How much money buys your happiness?

Published April 29, 2015   Posted in How to Think

Though I preach endlessly about the merits of happiness and how independent those merits are from money alone, I do believe that money CAN buy a certain level of happiness – or what I like to call your “happiness number”.  How much money do you think it takes to truly buy happiness before we hit the point of diminishing returns?  Can this actually get measured?

According to several research studies, it can, and it ain’t that much.

Is it $75,000?

Consider this 2010 study published by the Wall Street Journal, which concluded that once income reaches the $75,000 mark, people’s levels of happiness with every subsequent raise slowed dramatically.  That is, a raise from $75,000 to $80,000 does not provide a measurable increase in happiness.

Based on this study, the Huffington Post put together a graphic of the United States that shows, state by state, what this so-called happiness number is relative to costs of living in each location.  While Hawaii suffers from the highest income level before happiness is supposedly reached, Mississippi revels in the lowest.  Arizona, where I live, is in the middle of the pack.

Maybe it’s only $50,000?

A Forbes article indicates that the income threshold for happiness is even lower than that.  According to a Marist Institute for Public Opinion survey, people who earn less than $50,000 a year realized greater improvements in their happiness as their incomes rose, while those who make over $50,000 enjoyed much less.

“Unlike getting a raise from $35,000 to $40,000, or even $60,000 to $65,000, $50,000 is the mark where you start to see significant differences,” the article said.

And then we have this informal CNN poll that found the sweet spot to maximize happiness with annual income is somewhere in the range of $50,000 to $74,999 – which, coincidentally, falls right in line with some of the numbers that other research studies have found.

We can haggle over numbers all day, but the larger point in these studies is a very real one, and helps to reinforce the notion that while a person’s level of happiness is tied, at least to a degree, to their salary, the income level that most people need to maximize happiness is far lower than what you might think.

To put this into a little more perspective, those who make $75,000 a year are in the top 25% of earners in the United States.  And, let’s not forget that the United States also enjoys (suffers?) a reputation around the globe of possessing some of the world’s highest earners.  We have it good in the United States.

While it might seem like a salary of, say, $50,000 is pretty damn low, the fact of the matter is that salary level allows people to live better than the majority of folks from around the world and, if you believe these studies, provides all the happiness that most people truly need as well.

How much buys your happiness?

Take a few moments and analyze your life with respect to the effect that increasing income has had over your level of happiness throughout the years.  Though you may not remember the exact point where your level of happiness plateaued, you might realize that your happiness no longer increases along with your income.

Sure, you’re happy when you get a raise, but I am talking about your day to day life.  Be honest with yourself.  What changes after a raise?  Do you see a marked improvement in your ability to smile each and every day?  Are you enjoying life more?

Try this for fun: cut your salary by increments of $10,000, then attempt to estimate your ability to be happy.  So, if you’re bringing in $100,000 now, reduce that to $90,000 and survey your lifestyle.  Then, reduce it further to $80,000, then $70,000 and so on.

You will probably find that for a while, you’ll be just fine.  You can stop paying for this and that, cut your TV package, get a more reasonable cell phone plan, curtail your restaurant ventures, etc, to account for the decrease in income.

But, there will come a point at which your happiness level will truly fall…fall to the point of significantly effecting your ability to live a fulfilling life.  This is your happiness number.

For me, it’s between $50,000 and $60,000, max.  Yes, I’d have to make significant changes in my life in order to maintain a lifestyle with that sort of income (smaller house, no pool, etc), but remember – I will be doing that after retirement anyway which, luckily, isn’t that far off.

What difference does your happiness number make?

Your happiness number helps you to put things into perspective.  Regardless of how much you make, if you are reading this blog post, you enjoy Internet access.  You have a computer and a monitor, and probably your own house, bed, kitchen and appliances.  You make decent money, enough to fund your lifestyle and quite a bit more.  Chances are good that your happiness number is well below your annual income.

Save that surplus happiness, baby!

Once your happiness number is revealed, do something about it.  For example, if you’re making $100,000 but only reasonably NEED around $60,000 to be happy, what’s happening with the remaining $40,000 every year?  What are you doing with it?

Don’t spend it.  Save it!  By saving your income in excess of your happiness number, you are essentially saving your surplus happiness to enjoy after retirement.

Think of yourself literally picking up little nuggets of your happiness and gently placing them into a box for safe storage.  Later, after your job-related income stops, you will gleefully retrieve that box of happiness nuggets and begin pulling them out, little by little.

We are talking free happiness!  Built over several years of working for a living, those happiness nuggets never expire.  They will still be there when you’re ready to enjoy the rest of your life in jobless bliss.  Until then, let them rest safe and sound in their box.  They will have their day in the sun, I promise.

What is your happiness number?  What are you doing with your surplus happiness?

We track our net worth using Personal Capital


20 responses to “How much money buys your happiness?”

  1. Sara says:

    Your description of a $50k salary as “pretty damn low” knocked the wind out of me. I make less than that and have never considered myself anything other than an average earner. I guess it’s all subjective, but… ouch!

    • Hi Sara,

      I apologize if it came across that way, but what I was saying is while it may SEEM like $50k is damn low, it actually provides people with the resources they need to live a happy and productive life. I was not stating a position that I actually believe $50k is “pretty damn low”.

