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Last time, I talked about how, for most Americans, creating a happy life for ourselves and our families is a top priority. Money plays a central role and has an effect on our satisfaction with life.

However, once the needs of food, shelter and medical care are met, additional spending on luxuries generates only marginal added pleasure. So, as you get richer, you need a lot more money to make you even a little more satisfied. Furthermore, even small increases in happiness are dependent on other factors, three of which are especially important and worth discussing.

Keeping ahead of the Joneses

How our income compares to others affects our satisfaction with our own circumstances. In the course of his research, Richard Easterlin surveyed people who were comparable in age, education and income, asking, “How much more money would you need to be completely happy?” People typically named a figure greater than their current income by about 20%. Yet when those same consumers were surveyed again almost 30 years later, in 2000, the researchers found that although “they had a lot more money (twice the income of the original study) and a considerably higher standard of living, it did not make them feel any happier.” In other words, instead of moving in tandem with earnings, their level of satisfaction was virtually unchanged.

What would explain this? The answer is, we continuously compare ourselves to those around us so that even if our income rises substantially, if the incomes of others also go up, we experience no increase in well-being.

Adapting to our circumstances

As humans, we possess a remarkable ability to adapt to changes in our lives, both good and bad. Shifting circumstances, whether prosperity or adversity, usually only have temporary effects because we get used to the new situation and reset our reference point for what is acceptable. This applies to income and wealth, so while a larger paycheck initially increases our happiness, the effects are short-lived. Conversely, if we are forced to lower our standard of living, we learn to make do with less and return to previous levels of happiness.

In her 2010 book, “Happiness Around the World: The Paradox of Happy Peasants and Miserable Millionaires,” Carol Graham concludes, “The bottom line is that people can adapt to tremendous adversity and retain their cheerfulness, while they can also have virtually everything — including good health — and be miserable.”

Rising aspirations

We live in a consumer society. Our desire for more possessions usually grows commensurate with, and sometimes faster than, our earnings. Studies done as early as the mid-1900s, and supported by more current research, show that expectations rise with income, and when they do, it dampens the effect on happiness.

On a side note, this desire for more “stuff” fuels more and more consumption, and can lead to unhealthy habits (more work, more stress, less leisure and less time enjoying our relationships) and even perverse behaviors (immoral and illegal ways to make money) to feed the spending. This becomes a self-defeating cycle in which happiness remains elusive because we never have “enough.”

Implications

Despite what most of us believe, the evidence shows us that neither more money nor more possessions has a significant or lasting effect on our happiness. Our tendency to measure ourselves against others, our ability to adapt to changing circumstances, and our drive to set higher and higher material goals negates almost all the benefit that we would otherwise expect from a more luxurious lifestyle.

How can we use what we have learned to improve our lives? Each of us has only a fixed amount of time available each day to spend on relationships, self-improvement and work. Instead of sacrificing precious time chasing purely financial rewards, sensible people might start by aligning their time and energy with non-monetary goals, like family, health, a job we enjoy, important relationships, leisure and fun.

Decades of research tells us that these are the things that will yield a richer and happier life for ourselves and our families.

John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com. This article is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.