The following assumption is sort of true:

Having more money is always good because it’ll make you happier.

The correlation between happiness and money though is relative to how much money you have to begin with. Money will massively increase your happiness if it takes you out of a situation which is stressful. However, when you’re already in a comfortable situation the correlation between money and happiness is pretty small.

It really depends where you are in relation to the poverty line.

Let’s say your current situation is you’re supporting a family on one income and don’t quite have enough for basics. You can afford food but nothing fancy like eating out. You have absolutely no savings and you’re in debt. You have to juggle payments on a weekly basis so you’re constantly thinking about your shortage of money. Occasionally you’ll have a financial emergency such as needing to spend $200 for car repairs which you find difficult. You live in an area which has a problem with youth gangs and crime and you worry what effect this will have on your kids once they’re teenagers.

If you were to win a million dollars then this would be pretty amazing. You’d no longer have to worry about your finances and you could get rid of your stupid car which keeps on breaking down. You can start taking your family out for dinners and buy a bunch of new toys like a jet-ski. Importantly, you could move your family to a better area where you’d feel a lot safer.

But what happens if you were really poor to begin with, you are completely destitute. You’ve lost your job. A string of really bad investments has left you $200,000 in debt with no hope to repay it. You couldn’t pay the mortgage so the bank took your house away. Your unemployment ran out and you currently have no income. You now spend most nights in a homeless shelter and your day consists of begging in the street for enough money for a bag of potato chips.

If you were to win a million dollar then it would be utterly life changing. You could afford proper food, buy or rent a house and pay off your debt. You’d go from living as a homeless person to living like a normal person with all their basic necessities sorted. It would feel like you on the receiving end of a divine miracle, like you were plucked from the depths of some dark place and placed on a pedestal made of light.

The poorer you are to begin with, the bigger the difference winning a million dollars will make to your lifestyle.

And if you’re not poor to begin with then having more money really doesn’t have much of an effect.

Let’s say you live in a comfortably house with your family supported by two incomes. You have a mortgage but you can easily meet the repayments and have plenty of money left over. You take an overseas holiday every year. You drive a nice car that never breaks down. You like the area you live in and you like the school your kids go to. You like your job. From a financial and material point of view, life is pretty sweet.

What difference would winning a million dollars make at this point? Not a lot. You wouldn’t move from the area you live in because you already like it. You could pay off your mortgage, though it’s not as if your mortgage really bothered you anyway. You wouldn’t quit your job because you figure you’ll just get bored. You could upgrade your car to a newer model which has leather seats. You could buy an investment property and try your hand in that game. You could go from having one overseas holiday per year to three which would be really cool. Overall, winning a million dollars would be a nice thing to happen though not really life changing since you already had the foundations of your life well covered. The main difference would be your ability to spend more freely on things such as property investment and travel which would open you up to a whole bunch of new experiences.

Now let’s looks at another scenario and say you were already rich with a net worth of 20 million dollars. You own a business which in practically printing money and no matter how foolish you are with your spending habits, you always seem to have more than you did last month. You live in a mansion and have a garage of 5 late model exotic cars. You spend 6 months a year abroad because you like having an eternal summer.

What difference would winning a massive 100 million dollars make? It would make almost none. What’s left to buy? An even bigger mansion? A huge boat which you have parties on? Maybe go back to the street you grew up on and buy every house on it because it’s funny? Doing this sort of stuff is good for a laugh but that’s about it, your practical day to day living situation would still be exactly the same.

Money has diminishing returns on your happiness. Money makes the biggest difference when you have none of it. When you already have plenty of it then getting more makes next to no difference. Once you’ve reach a level of financial and material comfort then you’re at a point where money is nice though not life changing. If you’re at this point and seeking happiness then you’ll make much bigger gain by investigating avenues which don’t involve acquiring more money.