Money can’t literally buy happiness, however studies show that reducing financial stress and having more options can increases happiness. What is definitely clear is that there is a connection between emotions and money, and being less emotional as an investor reduces your stress, which therefore can increase your happiness AND therefore also your financial success.
Maybe that’s not surprising. But here’s a formula to understand how to increase happiness, and it applies to more than just investing:
HAPPINESS ≥ Your Perception of the EVENTS of your life – Your EXPECTATIONS of how life should behave
Think about how this equation might improve your life. If you reduce disappointment by not having unreasonable expectations, that’s a pretty easy win, right? Try it next time you watch your favorite show or sports team. When you take the risk of asking someone on a date. When you cook a new plate for the first time. When you invest your money for the long-run.
How can this improve our wealth? If a happiness quotient gets you to set realistic expectations about outcomes, personal or financial, they you might view market volatility differently, and that might cause you less stress, and less panic, and fewer decisions made based on emotion… and instead on a long-term plan. In strong markets, it is important not to assume they will stay higher than average, and in weak markets it is important not to assume they will stay below average. Manage your expectations and increase your happiness. Remember this especially for things where you can’t control the outcome. If you have a strategy that makes sense for the long-run, don’t let unmet expectations lead to you derailing your own plan through emotional over-reactions.
Try this happiness equation, and feel the benefits.
Equation source: Solve for Happy by Mo Gawdat.