Why Happiness With Money Is Relative

Here’s a hypothetical example to explain the point. If someone was earning 20,000 nis a month and then receives a raise of 10,000 nis to 30,000 nis, the chances are they would be happy, at least initially. Their lifestyle improves, their financial pressure eases, and they feel rewarded for their efforts.

If someone else was earning 40,000 nis and had to take a cut of 10,000 nis and only receive 30,000 nis, the chances are they would be very unhappy. Objectively, both individuals are now earning the exact same amount of money monthly.  But emotionally, the second person is likely to feel unhappy, stressed, and even resentful.

Why?  Because happiness as regards to money is relative, not absolute.

The Emotional Impact of Income Changes

The second person had a higher standard of living which will be more difficult to maintain on their lower salary, and people have a hard time with the loss and adjustment caused by a lower income. On the other hand, the person with the increased income and standard of living will experience a sense of happiness as they move forward and are being rewarded for their efforts, even if the increase is not drastic.

The Practical Habit That Builds Long-Term Happiness

So how can the average person use this realisation on a practical day-to-day level to improve their happiness?  The next time you receive a salary increase or receive a gift, inheritance or any other financial windfall, instead of immediately increasing your standard of living to match your new income, hold back and don’t expand, or only slightly increase your standard of living.  Save the majority of the windfall, only using a small amount for critical expenses.  Live below your new standard of income.  If you are able to do this consistently, you are setting yourself up for long-term financial stability and happiness!

Avoiding the Trap of Lifestyle Inflation

 This prudent long-term approach says ‘I was living on the lower salary, so I’ll add a small percentage to the old income, and I’ll take that extra money and save it, or invest it so that I have resources that will keep me at a higher level during times when I may not have the money or don’t want to work’.

However, human beings generally don’t operate that way and do the opposite instead. When income rises, spending rises just as fast or faster. We upgrade our homes, cars, vacations, and daily habits until our new lifestyle consumes every shekel we earn. Sometimes we even go further, borrowing and spending money we don’t really have. This is one of the biggest sources of financial unhappiness. Financial stress creeps in, not because we earn too little, but because our lifestyle has outpaced our ability to maintain it.

Managing Expectations Without Deprivation

We need to control our expectations by keeping our standard of living down and only increasing it very slowly over time.  This does not mean deprivation, but rather expectation management. If you can control your standard of living and slowly increase it only when you really have the ability to support it in the long-term, with no stress, then you increase dramatically your chances of staying happy.

Spending Less Than You Earn Changes Everything

This single critical financial habit, of spending less than we earn, will bring us long-term financial happiness. It will allow us to save money for our future selves, in a consistent and controlled manner.  We need to learn that we should only increase our standard of living when we have the long-term ability to sustain ourselves in that manner. It prevents debt, allows for saving, and removes the constant anxiety of “where will the money come from?” It also means you’re not forced into financial choices you’ll later regret.

Why This Applies at Every Income Level

And this is relevant to everyone, regardless of salary level. There are many people who earn very high incomes but don’t have the discipline to save. That means that not only have they not taken advantage of all the potential benefits of long-term saving, but they often find themselves in debt, as they mortgage their futures for current spending.

Think of Your Salary as More Than Today’s Money

Think of your salary as a pie, which does not only represent your present needs, but also your future needs. From that same pie, you’ll need to fund next year’s vacation, a simcha, a wedding, buying an apartment, or supporting yourself later in life. The key question isn’t how big the pie is, but how you slice it today?  Are you allocating enough of your current income towards future expenses?

Choosing the Future You Want

If we do this correctly, we aren’t saying no to anything today, but rather we are saying yes to something in the future that is more important to us. And that makes it much easier to live within a standard of living that matches our long-term financial stability.

That mental shift changes everything. Living within our means no longer feels like a sacrifice. It becomes a choice. It aligns our spending with what truly matters to us and gives us the freedom to enjoy both today and the future with far less stress.