The eternal dilemma: Money doesn’t make you happy – but you need money in order to make a happy living. We are no financial advisors, but perhaps it is time we addressed the difficult question: how much money do we actually need to be happy? Can we “optimize” our money affairs by combining an economic balance with a psychological one?

Everything used to be better …

Do you remember your childhood when you got your first pocket money to buy an ice cream or sweets once a week? Or your school days, when you first learned to save your pocket money for a greater desire?

Or your first self-earned money? For me, it was a music shop during school time, where I helped out 1-2 afternoons a week and during the holidays. To be rewarded for one’s own work, of which one was allowed to treat oneself to something. In my case, I left all my money in the store and after a few months I got my first musical instrument – it was a keyboard.

Did you think about saving for retirement at the time? Or what proportion of your monthly income you can spend on your apartment? How much cash flow you need to be able to afford ‘life’? I hope not.

Happiness and money

There is a parallel between happiness and money. In our childhood we give little thought to money, though it allows us the occasional moment of happiness, e.g. to enjoy a scoop of ice cream. The older we get, the greater the role that money plays in our thoughts and lives, and the more often it is a source of dissatisfaction. The bills we have to pay, the comparison of our paycheck with that of our colleagues, the pension plan we should finally set up, which apartment or house we can afford, the budget for our holidays.

The more we deal with money, the more likely it is (for most people) a source for negative thoughts. And of course, this development is an important and natural step, which means that we have taken on responsibility – for ourselves and our families. Nevertheless, it seems a little paradoxical. We need money to be able to afford a happy life, but the more we deal with money, the less it contributes to our sense of happiness.

A jackpot in the lottery or the career?

One might hope that at least a lottery win would make us happy, because finally we wouldn’t have to worry about money anymore. Unfortunately, that does not seem to be the case either. In a classical study, Brickmann et al. (1978) compared 22 lottery winners against a control group and found that after a few months they did not feel happier than the control group, and experienced even less joy from everyday events, such as talking to a friend, listening to a joke, reading a magazine, or going shopping for clothes. Some recent studies show a more differentiated picture, e.g. Lindquist et al. (2020) find a positive effect on life satisfaction, but little impact on happiness and mental health. Raschke (2019), on the other hand, even finds a negative influence on mental health with low education and no influence on higher education. As always, the science is not entirely in agreement, but it appears to bethat winning the lottery, does not automatically make you happy.

Well, you could say, winning the lottery is very unlikely anyway, but what about job and career? With growing paychecks, our sense of happiness certainly increases. Unfortunately, there are clear limits to this as well. A famous study by Nobel Laureate Kahneman (& Deaton, 2010) in the US showed that after a household income of $75,000 has been reached, the sense of happiness no longer increases. Also for Germany, Di Tella et al. (2010) found, that an increase in income (once it surpasses poverty level) has low impact on perceived happiness over time. And as usual in science, a very recent study (Kilingsworth, 2021) challenges these findings again. Nevertheless, we can summarize that as soon as a certain level is reached, more income might raise life satisfaction, but won’t make you happier.

How much do we really need?

Money in itself doesn’t make us happy, but it gives us the freedom to focus on the things that can make us happy – like our online course Finding Purpose , spending time with friends or pursue our hobbies while indulging ourselves with having our cake and eating it, too. The big trade-off for most of us is money versus freedom or leisure. As long as you do not find your full and only fulfillment in your paid work (and can do without all other sources of happiness), the connection applies: the more we toil, the more we earn, and the less we have free time and free choices. As mundane as it sounds, time is money.
So the exciting question remains, at what income level do we have enough money to finally spend our time happier?

There are two fundamentally different ways to answer this:

  1. Amount X in terms of total assets (bank account plus fixed assets, etc.) or
  2. Amount Y of monthly cashflow into our account (plus buffer)

Followers of type 1 can sometimes be heard saying “Once I have made $ x million, I’ll stop working!”. A type 2 representative would rather say “As a family, we need an average of about $4,000 net a month with buffer for all expenses and retirement savings, so we have to earn at least that!”. In my opinion, the type 1 approach is a dangerous life lie, as it usually is a moving target and postpones the question of what really makes us happy into a distant future. But this discussion is probably going too far here.

There is another reason why type 2 (i.e. the monthly cash flow) is more suitable for happiness optimization – it is much easier to answer. And one does not confuse happiness-optimizing the montly cashflow with a sales pitch of a benevolent “financial advisor”, who unselfishly might recommend yet another life insurance.

