How much money buys your happiness?

How much money buys your happiness?

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?

How much money buys your happiness?

    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?

    S

    Steve Adcock

    774 posts

    Steves a 38-year-old early retiree who writes about the intersection of happiness and financial independence.