The More Money Solution

$5 million. That’s the happiness threshold, at least according to a 2013 survey from the Spectrem Group. Compared to those making $100,000 or less each year, the survey claims that “penta-millionaires” are happier and more satisfied in their “marriage or committed relationship, social life, financial situation, leisure-time activities, financial situation and relationships with their children.”

And maybe they are (although I’d take those results with a quarry-sized grain of salt), but what exactly should the rest of us take from those findings? It’s sort of like saying that NBA All-Stars are more satisfied with their careers than deliverymen. Should deliverymen then strive to become world class basketball players? Should all of us strive to become penta-millionaires? Do "quattro-millionaires" need to make an extra million a year to feel ok about things?

Money solves everything?  

Slightly more germane to the population as a whole: a recent study conducted by MMI that asked consumers what personal change would have the most impact on their financial well-being. The winner (by an enormous margin)? More money.

Of those polled, 73 percent said that having more income would make the biggest difference, well above having more savings (37 percent), a better credit score (15 percent), or increased money management skills (14 percent; participants were allowed to choose two options). It’s not hard to understand why. An insufficient income means you’re likely living on a tight budget – tight budgets usually result in less being set aside for saving – having an insufficient income and no savings makes it difficult to keep up with debt obligations, leading to missed payments, defaults, and, ultimately, a poor credit score. More money solve all of that. Right?

To an extent. While it’s true that – ideally – more money means more saving and less debt, it doesn’t tend to really work that way. Consumers with more income generally have more debt. We make more money and we spend more money. An increase in income should help your financial well-being, but there’s no guarantee that it will.

A large part of the problem may be perception. In another survey, approximately half of the consumers polled admitted that they spent more than they earned multiple times throughout the year. Of those same respondents, however, only 10 percent believed they were living beyond their means. This suggests a fairly significant disconnect in consumer perceptions of money management, especially given that nearly half of those polled stated that they do not have a monthly budget. If you believe that spending more than your income allows is normal you may have an insufficient income, but you could almost certainly benefit from better financial planning and money management. 

It's not wrong to think that increased income would improve your financial well-being, but more money is an incomplete equation. For many people, more money won’t equal more problems, or even less problems. It equals the same problems. The trick is marrying increased income with a better strategy. If you’ve got financial difficulties, it’s important to understand where they came from. Simply throwing more money at them is a recipe for repeated problems. Take the time to understand where you struggle with financial management, take advantage of the resources available to you, and you’ll find that your financial well-being will improve, no matter how much your income increases.