Why You Should Follow The Money (And Not Your Passion)
Recent Studies Find A Connection Between Happiness And Income
College graduation speeches come in all lengths and styles. Some are truly remarkable; most, however, are instantly forgettable even when they're being delivered by a well-known celebrity. One thing you can almost always count on hearing in every such oration is some version of this supposed wisdom: “Follow your dream, because money can’t make you happy.”
But that wisdom is not always widely accepted among new grads. Financial writer Michael Schramm, himself a college student, has a real problem with that advice. His critique of that adage in Money Magazine provides great food for thought as one college class enters the job market laden with student debt, and another ponders how best to invest their time and effort over the next four years.
Can Money Buy Happiness?
Schramm says the suggestion that money doesn’t buy happiness is, “a half-truth at best, a lie at worst.” In his personal experience, money and happiness are closely tied. Schramm grew up in a household where home foreclosure was a real threat, a gaping hole in the roof went unrepaired, and the smallest food purchase could result in a screaming, stressful argument over money.
“When bills arrived that couldn’t be paid, money became a monster that tormented me,” Schramm says.
All that changed for Schramm when he earned both a college scholarship and an allowance that allowed him to meet his basic needs. Schramm felt anxiety wash away and was able to focus on things other than money, which he came to view as a friend, not a monster.
“Simply put, more money did buy me happiness.”
If you're struggling to manage your budget as a new college grad, consider what you can do to make your student loan debt more affordable. Refinancing or consolidating loans, for example, could lower your monthly payments and help you save money on interest.
Measuring the Link Between Money and Happiness
Schramm’s argument is more than anecdotal. He cites recent studies that indicate a connection between happiness and income – up to a point. According to at least one study, happiness begins to level off once you reach an annual income of $105,000, with people making $200,000 no happier than those making $120,000.
Yet students are still bombarded with the message that striving to make a good living puts one at risk of living a dull, colorless life. Schramm thinks that’s a dangerous mindset.
He cautions students and job seekers to instead seek a realistic balance between fulfillment and income. Further, Schramm urges grads to think carefully before pursuing a dream or passion that will leave them struggling with their bills over the long term.
“Enjoying your work certainly increases your happiness, but that will be mitigated if your passions can’t pay for food, water, shelter and utilities – if you can’t put money in a savings account… if the occasional splurge is entirely outside your reach.”
While passion pursuits may be emotionally rewarding, they could leave students with a gap in their financial plan if they're unable to manage a financial emergency or plan for larger investments, such as the purchase of a home.
If you're looking for a place to keep your emergency savings, check both the interest rate you can earn and the fees you'll pay. Online banks may offer a better combination of high rates and low fees compared to traditional banks.
The Takeaway: Focus On Achieving Both In Equal Measure
Schramm suggests students research job prospects and salaries in their dream profession and honestly assess whether they can live a decent life on that income. If not, he suggests, they might consider some sort of compromise. For example, a new grad in computer sciences with a passion for helping the poor could volunteer to oversee an anti-poverty group’s information systems. This type of arrangement allows them to enjoy the best of both worlds, to a degree.
“It may not seem as fulfilling as following your dreams, but here’s the calculated truth: It will provide happiness.”
When exploring career options, consider demand in that field as well as long-term earning potential. And look beyond salary to the type of employee benefits a company might offer that could enhance a job's value.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
World Economic Forum. "This Is Exactly How Much Money You Need to Be Happy." Accessed April 28, 2020.