      Thanks for reading. 🙂

  2. I don’t know what my exact number would be, but I guess I would go with “more than I am making now.” Over the past 2 years, some people might consider what I have done to be “job hopping” but I have more than doubled my salary in doing so.

    I guess the motivation is to earn as much as possible while still never being satisfied. Ultimately, I am still trading my time for money for someone else – while I don’t like it, I might as well maximize the numbers while I still have to do it.

    • Completely agree. If you’re gonna work, you might as well pull in as much as you possibly can, save lots, then retire early and enjoy the remainder of your life without a job. I’ve done something very similar to you over the past two years – increasing my salary by about 40%. Looks like you’ve beaten me at that game. Well done, sir.

  3. This makes sense.

    My happiness number is probably around $75K. We will earn about $180K this year so that leaves $105K left for savings, investment and taxes. We feel extremely privileged and lucky to be in this position.

    A few years ago we adopted a philosophy to keep our spending in line as a fixed % of gross income. This allows us to increase both the amount we spend to enjoy the lifestyle we live and banking the surplus happiness for a rainy day.


  4. I really like your last point–that we should save whatever amount we can in excess of that threshold number. I think that’s easy to understand and actionable.

    Some of my happiest days were in college, when I had $0 in come. Perhaps $0 is my happiness number!

  5. I think I’ve gained some happiness every raise I’ve gotten, and I think I’ll continue to gain happiness for every raise I receive going forward. That’s because each raise gets me that much closer to my goal of financial independence. But in all honesty I don’t need that much money to be happy. Currently I spend about $3k a month (give or take) and am very happy. A salary itself does not buy me happiness, but the independence it will later give me sure does!

    • Oh yes, that sweet, sweet day where financial independence is truly reached will be one damn, damn happy day. I tend to agree that with every raise, and every extra cent that I devote into our savings, I get happier and happier. One of these days I’m gonna be so damn happy that I’ll literally pop open and all these little happiness nuggets will some spilling out.

      Don’t eat the happiness nuggets. They are bitter. 😉

  6. Mrs SSC says:

    We spend probably too much time trying to find our happiness number. I think it is around $45k – of you don’t include daycare, mortgage, and health insurance. We are running an experiment this year where we are tracking all of our expenditures. We aren’t trying to live as frugal as possible, but instead, be mindful about our money and find out where we are comfortable.

    But, honestly, right now – the more money we make, the happier I am because it gets us closer to our goals 🙂

    • Sounds like a good experiment to run. We have been doing that for just shy of a year now and you will probably be surprised at what you’re spending money on and don’t even know it. Of course, the easiest way to maximize your savings is to reveal your spending. 🙂

      And you’re doing just that. Thanks for stopping by!

  7. Erik Flores says:

    Hello Steve

    “while it may SEEM like $50k is damn low, it actually provides people with the resources they need to live a happy and productive life” Totally agree I would say that money is not the issue to be happy, (and here we start talking philosophy :D) the point is that if you make 50 you will want 100, then 200 then more and more. So do I agree make your own happiness and get enough money to live a decent life.

    Thanks for sharing.

  8. Chris Muller says:

    I’m not sure what my happiness number is, but your article got my brain moving. We want to make enough money to ultimately retire early, yet the more money we make the less happy we become. Seems like a paradox to me.

    I can think back to the raises I’ve gotten, and when I was making peanuts, each raise was a big “hell yeah” as I increased my spending. Now that I know more about money, each raise is a little different. I immediately start to think about how much additional money I can save, but I constantly debate whether or not the money is worth it.

    You can make all the money in the world, but if you’re at a job you hate or that stresses you out, it makes no sense. My wife and I always wonder what it would be like to just work at Starbucks or be a bartender. Assuming you can still live below your means, that life has to come with a lot less stress and a lot more happiness (depending on the job of course).

    Very interesting article, and I appreciate the links and statistics to reinforce your message. Well done, Steve.

    • Yeah, I completely agree – especially of those raises are $5k or less, eventually it gets to the point where you just say, “Eh, that’s cool”. It doesn’t rise to the same emotional reaction that you had back when you thought that was extra money to be spent! 🙂

  9. Zee says:

    I know that my happiness number is lower than what I currently make, and I already save the excess for future happiness. I would say my current happiness number is maybe around $35k (after taxes).

    BUT – I would still appreciate a 10k raise over that 50-75k threshold that you were talking about just as much as anything over my 35k number I threw out. Simply because I know that anything more I make now gives me more money to stash away so I can reach financial independence sooner and have more of my time.

    I also know that my happiness number is so low because I have minimized my expenses quite a bit already. If I didn’t own my house and have roommates then my happiness number would increase significantly due to higher rent (instead of my mortgage that is mostly covered by my roommates) or if I just lived alone so I paid the whole mortgage by myself.

    • Owning your own home and having roommates pay the majority of your mortgage is the absolute best way to design your living situation, especially in a relatively high cost of living area like San Francisco. That would certainly make me happy, too.

      It’s true that the more money you make (and more raises you get), you’re getting closer to financial independence – but, that is also because you are responsible with your money. You don’t simply blow it on stuff in the hopes of it bringing you even more happiness than you actually need.

      Save that cash, retire early and enjoy life…jobless and free.

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