What Most People Get Wrong About Money

Money can buy happiness, just not in the way you think.

Lessons From The Basement Couch

Just after my sophomore year in college, I spent the summer in Washington, D.C., splitting my days between rowing in a junior development camp on the Potomac and selling advertising part time. Making next to no income, my living arrangements were bleak. I shared a four-bedroom house with 12 people — 11 guys and one girl (who, comparatively, lived in the lap of luxury, having one room to herself). I also had my own “room,” but that is such a generous term — it was just a couch wedged between a bedroom and bathroom in the basement hallway. At $180 for the entire summer, this subterranean sofa was by far the cheapest spot in the house, and actually turned out to be a refreshing escape in the sweltering D.C. humidity — from a house overflowing with male energy and lacking cool air flow in equal proportion. 

With this sleeping arrangement, a fair amount of tossing and turning was to be expected, but I obsessed nightly over two things in particular: whether I had won or lost a seat race in rowing, and how I was going to stretch my minimal income to pay for my existence.

My primary sustenance that summer was day-old bread from the grocery, which I combined with generic peanut butter and marmalade. Early on, I’d made the near-fatal mistake of saving $1 by purchasing a half-gallon jar of marmalade instead of strawberry jelly. For the next month, every sandwich I ate tasted like regret. To this day, I can’t even smell marmalade without getting queasy.

My other major problem was my car. I had no designated parking space or street parking permit, which meant I had to move my car every few hours to avoid a ticket. I surmised that D.C. funded its entire budget with parking ticket revenue, because I swear the local meter reader’s sole purpose in life was antagonizing the three-block radius surrounding my house. I got $80 tickets for being in the green zone for more than four hours. I got $40 tickets for having one of my wheels more than 18 inches from the curb. It was not a rare occurrence to get into a footrace with the meter reader as they approached my dash, ticket in hand. Several times, losing this race literally brought me to tears — and not just because I was competitive. With every additional expense, my chest tightened a little more.

Lack of money was a source of constant friction among my housemates, as well, sparking heated arguments over the length of one’s showers and constant accusations of grand theft mac and cheese (or beer, or leftover pizza — really anything edible going missing was practically grounds for fisticuffs).

With zero savings, I was living paycheck to paycheck, and it was incredibly stressful. A parking ticket, mold on my bread, or an unexpected medical bill (like one I got following a bad infection from a rowing blister) would at least ruin my day, if not throw me into a total tailspin.

Mercifully, my life eventually evolved, and my relationship with money followed suit. But having lived on both sides of the equation, I can honestly say this: money can buy happiness – just not in the way you might think.

I came to realize money’s greatest utility is not perceived “status” or the ability to purchase material things — it is the freedom and peace of mind that accompanies financial stability, and ultimately, financial freedom. 

My personal progression toward this freedom and peace of mind tracked along with the four Levels of Wealth I’ve experienced in my lifetime.

Level 1: Survival (50% - 66% of the U.S. Population)

Despite what you see in Instagram reels and the movies, roughly 65% of Americans live paycheck to paycheck, 54% have less than a few months of living expenses in savings, and roughly the same percentage would need to borrow money to cover an unexpected expense of $1,000 or more. A full 25% are unable to consistently cover basic needs such as food and shelter.

When you live at Level 1, like I did in D.C., making the rent and car payment, buying food, and covering health care are all monthly battles, and thus money occupies a large percentage of your daily thoughts. If your car breaks down or you get an unexpected medical bill, you’re likely faced with the impossible choice of funding that expense or paying rent.

This is an incredibly stressful level, and sadly, it is where most people reside.

Level 2: Small Cushion (3 - 5 Months of Savings) (16% of the U.S. Population)

Having a few months of living expenses in savings does not require significantly more wealth than Level 1, but it can make a huge difference in your level of financial stress. At Level 2, while you’re not planning extravagant vacations, you also don’t need to choose between buying groceries or fixing your car. You are still stressed about money, and you’re one major expense away from dropping back down to Level 1, but money typically occupies a smaller percentage of your thoughts compared to those living in survival mode.
Level 3: Financial Security (6+ Months of Savings)

Level 3: Financial Security (6+ Months of Savings)

With more than six months of savings in the bank, a large one-time expense or a change in a job, while stressful, will not be debilitating. At Level 3, you still need to work for a living, but your financial cushion offers freedom you may not have experienced previously. You could leave your job, or exit a relationship that involves a shared living situation. You have some “hope” because you are starting to save some money, and money typically occupies an even smaller part of your mindshare.

