that a sizable bank account is not the solution to our problems—even in the 1600s. Timon was super rich, but spent his money foolishly, and ended up wretched and broke. In fact, 70% of people who win a lottery or get a big windfall end up broke in a few years, according to the National Endowment for Financial Education. In 2002, Andrew “Jack” Whittaker – a millionaire from West Virginia, won the $315 million lottery jackpot. At the end, he wished he tore up that ticket. He and his wife divorced. He spent the money loosely, drank heavily, got robbed multiple times, and faced several hundred legal complaints.

Money can buy happiness… but up to a certain point. A Princeton University study found that money can indeed buy happiness – but only up to about $75,000 a year. There is value in striving to have a higher salary. The problem with a rising income is that often people’s lifestyles get inflated accordingly. I personally know someone who makes more than $200,000 a year, but still has $30,000 in ongoing credit card debt. In fact, you can make $500,000 a year but still live paycheck to paycheck, if you inflate your lifestyle by buying expensive cars & houses (see example illustrated by Financial Samurai).

While you’re working towards your ideal income, you can still save by being a good steward of your money. I have a friend who started out at $35,000 a year working at a non-profit, and was able to save and grow her money to a quarter of a million dollars after 10 years!

The key is living beneath our means, while still living abundantly. Strive to save at least 15% of your money to fund your future goals. Living abundantly in the present doesn’t need to be expensive. You can find activities that give you joy at little or no cost. I get my high from playing ultimate Frisbee and swing dancing. I’m fortunate to live close to Ultimate pickup games in Rockville, Bethesda, and Vienna, all free of charge! Super fun swing dancing events in DC and MoCo range from $8 to $18 per night. That’s great value.

You don’t need to have a large bank account to be rich. Living in balance is the key—living abundantly while still being good stewards of the money that we currently have.

 

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Alvin Carlos, CFA, CFP®

About Alvin Carlos, CFA, CFP®

Alvin Carlos, CFA, CFP® is passionate about helping middle class professionals make smarter financial decisions. He is the CEO of District Capital Management, a financial planning and investment management firm for the everyday people. Alvin is a CERTIFIED FINANCIAL PLANNER™ practitioner and has a Masters degree in International Relations from SAIS-Johns Hopkins. In his spare time, Alvin enjoys swing dancing and Ultimate Frisbee. He also volunteers for Catholic Charities’ new Financial Stability Network, which helps low-income folks with their finances.

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