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A salary of $100,000 had always appealed to me in my younger years. I thought that figure would make me happy. How I came to that number, I’m not exactly sure. Maybe I gravitated towards it because it’s a nice round number. As I got older though, I learned that chasing that number would not bring me happiness. While money is a tool that can help you meet your needs, it isn’t the end-all-be-all that I thought it would be.
But, how much money is enough? If you follow John D. Rockefeller’s thought process then it’s: “One more dollar than [you] have.”
Ever heard of diminishing returns? Well, I learned about it in my microeconomics class in school.
When you are starving and start devouring some pizza, the first slice always tastes amazing. However, by the 4th slice, as your stomach becomes full, you no longer gain any satisfaction by eating more. In fact, if you force yourself to eat another slice, you may experience some negative effects.
Happiness & Income
Recently, a study published in Nature Human Behaviour examined whether happiness rose indefinitely with income, or if there was a point in which higher income no longer led to greater happiness.
Source: Nature.com
Researchers from Purdue University examined this question using data from Gallup World Poll, which sampled over 1.7 million adults, 15 years of age and older, worldwide.
$95,000
In their research, they found that globally, individuals needed $95,000 to achieve satiation. However, they asserted that the ideal household income is likely higher. They used the term “life evaluation”, which takes into account long-term goals, peer comparisons and other macro-level metrics, in order to be happy.
“That might be surprising as what we see on TV and what advertisers tell us we need would indicate that there is no ceiling when it comes to how much money is needed for happiness, but we now see there are some thresholds,” said Andrew T. Jebb, the lead author and doctoral student in the Department of Psychological Sciences at Purdue University.
“It’s been debated at what point does money no longer change your level of well-being. We found that the ideal income point is $95,000 for life evaluation and $60,000 to $75,000 for emotional well-being. Again, this amount is for individuals and would likely be higher for families.”
Over $95,000
Interestingly enough, researchers found that increases in income beyond $95,000 was associated with declines in emotional well-being and happiness. This may be due to the fact that once you are wealthy (i.e. past the point of having all of your needs met) you may succumb to unhealthy comparisons with your peers as you try to keep up with the Joneses.
“High incomes are usually accompanied by high demands (time, workload, responsibility, and so on) that might also limit opportunities for positive experiences (for example, leisure activities).”
Geographical Differences
Individuals in North America needed to reach $105,000 to achieve happiness, while on the other side of the spectrum, those living in Latin America and the Caribbean were happy making $35,000. Maybe it’s because of the weather or the island lifestyle, but I wouldn’t mind finding out if I could live off of $35,000 in the Caribbean.
As you can see, your location has a tremendous impact on the salary amount needed to be happy.
I just want to say I find your posts so interesting. I love seeing them in my inbox!!
I’m glad you enjoy the posts Ashley!!!
I would LOVE to make six figures one day. That’s my goal!
One day six figures won’t mean much anymore because of inflation, but right now it just sounds like something really nice to have. Having lots of disposable income doesn’t hurt either hehe.
Ms. Frugal Asian Finance recently posted…Blogger Burnout – The Good, The Bad & The Ugly
I’m sure with your work ethic it’s only a matter of time 🙂 Like you I wouldn’t mind some extra disposable income!!!
It’s so hard to conclude on this Rob. More is usually better, but what more is, is different for everyone. Tom
Tom @ Dividends Diversify recently posted…FIRO and You
Thanks Tom!!! It’s clear they made some generalities to come up with a number. I think $95k is a bit low in certain areas but it’s interesting none the less 🙂
“High incomes are usually accompanied by high demands (time, workload, responsibility, and so on) that might also limit opportunities for positive experiences (for example, leisure activities).”
Yep, and then if you inflate your lifestyle to compensate for the lack of time, you’re on a never-ending Wage Slave treadmill.
Mr. Freaky Frugal recently posted…Do you have Unclaimed Property?
Couldn’t have said it better Mr. Freaky Frugal!!! If you never get off the treadmill…you’ll always wonder why you’re so miserable.
I think this number all depends on where you live. I don’t think 95K a year income would be enough in NYC but it would be in a state like New Mexico.
CJ recently posted…5 Ways to Get Over Your Financial Depression
Yeah I would think $95k is a bit low for high cost of living areas.
Money can provide you with the security that you need and can minimize some of your money stress. I definitely agree with the diminishing happiness factor after you’ve reached a certain salary.
I sometimes reminisce the great time that I had when I was a poor student without any responsibilities. I was a lot happier back then when I didn’t have much money. Now that I have worked for more than a decade and built up a sizeable savings account, I don’t feel happier than I was back then.
