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Is Saving the Key to Happiness?

You can’t buy happiness, but you can save for it, according to a new survey.

Maybe this result will inspire the 53% of Americans who have no savings plan: The size of an American’s bank account is a better predictor of happiness than the size of their salary, according to Ally Bank’s research, released this week.

U.S. adults who save money are happier than those who don’t, and those who save the most report the highest rates of happiness according to Ally’s survey of 1,025 U.S. adults over the age of 25.

Americans who have no savings are about one-third less likely to say they are happy than people who have at least some savings. Only 29% of those with no savings say they are happy, compared to 38% who have at least a little money saved up.

Salary & Savings

Meanwhile, fighting to make more money might be picking the wrong battle. Earning a higher salary has limited impact on happiness that plateaus after basic needs are met, Ally says. Other studies agree. Ally pegged the magic happiness-producing income number at around $50,000 annually (though you’d have to allow for regional differences; $50,000 sounds a lot like U.S. median income to me). Americans who make less than that are less happy; but those who earn more are equally likely to report happiness as their median-income neighbors.

However, as Americans’ savings account balances go up, their rate of happiness continues to climb, the survey found:

  • Less than $20,000 saved — 34% said they were happy

  • Between $20,000-$100,000 — 42%

  • More than $100,000 — 57%

“Happiness continues to grow as savings accumulate,” Ally said in a blog post about the results. “In other words, a big savings account may contribute to happiness more than a big paycheck.”

In fact, the survey hints that saving money is among the healthiest things a person can do. When asked which activities made them happy, saving money got a higher response (84%) than exercising (59%), enjoying work (68%) and eating healthy (74%).

The survey was conducted online, and while it used a representative sample, the results aren’t necessarily scientific. But they are consistent with other research.

Money & Your Mind

Joe Kable at the University of Pennsylvania is a neuroeconomist doing research into what happens in our brains when we make choices about money. He says people who make smart “discounting” decisions — those who trade cash offers today for better cash offers in the future — also are good at making other long-term choices. They eat better, get divorced less often, and are less prone to addictions. In other words, people who are good with money are also healthier and happier; they are better at thinking of the future.

Ally’s study doesn’t really address the correlation/causation question — do happier people save more, or does saving make people happier? But it’s certainly an experiment worth trying. Roughly half of Americans don’t have even three months of living expenses saved in an emergency fund, which is the foundation of a healthy personal financial outlet, and the first step in my “pitfall-proof pyramid” of finances. The stress that comes from living paycheck to paycheck creates a crushing, constant source of anxiety on American families.

Naturally, there is a connection between income and savings. You can’t save money if you aren’t earning enough money. But Ally’s study suggests that your focus shouldn’t be on making more, but rather socking more away.

One great tip from the world of behavioral finance: Try the “Save More Tomorrow” plan. It’s a simple idea: Every time you get a raise, put all or half the money into savings, and continue spending as if your income is flat. Shlomo Benartzi and Richard Thaler, who created Save More Tomorrow, say that 78% of the group they studied to test the idea were willing to pledge a 3% saving rate in the future (tied to their expected raises), and only 20% quit on the program after four years.

With a new year, and hopefully at least modest pay raises, around the corner, now is the time to think about committing future income towards savings — and towards your own happiness.

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