How Much Money Is Enough?—Greed Is a Fine Line

This article is an excerpt from the Shortform book guide to "The Psychology of Money" by Morgan Housel. Shortform has the world's best summaries and analyses of books you should be reading.

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How much money is “enough”? Is there a point at which you should stop taking risks and enjoy what you have?

People who say “money doesn’t buy happiness” are wrong—money can make you happier, up to a point. However, once you make enough to live a comfortable life, money can become a trap. Some people become so greedy in their desire to keep making more that they risk losing everything they have.

Here’s how to be happy with having “enough.”

Be Happy With Enough

Money is valuable because it buys you time and flexibility, but how much money is enough to be happy? In his book The Psychology of Money, Housel never gives an exact number—but, he warns, wanting more than necessary can drive you to lose not just all your money, but also intangible, irreplaceable things like your freedom. That’s why he thinks that learning to be happy with enough is critical to financial success.

Housel explains that some people are never satisfied: No matter how much money they make, they still want more. This endless pursuit of more can often drive them to risk their existing wealth for wealth they don’t have and don’t even need—and to do so in both legal and illegal ways.

As a legal example, Housel cites the traders worth millions who invested their personal wealth into the hedge fund they managed, Long-Term Capital Management. Their desire for more caused them to take on such a high risk that they all lost their fortunes in one of the strongest markets in history. As an illegal example, Housel cites con artist Bernie Madoff. He didn’t need a Ponzi scheme to make him rich—his firm already made $25 to $50 million a year. But Madoff wasn’t satisfied, and his greed led him to mastermind the Ponzi scheme that ultimately cost him everything.

Not Just Greed: Why Do People Risk Their Wealth?

Housel argues that people like the investors at Long-Term Capital Management (LTCM) and Madoff risk their wealth primarily due to greed, but other observers note that overconfidence and ego may also play a role.

Overconfidence may drive you to risk more than you should because it makes you think that you’re not really risking that much. As one article notes, the investors at LTCM were so overconfident in their investment strategies that they thought their single-day losses would never exceed $35 million; in actuality, the single-day loss that wiped them out was $553 million. Had they realized how much they were really risking, it’s possible they would have thought twice about their actions.

Similarly, Madoff may have committed his crimes not just because he was greedy, but because he wanted to protect his ego. As psychologists note, lots of greedy people never commit fraud. The ones who do often, like Madoff, are initially genuinely successful, which leads them to idealize themselves—so when they start to fail, they turn to fraud to protect their reputations.

But when you learn to be happy with enough money—whatever that amount is for you— you don’t take unnecessary risks with the money you’ve already accumulated. (Shortform note: In Mindfulness in Plain English, meditation master Henepola Gunaratana suggests another method for combating greed and preventing yourself from taking unnecessary risks: By meditating, you can find the emotional root of greed and destroy it.)

How to Be Happy With Enough

So how can you learn how much money is enough to be happy? Housel suggests a few ways:

#1: Stop Increasing Your Lifestyle Standards

If you keep wanting an increasingly lavish lifestyle, you’ll never be satisfied. Not only will you then take dangerous risks to achieve satisfaction, you’ll grow envious of others who live whatever way you want at the time, which will diminish your enjoyment of life. Therefore, Housel states, it’s critical that, once you reach the lifestyle you want, you can be happy at that lifestyle—not the one that’s slightly more prestigious.

(Shortform note: The phenomenon of your lifestyle becoming more expensive as your income grows is known as lifestyle inflation. Housel appears to disapprove of lifestyle inflation as a whole, but other financial experts point out that if your income increases, you should allow yourself to enjoy it. They recommend spending on experiences rather than items: Experiences make you happier than things do, so you’ll feel more satisfied even if you spend the same money—which in turn may prevent you from feeling that your new lifestyle increase isn’t enough and wanting even more.)

#2: Accept That Somebody Will Always Have More Money Than You

If you’re always comparing yourself to somebody richer, you’ll never be satisfied. Unless you’re the richest person in the world, someone always has more money than you do.

(Shortform note: This might be especially difficult if you’re always seeing how others live on social media. Combat social media envy by deleting your accounts or by unfollowing the people who inspire the most envy.)

#3: Know Your Values

When you know your values, you realize that some things are more important than money. Therefore, you don’t risk losing those important things (like your time or freedom) in order to get less important things (like more money). In this way, knowing your values prevents you from taking dangerous risks with your finances.

(Shortform note: “Know your values,” is easy to say but hard to do. If you’re struggling to pinpoint yours, try strategies like listing a few people you love and writing down why they’re important to you.)

How Much Money Is Enough?—Greed Is a Fine Line