Why do you invest?
Perhaps you buy Real Estate Investment Trusts, or REITs , like long-standing Realty Income Corp. (O -0.49%), because you want to use the dividends to pay down your own mortgage. Maybe you're diligently dollar-cost averaging into a broad-market index fund every month, like the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX 1.32%), because you want to secure your financial future through retirement and beyond. Or perhaps you're sitting pretty on a large stash of unrealized gains from the high-flying tech darling you bought and maintained since the IPO -- and want to use that wealth to benefit good causes in your local community.
Clearly, money underlies each of these endeavors -- and few will doubt that investors devote much of their energies toward the pursuit of capital accumulation. But if we're so thoughtful, disciplined, and systematic about making money, why are we comparatively more anxious, haphazard, and unfocused about spending it? How can we use our wealth in a principled and deliberate manner to enhance -- rather than burden -- our lives?
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Material goods...?
One of the most widely known (and hotly debated) cultural tropes around is the idea that "money can't buy happiness" -- and critics of contemporary society's obsession with materialism, like Claremont Graduate University professor and positive psychology pioneer Mihaly Csikszentmihalyi, would be quick to agree.
He laments that "materialism ... amounts to little more than a thoughtless hedonism, a call to do one's thing regardless of consequences, [and] a belief that whatever feels good [now] must be worth doing," and notes bluntly that "material advantages do not readily translate into social and emotional benefits" -- the very drivers of human happiness and well-being.
...Or abstract goods?
If hoarding flashy objects doesn't lead to greater life satisfaction, then what does? If money can't buy happiness, can it at least buy relief from pain?
Intuition would suggest so. In advanced societies where technology is no longer the limiting factor to a universal basic standard of living, sufficient wealth alone is enough to guarantee our basic needs -- it can supply a roof over our heads, power our in-home lights, feed us a nutritious diet, ensure access to healthcare, pay our tuition, and get us where we need to go.
Wealth can also insulate us against potential harms, or be a lifeline in times of crisis. We can leave a war-torn country -- if we have the means to flee. We can lower our risk of being victims of violent crime -- if we're able to afford a well-secured home in a safe zip code. And we can lower our risk for many diseases -- if we have the money to see the best physicians on the market.
And this is no trivial matter. In Plato's Republic, Socrates asserts that "there are many ... cases of suffering in which the mere rest and cessation of pain, and not any positive enjoyment, is extolled by [those in pain] as the greatest pleasure."
The takeaway
Can money buy happiness? It depends.
Wealth squandered on frivolous and self-indulgent luxuries like McMansions, Michelin-starred meals, and Maseratis, for example, won't make us happy -- nor will most material goods, for that matter.
But the health, safety, and freedom that wealth can offer just might be worth it. These abstract goods can liberate us from many forms of vicious suffering, provide certainty, security, and peace of mind in trying times, and grant us the agency to act in critical moments that matter.
However, we can't pick peace of mind or freedom off a shelf. So, how do we "buy" these things?
We can start by cultivating wise spending and saving habits that eschew opulence in favor of meeting our needs. For example, we can pay off our mortgage early, max out our HSA or FSA, save 15% of each paycheck for retirement in a 401(k) or IRA, buy an economical car in all cash, or start a rainy-day fund for emergencies.
Next, we'll need to orient ourselves toward the very long-term, always exercising prudence when spending and investing throughout our lifetimes, not just during this month or year. Abstract goods take time to mature and are worth pursuing only because they contribute to enduring happiness -- and yet, they can be lost in a single moment.
Though achieving financial freedom, for example, takes decades of diligent saving and patient investing, it can be sullied in a fleeting instant -- say, from a reckless derivatives gamble gone wrong. And while achieving these ends is no easy task, investors who introspect deeply about what they value and commit themselves to good long-run capital stewardship can stand to gain some of the best things money can buy.
