Money & Happiness: The Psychology of Intrinsic Vs Extrinsic Goals




Money, when used effectively as a tool, can help you achieve some pretty phenomenal goals in life. Just to name a few:

  • Get you out of debt.
  • Get you out of a bad job situation and put you in a good one.
  • Improve your relationships/marriage.
  • Give you the opportunity to take time off for extended travel.
  • Give you the opportunity to further your education.
  • Give you the flexibility to scale back work hours.
  • Give you the opportunity to become self-employed or entrepreneurial.
  • Give you the opportunity to take time off to raise kids.
  • Give you the opportunity to eat healthy food, exercise, & afford better health care.
  • Afford more/better experiences.
  • Volunteer, donate, give, & help others more – give back to your community.
  • Give you the opportunity to reduce your impact on the environment.
  • Give you the opportunity to switch careers.
  • Give you the opportunity to retire early (or late).

And the benefits of these actions can measurably improve your life by:

  • reducing your stress levels.
  • reducing the time you spend doing things you don’t want to do and increasing the time you spend doing the things you want to do.
  • allowing you to be more involved with friends, family, community.
  • allowing you to improve yourself.

All of which can intrinsically lead to a more satisfied, healthy, and happy life.

Money can also be used as a tool to purchase extrinsically-focused goals. And some prime examples of that are:

  • Buying a bunch of shit that is not needed.
  • Buying fancy cars, homes, wardrobes, fashion, decor, hair, travel, etc.
  • Racking up $100+ bar and dinner tabs and getting that perfect Instagram shot.
  • Getting degrees/certifications/etc. to impress others professionally.
  • Flaunting an impressive level of wealth.
  • Buying a gated, monitored, secured existence.
  • Having the latest/greatest technology – and updating it every year.
  • Wanting to be constantly entertained, at all times.
  • Slight improvements in hobby performance (i.e. nicer golf clubs, nicer bike, nicer running shoes, nicer instrument).
  • Buying bigger/nicer homes and filling them with more stuff.
  • Keeping up with the Joneses (fitting in).

instrinsic extrinsic goals happinessWe’ve all seen the gut-wrenching articles of once-mega rich athletes, movie stars, or pop music legends who had it all, only to end up entirely broke and bankrupt. And about 70% of people who win a lottery or get a big windfall actually end up broke in a few years, according to the National Endowment for Financial Education.

That’s a great self-serving advertisement for the National Endowment for Financial Education, but it’s not just poor financial education at play here (although that certainly is a part of it). It seems to me that the fatal flaw here is the chasing of extrinsic goals for validation and happiness. And once one falls in to that trap, it’s hard for them to dig out. It’s always the next purchase that will put them over the top and make them feel complete. And they never quite get there. You’ll often hear reference to this psychological phenomenon as the “hedonic treadmill” or “lifestyle creep

And it’s a very real, scientifically studied concept. A 2003 study from the University of Rochester looked at the aspirations of 147 recent college grads and their happiness levels. It found that the participants who realized their intrinsic goals like close relationships, personal growth, and community involvement had the highest levels of happiness. Those who focused on extrinsic goals like fame, image, and wealth didn’t have an improvement in their subjective well-being. The authors theorize that they might feel momentarily satisfied after reaching such a goal, but it does not last.

A 2006 study found that,




“The correlations between goals and well-being were all positive and higher for intrinsic than extrinsic goals.”

This is not a “financial education issue”. And it’s certainly not just a multi-millionaire issue. It’s a “human nature issue”. And every single one of us can fall victim to it.

I do believe that there are some actionable ways to counteract the psychology at play here:

  1. Understand the difference between intrinsic and extrinsic goals and focus more on intrinsic ones, as laid out above.
  2. Set appropriate expectations for what a purchase can help you achieve (or not achieve), as you deeply question every purchase.
  3. Continuously practice gratitude.

If you do those things, you will have much better odds of financial and life success.

Related Posts:

2 Comments

  1. Steve

Leave a Reply

Join 10,000+ wealth builders. Get posts emailed to you, for free.

Thank you for subscribing!

Oops... Please try again.