Happiness-optimized cash flow

How do you optimize your cash flow for happiness? To start, you only need your bank statements of the last 12 months or what you consider a representative period of time for your income and expenses and ideally Excel (or paper and pencil). Then classify your current ‘cash flow’ – i.e. your average monthly income and expenses – and sort it into a few meaningful categories, such as salary, part-time work, bonus, subsidies, etc. on the income side and on the expenditure side housing, food, children, going out, transport, retirement savings, shopping, etc. Some banks also allow you to directly categorize your bookings in online banking. After the categorization, the real, exciting part begins: optimizing the happiness of your cash flow. And in principle, it contains one simple but very important question:

‘What would make me/us happier: Spending more on individual things and spend categories or having to work less and affording me/us more freedom?’

It is not a question of restricting yourself or neglecting your retirement plan, it is a matter of creating a psychological balance sheet in addition to an economic one,in which you deliberately (and to some extent hypothetically) assume that you can flexibly decide freely upon your time.

The first, very natural reaction to this proposal, in my experience, is always: “I would like to, but I can’t, because I still have to pay off … or we are saving for … or we urgently need to buy…’

The only thing that helps as an answer to this is a deep look into the mirror: When the going gets tough, which of your expenses are truly mandatory and in which amount? Would perhaps a smaller apartment suffice, the holiday nearby, fewer status symbols, etc.? Most of our expenses have ‘grown organically’ over the years. And unfortunately, the human psyche works in such a way that the loss of possession/amenity hurts more than the joy of gain the same anew. Spend levels can be increased easily, but it is difficult to reduce them again.

But once you sum up increasing stress at work and in private life, frustration about not having enough time for friends and hobbies, the perceived loss of freedom over chosing what to do – and then compare it against your current expenses: Is there maybe a different balance to be found between psycholgical burden and moments of happiness? Who says that you have already achieved ‘your happiness optimum’?

Our tip: Do not do this optimization alone – but together with your partner or in the family council. And preferably only after you have already discussed the topic of happiness together (or forwarded this article).

Two complementary balance sheets

In a way we do an economic balance sheet every month – if only implicitly through the occasional glance at our bank account. The economic balance sheet is also what I would call the status quo – your current optimum of income to expense level. What is now missing for happiness optimization is the addition of a psychological balance. And in order for us to be able to combine these two, we need a common denominator that applies to both – namely lifetime.

  • Economic balance (income – expenses): How many hours do I have to work to cover my current expenses?
  • Psychological balance (stress – moments of happiness): How stressful is the effort to generate income compared to the moments of happiness that I draw from my expenses and my free time or freedom?

Sometimes it is enough to look at the monthly expenses per category to already realize that there may be a potential for some trade-off.

It becomes clearer when you consider that 1 hour of effort to generate income does not translate linearly into 1 hour of joy for expenses or leisure. And it becomes even clearer when you think in marginal utility: Does the last $1 income burden really deliver the equivalent joy for spending $1 or free time as the first one?

And if this exercise seems too hypothetical to you: Have you ever truly tried to reduce your working hours by, let’s say, 2-3 hours a week – even if it would mean that you would have to forego some income or bonus? How would you use your newly found free time? How would it feel to have that freedom?

Paths to happiness

Maybe with this article we can inspire you to start thinking about your happiness-optimized cash flow. At zentor, the question of what it means to live a fulfilling life is our daily business and we look for answers based on scientific findings for how to Find Purpose, deal with stressor – in the B2B context – foster a sustainable and productive company culture.

The topic of money and happiness is rather new for us, so we’d love your feedback on this article, e.B. via e-mail to gluecksflow [at] And maybe one day I manage to draft an Excel template for a happiness-optimized cash flow for which we would love to have beta testers… write us!

Sources and further reading

  • Brickman, P., Coates, D., & Janoff-Bulman, R. (1978). Lottery winners and accident victims: Is happiness relative? Journal of Personality and Social Psychology, 36(8), 917–927.
  • Di Tella, R., Haisken-De New, J., & MacCulloch, R. (2010). Happiness adaptation to income and to status in an individual panel. Journal of Economic Behavior and Organization, 76(3), 834–852.
  • Lindqvist, E., Östling, R., & Cesarini, D. (2020). Long-Run Effects of Lottery Wealth on Psychological Well-Being. Review of Economic Studies, 87(6), 2703–2726.
  • Kahneman, D., & Deaton, A. (2010). High income improves evaluation of life but not emotional well-being. Proceedings of the National Academy of Sciences, 107(38), 16489–16493.
  • Killingsworth, M. A. (2021). Experienced well-being rises with income, even above $75,000 per year. Proceedings of the National Academy of Sciences, 118(4), e2016976118.
  • Oswald, A. J., & Winkelmann, R. (2008). Delay and deservingness after winning the lottery (No. No. 0815,). Zurich. Retrieved from
  • Raschke, C. (2019). Unexpected windfalls, education, and mental health: evidence from lottery winners in Germany. Applied Economics, 51(2), 207–218.