Level 4: Financial Freedom 

At this level, you have enough money to spend your life largely how you want to spend it. Financial freedom doesn’t mean you don’t have to work, but it does mean you are able to work in a role that you enjoy or change careers to get into that role. You don’t need to spend a tremendous amount of energy thinking or stressing about money. 

The total dollar amount necessary to reach financial freedom is entirely based on your level of living expenses — and thus, ironically, many people can attain this level of freedom without attaining a significant absolute net worth. Likewise, others who have a high absolute income can still fall short of this level due to high living expenses.

The thing that people get wrong about money is that they often travel through the four Levels of Wealth in the wrong direction. Just as they ascend to a higher level, they make a big purchase — move into a new apartment, lease a new car — that sends them back down to the previous level. They mistakenly think that the status and stuff they purchase with money will offer more utility to them than the freedom and peace of mind of not having to stress about money.

The Tension Between Status and Freedom

As I scrolled through TikTok yesterday, I stopped on a video of a guy sitting in a red Ferrari with the driver-side window rolled down. An interviewer walks up to the car and pushes a microphone through the open window. He is clearly impressed by the Ferrari driver and proceeds to ask:

“How old are you?”

“I just turned 20.”

“Wow! That’s insane. How did you make so much money?”

“Trading stocks.”

“Damn. You must be really good at it!”

“No. Not really. I just trade about 20 minutes a day. It all started when I discovered this proprietary option-trading platform. It’s really easy to use …”

There are three things being “sold” to viewers in this video, and in millions of other advertisements like it. First, you’re supposed to be really impressed by the guy sitting in the red Ferrari – because Ferraris (and Cartier watches and Hermès bags) indicate high status. Second, your goal should be to make enough money to also have a red Ferrari (or something like it), because once you get that, others will be similarly impressed by you. And third, to get that level of status, you need to make more money — hence, you must click the link in bio.

The average American consciously notices about 100 ads per day, but we actually see several thousand. Over the course of one’s lifetime, this equates to billions of impressions driving the same core message: “It is important to attain status, and the way to do this is to accumulate material things and wealth.”

While money is not the only way to accumulate status (fame, virtuosity, intelligence, power, beauty, and many other paths exist), money and status are the closest of cousins, especially in our culture. The advertising world wants you to equate money with buying stuff that will give you status.

But there’s one big problem.

Imagine you just received a yearly bonus or a promotion at work, giving you the opportunity to move from Level 1 to Level 2 in the Levels of Wealth. If you make that move, you can increase both your freedom and peace of mind. You can move away from living paycheck to paycheck, exhale while paying for your living expenses, and enjoy a small financial, emotional, and psychological cushion.

But, with those thousands of messages influencing you, you feel compelled to instead go and lease a new car. It’s not a red Ferrari, but it’s a new model you’ve had your eye on, and now it can finally be yours. You put down a few thousand dollars, sign up for the hefty monthly car payment — and before the new car smell even wears off, you promptly drop right back down to Level 1. Riding around in your shiny new car, it hits you that you’re once again living paycheck to paycheck.

Most people have a subconscious belief that a new car equals happiness, or more specifically that the status gained from the new car equals happiness. But in my experience, this is exactly the wrong move to make with additional income; scientific research has shown again and again that buying stuff isn’t the path to happiness. Brickman and Campbell, the researchers who developed the Hedonic Treadmill Theory, found that our baseline level of enjoyment will drop back down not long after a positive event (such as leasing a new car, moving into a new apartment, buying a new watch, etc.) is complete — and it only takes months.

Once you truly understand and internalize this dynamic, you will have a much easier time ascending through the Levels of Wealth. It’s not whether you can buy the thing you most want, it’s just when. Once you accumulate savings, your money can start working for you. The good news is that you can have it all — and as unsexy as it is, the formula is not complicated: you just need to solve for wealth first and material purchases second.  

So, the age-old question: can money buy you happiness? Yes, I believe it can. But the real magic of wealth, and what will truly make you happy, is the peace of mind, freedom, and reduced friction that money can provide. 

As the great philosopher Epictetus said, “Wealth consists not in having great possessions, but in having few wants.”