Money and happiness seems to be a very common discussion topic from my peers. And everyone, including media sites, seem to state that 75k per year is all you need to be happy. Anything more won’t have an impact on your well-being. In fact, more money may make things worse.
Here’s a list of articles and media outlets proclaiming this statistic:
How much do you need to be happy, according to wealth experts
Sociologists study how much you need to be happy
This is the amount of money you need to be happy according to research
As truthful as these studies may sound, I disagree with them. One number does not determine your happiness. Sure, it’s a common belief to think that more money will help, but there are so many other variables to account for. Basing your happiness on how much you make is not the best way to live life.
So for this article, I decided to do some deep research and figure out where this “75k per year” number came from. Turns out, that this statistic came from the peer reviewed study titled:
High income improves evaluation of life but not emotional well-being by Daniel Kahneman and Angus Deaton
I read through the entire study and discovered something surprising. The content creators who quote this article are misled by only reading the abstract and conclusion.
Here’s what I mean. That 75k statistic is quoted in the abstract as follows:
“When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000.”
If I were to state what the research says without taking into context the different variables, I’d say this:
Make $75,000 per year to be happy. End of story.
But that’s not true because this study does not take into account the following:
- The location of where you’re living (75k per year won’t give you the same quality of life in New York as in Florida)
- Your total net worth (How much money is under your name is more important to building wealth than your annual salary)
- How you earn that income. (Working for your money rather than inheriting it will be much more satisfying to your personal well-being)
Also, this study has one big flaw:
Stating that $75,000 per year statistic is based on a small sample of people who earn more than $125,000 per year.
Making large claims with a small sample is dangerous. This is because a couple hundred people cannot be a true representation of everyone. And that, for sure, is not a representation of you since your financial situation is unique.
You see, general statements like “You need to make 75k per year to be happy” are just that.
Those statistics are general statements that aren’t true for everyone.
Let’s say you’re struggling to make ends meet. You may be working a minimum wage job and working extra hours just to afford groceries and rent. In this scenario, your basic needs are barely being met. Then yes, getting a pay raise to 75k per year could make you a lot happier.
But what if you’re making 75k per year where the living expenses are high like New York or Los Angeles? You might be scrapping by and I assure you that won’t make you happy.
When I was talking to a friend, I was surprised to hear that she was miserable at her new job. She made around 60-70k. But even with an income that high for a single person, she didn’t have enough to save for herself. Her high rent, new car payment, and student loans was taking a huge chunk from her paycheck. She also didn’t like how stressful and demanding her job was. All that lowered her sense of happiness.
It’s easy to say that all she has to do is see the positive aspects of her life, but that’s ignoring the fact that
- She is highly stressed out from her demanding job due to low work-life balance
- Most of her paycheck is taken away from living expenses
These variables will have a huge impact on anyone’s happiness regardless of their income.
What’s more important than believing general statements like “Make 75k per year and you’ll be happy, is to understand the context of the information.
Instead of believing that statistic, understand that figuring out that magical number is based on variables specific to you.
To do that, let’s apply scientific principles from multiple sources to show how you can be happy with what you currently make.
How happiness is measured from a scientific perspective.
Psychologists describe happiness in two ways.
- Emotional Well-being (how you feel day-to-day)
- Live Evaluation (how satisfied you are with your overall life thus far)
People with a high emotional well-being tend to be happy with their day-to-day lives. A good example would be buying a new car and feeling great for the first month. After that, your excitement for driving your new car will probably fade.
Life evaluation, on the other hand, is more so about how satisfied you are with your life. This includes achieving your long-term goals and being happy with what you’ve done in your life.
There’s strong evidence that high income has a positive effect on your emotional well-being. But, there’s little evidence that it impacts your live evaluation. And when it comes to you feeling good in the long-term, a high life evaluation is what will have a stronger impact on your happiness. Sure, a high emotional well-being will make you feel happy for a couple days, but it’s only a short-term feeling. That’s why it’s so common to run into a depressed rich person.
A better alternative to follow would be open to the belief that:
How you spend your money matters more than your income as long as you’ve met your basic needs.
Because of that, let’s focus on improving your life evaluation to improve your happiness.
Here’s how:
I want you to imagine the ideal future for yourself. Regardless of income, that is what will make you happy so long as your basic needs are met.
In other words, if you are earning enough to cover the basics (rent, groceries, etc.) and still have money leftover, you’re set. From here, the root of your happiness will come from how you decide to experience life. And that is solely based on what you want.
For me, I don’t base my happiness on how much I make. Instead, I’ve realized that how I spend my money impacts my happiness way more. I’m the type to save a lot of money and invest most of it, but I also prioritize my writing hobby and traveling. To do that, I live with roommates, I kept my car from high school, and I live like a minimalist. This gives me the opportunity to pay for all my traveling and blog expenses while at the same time invest into my 401(k), Roth IRA, and emergency fund. And I do this because those are the variables that impact my life evaluation the most.
Years from now, I’ll be happier when I look back at the memories of my travels, the content I’ve created, and the personal goals I worked for (making a positive impact on people’s finances). There is no sports car or luxury house that could replace that.
Sure, most young adults with 75k per year tend to buy a 1 bed 1 bath apt, finance their dream car, and make weekly trips to the mall, and that’s fine if they’re not going into debt. If living that lifestyle is what’s important to you, that will most likely make you happy as well. So there isn’t a wrong or right way to spend your money.
In the end, we can’t let one research paper be the guidelines for our happiness- even if the majority believe it’s true.
Of course believing that you need 75k to be happy is an easy rule to follow, but having that expectation will most certainly leave you dissatisfied.
Focus on living a comfortable life and leverage your remaining money on what’s most important to you. Whether that’s saving up to start your own business or figuring out what you want to do with your life.