Can Money Make You Happy?

By Ellen Rogin, CPA, CFP®

You may have heard that after people reach about $75,000 of income, their happiness levels don’t increase merely by having more money. This research supports many people’s beliefs that what truly makes us happy can’t be bought (at least after we have food on the table, a roof over our heads, and health care).

But there’s a more complex answer to the age-old question of whether money can buy you happiness. Other research suggests that, indeed, having more money can make you happier — but it depends on how you use it. It turns out spending on others gives you a bigger happiness boost than spending on yourself. This seems to hold true for people all over the world. So whether you’re supporting your local food pantry, sending money to educate kids in another country, or taking a friend out to lunch, it’s likely to make you feel happier in the long run than buying this season’s “it bag.”

This is about shifting from counting your money to counting with your money. Donations to charities, causes, and people who are important to you act as physical manifestations of your gratitude. You don’t have to be Bill and Melinda Gates or Oprah Winfrey to make a difference. Merriam-Webster defines philanthropy as “the practice of giving money and time to help make life better for other people.” We can all do that. The origins of the word “philanthropy” come from the Greek philanthrōpos: “loving people.” What a beautiful way to build your own prosperity and happiness — through sharing your resources with the vibe of love.

You are likely already a part of the 88 percent of people who donate to causes, institutions, and individuals needing help. Estimates on charitable giving say people give between 2.9 percent and 4.7 percent of their income to charities.
 

Giving with Your Dollars

Give with purchase. You’ve probably experienced the fun of getting a “free gift” with a purchase at some point. Somehow getting a flowered cosmetic bag filled with strange shades of lipstick after you’ve purchased overpriced makeup seems like you’ve won a big prize. People will often buy more than they need just to get that freebie. Why not shift your focus from getting gifts with purchases to giving them? I started this with our kids when they were young: with each new toy they brought into the house, they needed to donate an existing one. I do this now myself with clothes. I often joke that I need a “sleeveless dress buying intervention.” When you live in Chicago, you have a short sleeveless dress season, yet I keep finding ones I think are just so cute! So when I bring a new clothing item into my closet, I makes sure to take at least one out to donate. Someone else will benefit and enjoy those things you no longer need or use. Remember to keep your receipt for tax purposes if you donate them to charity.

Support your friends in their acts of generosity. When your friends ask you to support a cause important to them, say yes! Say yes with your checkbook and wow them with your generosity. Instead of looking at this as an obligation, look at it as a way to support and honor the good work of people in your life.

Give as you get. Seek out retailers and products that support charities. It might be a percentage of profits or physical items donated to charities. Newman’s Own food products, for example, donates all profits from the sales of its products to various worldwide charities. Toms Shoes donates a pair of shoes to a child in need for each pair purchased. Or perhaps you’re purchasing fair trade goods that support entrepreneurs around the world through companies such as Ten Thousand Villages or Global Girlfriend. This last one was started by Stacey Edgar to help women around the world gain economic security by providing great products and a way for people to both buy something beautiful and help a woman in need.

Increase the velocity of your generosity — make giving part of your spending plan. Of course, simply giving cash to causes you care about is one of the most direct ways to spend on others. Most people don’t proactively plan the amount of money they’ll donate or the individual charities they’ll support over the course of a year. Instead, they give when someone asks — sometimes out of inspiration and sometimes out of obligation. But there’s a real upside to being more deliberate. Just as saving systematically (through automatic deductions from your checking account) helps boost your savings ability, giving systematically can boost your Financial Happiness Quotient.

So consider setting up a “giving account.” It can be a simple savings account you use to accumulate money to be given away. Once you set up a giving account, you can turbocharge it by adding to it with a systematic transfer from your checking account. Each week, month, or quarter, authorize a percentage of your income to be moved into your giving account. Why a percentage? This will keep you giving a proportionate amount as your income (hopefully) increases or decreases. It’s easy to get thrown off by what initially sounds like a lot of money, so if you use a percentage, you will be less likely to stop your giving when the numbers sound too big. Shortly after my husband and I started our giving account, one of our pet charities asked for a specific large donation. My first reaction was “Wow, that’s so much money!” I then realized we had three times that amount already sitting in our giving account!

Another benefit of automatically funding your giving account is that it can support you in giving even when things feel tight. During the depths of the recession, people tightened up significantly on their giving at the precise time charities saw their greatest need. When you stop giving because you are scared, you are putting a kink in the hose of prosperity flowing to you. I’m certainly not saying you should give more than you can afford, but I am suggesting that when you focus on others who are less fortunate, especially during tough times, you potentially create a positive and powerful loop. Here’s how it works:

Your thoughts are focused on others’ problems and how you can help them (the “how you can help them” part is directly connected to your blessings)...

Because your thoughts are focused on your blessings, it’s impossible for your thoughts to be focused on your problems (your challenges)...

Where thoughts go, energy flows.

This process brings more energy to your blessings — and helps you feel better along the way.
 

Let the Government Help You Give

Your charitable giving may also give you a tax benefit. It’s like a gift with purchase from the government. You give to a qualified charity and the government lets you deduct part or all of your contribution on your taxes. Here are some things to keep in mind:

Your contribution must be made to a qualified charitable organization. So your nephew who needs some extra support is not a tax-deductible contribution. Neither are contributions to political organizations or candidates. Check IRS Publication 526 on the IRS website for more information on qualified charitable organizations

To deduct the contribution, you must file a tax return and itemize your deductions. If you get something in return for your contribution (like that spa package you won at the silent auction or the airline ticket you won in a raffle), you can deduct only the amount you contributed that exceeds the value of what you received. So if you spent $200 on a massage that was valued at $150, you can deduct $50 on your tax return.

If you donate stock or other noncash items, your deduction is usually for the fair market value of your donation. So if you donate the car you bought for $15,000 ten years ago, you can deduct only the $3,000 it’s now worth on your tax return.

If you donate clothes or household items, they need to be in good usable condition to be eligible for deduction. IRS Publication 561 can help you determine the value.

Remember to keep good records. If you contribute more than $250, you must have bank records, payroll deduction records, or an acknowledgment from the qualified charity to be able to deduct the contribution. If you make noncash contributions (for stuff you gave away) in excess of $500, you have to complete a separate tax form. My husband and I were audited for our charitable contributions and were able to provide backup for each contribution made. Having good records made a potentially stressful situation much easier.

If you give larger amounts of money ($1,000 or more) to certain charities, consider donating stocks or mutual funds that have grown in value. If you give stock to a charity, they have the ability to sell it without paying capital gains taxes. This will potentially save you money, because if you were to sell the stock, you would have to pay tax on your gain. Also, if you are giving large amounts of money, consider getting professional advice from an attorney, tax advisor, or financial advisor to help you make sure you are getting all the tax benefits you deserve. There are many tax-saving strategies that can be used not only to help the charity, but to help you and your family as well.

One of the keys to being prosperous is to be intentional in your giving. Many people think that it takes some innate skill or years of study to be prosperous; this is a money myth. People who are great with money act in specific and intentional ways. The most essential practice that will help energize your ability to be great with money is the practice of giving and receiving.
 

Ellen Rogin, CPA and CFP®, is an Abundance Activist® and coauthor of the New York Times bestseller: Picture Your Prosperity: Smart Money Moves to Turn Your Vision into Reality. Visit Ellen’s website here.