How much is enough? On average, about $75,000 per year
A few weeks ago I wrote about how money really can buy happiness, but how much money is enough?
A big-screen TV isn't a ticket to happiness, but a vacation might be. Giving your money away can boost your well-being, and so can investing it in time with your family.
A new study from Princeton hangs a price tag on that happiness: $75,000 [PDF summary]. That's the annual household income that gives you the most joy for your buck. People with incomes below that magic number report less happiness, overall, than those at or above it.
The effect levels off after $75,000, though. As your income increases, your cheerfulness also increases, but the good cheer plateaus around $75,000. Another $25,000 a year — or even another $100,000 a year — will make you richer, but it won't make you much happier.
Related >> Money CAN buy you happiness
The Magic Number?
It's not that $75,000 is enough money to let you buy anything you want. Anyone supporting a family on that salary knows you still have plenty of careful budgeting to do. Rather, it's that Stuff doesn't make you happy. A bigger income buys you more Stuff, but the emotional satisfaction of having it wears off quickly.
Why $75,000? Because that's the magic number at which most Americans can pay their basic living expenses and have a little something left over for the good things they want in life. Or, as the Nobel-prize winning research team who ran the study put it:
More money does not necessarily buy more happiness, but less money is associated with emotional pain. Perhaps 75,000 dollars is a threshold beyond which further increase in income no longer improve individuals' ability to do what matters most to their emotional well-being, such as spending time with people they like, avoiding pain and disease, and enjoying leisure.
They're talking about the sense of day to day joy that comes into your life when you have Enough. If you've read Your Money or Your Life, you surely recall their graph of how money affects our moods. From poverty up through plenty, they chart a curve. At the peak, you have Enough: your living expenses are covered, your future is secure, and you have some fun money to spend on the things you enjoy.
Beyond Enough, the curve dives downward into clutter, stress, competition and an array of other sorry outcomes.
Note: This is J.D.'s representation of the Fulfillment Curve from Your Money or Your Life.
This new study's findings would seem to contradict this curve.
Sadly for us frugal types, the researchers didn't find that to be true. Accruing more money won't make you happier on a day-to-day basis, but the super-rich do score higher than the middle class on another axis of happiness.
The technical term for this one is “life assessment”, and it simply means how satisfied with your life you are overall. The wealthy see themselves as more successful than the middle class do even though their wealth doesn't bring them joy.
Partly that's because wealth allows them to achieve more of their dreams. I'd bet that part of it, too, is simply the high value our culture places on being rich. If everyone around you is striving to die with the biggest bank account, and you have it, you feel like a winner.
You don't have to be super-rich to achieve your dreams and be satisfied with your life, though. Many people do that even on a fraction of the $75,000 it takes to get most of us to the Enough place.
They do it by knowing what they want, being disciplined with what they have, and celebrating their achievements. They've stepped far enough out of the cycle of consumption to stop wanting More More More all the time. They have Enough, at whatever salary they're earning.
How do you find your own personal money Enough?
How Much Money is Enough?
Knowing where you are is, as Your Money Or Your Life makes clear, essential. You need to know how much you earn, how much you have in assets and liabilities, and how much you're likely to make during your career. You need to know this because without it, you can't get clarity about what you want.
Knowing your net worth doesn't automatically get you that clarity, though. You need to set an intention. For me, that process started with a brainstorming session with my partner. We laid out three categories of financial priorities:
- Laying a foundation. These are the essentials of good financial hygiene: being out of debt, providing for our future, covering all our basic living expenses.
- Quality of life. This category included things we value but don't need to survive, like a good education for our children. We'd be unhappy if we couldn't pay for our Quality of Life priorities, but not in danger of homelessness.
- Beyond the basics. This was the daydream category. It includes things like travel and giving to charity. All the things I love to do, but often can't because I'm putting my dollars into those first two layers of financial life.
Once we'd created this blueprint for managing our money, we got real specific. We want to fund our retirement. Great. How much do we need to retire on? What resources do we have to create that nest egg? We want our kids to have a great education. Great. What kind of education? How much will that cost?
By being specific about what we wanted, we were able to put a price tag on each of our goals. An overall picture emerged of what Enough would mean for us. In the parlance of this research I've been discussing, we were able to see what it would cost to buy our vision of happiness.
About $80,000 a year. Since we live in a fairly high cost-of-living city, so this number is well within range of the $75,000 Princeton's scientists came up with when looking at the whole country.
The number is beside the point, though. What matters is the exercise of understanding your priorities, and knowing what your dreams cost. Whether you do this and discover that your personal Enough is $30,000 or $300,000, you'll be better off for having a clear sense of what you're striving for, financially.
I distilled all that complex brainstorming and math into a single index card. I keep it on my desk. It says, “My money Enough” at the top, and then lists the goals I'm working towards. It's an inspiration when I'm tempted to slack off on my saving or my career.