Money won’t buy you happiness, but life experience will.
Leo T. Ly @ isaved5k.com recently posted…Do Good Money Problems Exist?
Hahaha…yeah when I was in college I had a ton of fun over the years and I had no money at all. Now I have a little but don’t have nearly as much fun 🙁
I think that 95K can be enough for a couple — husband and wife. If you have 2 or 3 children, the math changes. The USDA states that a middle class couple will spend 12K-14K per child a year in 2015. This does not include the cost of college.
The expectations of things parents should provide for their children has changed with time. Food, clothing and housing with a high school diploma from the public school for a child in the was considered enough. Now children have after school activities, summer camp, mobile telephones, cars and designer clothes. A child attending a four year college of their choice is also expected for the child to be a success in life.
Jobs also used to provide a pension to their workers. The pension along with Social Security and some savings was enough to live on in retirement. Now the expectation is that you must save for your own retirement. Social Security alone could be called Social Insecurity. Many consider one million dollars is not enough for retirement.
Where is all this money coming from? Hard work and aim for a six figure salary!
Thanks for sharing Happy1. The study was interesting as it only included income for one person. It’d definitely be interesting if they included the numbers for family members and others.
I am getting closer to $95 with salary, but with student loan debt having above that is needed more. This is interesting research because last year or two years ago there was a CEO in the Pacific Northwest that paid all of his employees 75k b/c that was the money needed for happiness. Inflation?
Hahaha…I remember reading that article…hopefully this new study doesn’t hurt his bottom line too much 🙂
It’s hard to weigh in as it’s so situational. At 95k living in Silicon Valley you may feel like your in poverty. In Appalachia you’d be king. If you had some weird disease that’s expensive to care for but crap insurance the value might also change (ie discretionary income might have a bigger impact)
FullTimeFinance recently posted…Things My Kids Will Never Experience
All really great points Full Time Finance!!! What you make and where you live will likely say whether or not $95k is enough 🙂
I’m around that point, and it does feel good…. A great balance of saving and spending for me 🙂
Great post
Erik @ The Mastermind Within recently posted…Blog Traffic and Income Report – February 2018
Thanks for sharing Erik!!! When you have enough it’s a great feeling 🙂
Your pizza example was excellent and to the point. Once we reach a livable salary + some more … any addition does not contribute to our overall happiness.
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Glad you liked the example. It’s one that has stuck with me for 20 years now 🙂
Great post. Being from Australia that Income table really disturbs me. Who knew Australian’s were so into consumerism. Keep up the good work!
Hahaa…I definitely didn’t and I was surprised 🙂
Interesting findings! Can’t say I’m too surprised because the higher up the career ladder the more stress and expectations. Location would be a huge factor.
I have one question, what does John D Rockefeller mean by that quote? Is he saying it’s never enough for him?
Yeah…it’s never enough for John D. Rockefeller which is kinda sad.
Familiar with the concept of diminishing returns, but give me more money and I will find a way for it to make me happier any day 🙂 On a note, earning a six figure salary would be a personal goal of mine also as it just seems like a really nice level. Fingers crossed!
Hahahha…if I could make more money with less work and stress count me in 🙂
Read an article some time ago that said $75k is the magic number for most Americans. Can’t find it though.
On a separate note, stumbled on your blog from jlcollinsnh. Was amazed at our similarities: late 30s, good enough job, wife, one kid, MBA, on course to retire around the 40-year-old mark. Nice! I was never in contention for playing professional baseball, though!
I read something similar a couple of years ago as well. I don’t know if it’s inflation or a different study but I was surprised…
Great post! Interesting how everyone always seems to want to make more money. But, internally, it’s like we subconsciously understand that money is only important because we need it for the material things. Past a certain point, it doesn’t make you happier.
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Thanks for sharing Emma!! I definitely agree if you have all of your needs met…money really isn’t going to make you that much happier 🙂
I like the fact of making more money! What I don’t like is getting more stuff that you end up having to take care of. If you don’t take care of your things it turns into junk. I want more money not more junk!
Hahaha..I couldn’t have said it any better. More money less junk!!!
The real goal is to make $95,000 and save half. I guess that means you really need to make $190,000 to be happy 🙂
Shawn @ ThesmartFi recently posted…Don’t Buy Your Next EpiPen Until You Read My Story.
Hahaha….I would definitely be loving life if I could save $95k a year. Heck making a $190k would be wonderful as well 🙂