How Much Money Do You Need to Earn to Be Happy?
Money doesn’t grow on trees.
If it did, though, I don’t know about you, but I’d buy a money tree. Definitely.
And although we all grew up on the idea that money isn’t everything, we can accept that it’s still something.
Does earning more money make us happier? It seems the answer is, potentially, yes. But with some careful caveats.
Happiness vs Life Satisfaction
In research assessing the impact of money on happiness, scientists split the idea of happiness into two different categories:
1. Emotional wellbeing: This reflects our daily happiness experience and moods. It involves whether we feel like we’ve had a good day or a stressful day or a bad day, and measures our positive and negative affect at different points in time.
2. Overall life evaluation: This one is based on the long term satisfaction you feel about your life. In other words, are you living your best life?
The Research
Research indicates that having a very low or no income at all is usually correlated to increased emotional pain. This is unsurprising: Humans need stability and certainty. We all want to be able to pay our bills and put food on the table. Without the financial capacity to secure basic human needs and desires, it makes sense that happiness declines.
On the other side, as your income increases, so too does your daily happiness and life satisfaction.
However, the studies find points of satiation: That is, the point of maximum satisfaction.
Beyond a certain threshold, increases in income don’t really make us happier. There’s only so much happiness money can buy.
In one 2010 study by Daniel Kahneman and Angus Deaton, the threshold for emotional wellbeing was $75,000USD (about $102,000AUD at the time of writing). They reason that this amount is probably enough to cover what we generally find important: spending time with people we care about, staying healthy, and doing things that make us happy.
So, we can expect to hit peak day to day positive emotions at about $75,000USD.
Even though you’ll probably still be happy about a pay rise from $200,000 to $220,000, it won’t affect you like a raise from $55,000 to $75,000.
The 2010 study didn’t find a peak point for overall life satisfaction. So, for satiation points of the life evaluation, I turned to a 2018 Gallup World Poll. Globally, the satiation point was $95,000USD (about $130,000AUD). Remember, this is for the overall sense of satisfaction with life, rather than the day-to-day happy emotions.
This poll identified many variations to satiation points, depending on education and global location. Australia and New Zealand had one of the highest points of satiation for the life evaluation at $125,000USD (approx. $170,000AUD). Our daily emotional wellbeing satiated at $50,000USD for both positive and negative affect.
The patterns suggest that the satiation point is generally higher in wealthier nations, and for those who are more educated.
Astoundingly, when it comes to the life evaluation, the 2018 study found that not only is there a point of satiation, but after you hit it, your wellbeing actually reduces. They call these turning points, and it’s fascinating because it infers there really is a perfect amount of money to earn to get maximum happiness out of it.
TL;DR: To maximise your daily happiness, an income of about $75,000USD will probably do the trick. And, to maximise your feeling of overall life satisfaction, $125,000USD is the general global earnings needed. Everyone is different, of course, and the national economy, your education etc. will play a part, but money only contributes to our happiness to a certain point. In some cases, earning beyond that point may even start to detract from our joy.
So, should we be focusing on that next pay rise?
The world we’re in finds money intriguing. We’re fascinated by millionaires and billionaires, and we’ve popularised the ‘busy workaholic entrepreneur’ archetype to such an extent it seems every kid leaving school wants to be the next big tech mogul.
While it’s good to set personal goals, money can’t buy happiness. Well, at least, not to the extent we may have imagined. And even though I’d still make that order for a money tree if it existed, it seems clear that focusing too much on earnings can detract us from other significant parts of life: Family, friends, hobbies, health, mindfulness; all factors enmeshed in our happiness.
If we come to associate our ‘earning self’ as the core part of our identity, we might lose the reasons we earn money to begin with: mental and physical health and development, and the freedom to spend more time with the people and activities we love.
Money can draw people in and invite greed to take over their lives. As Seneca says, “Throw a crust of bread to a dog, he takes it open-mouthed, swallows it whole, and presently gapes for more: Just so do we with the gifts of fortune; down they go without chewing, and we are immediately ready for another chop.”
According to the Stoics and other ancient philosophers, it is the mind, and not the sum, that makes a person rich.
To end, another from Seneca: “our desires are so boundless that whatever we get is but in the way to getting more without end: and so long as we are solicitous for the increase of wealth, we lose the true use of it; and spend our time in putting out, calling in, and passing our accounts, without any substantial benefit, either to the world or to ourselves.”
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Kahneman, Daniel and Deaton, Angus. (2010) High Income Improves Evaluation of Life but Not Emotional Wellbeing, PNAS September 21, 2010, 107 (38) 16489-16493; https://doi.org/10.1073/pnas.1011492107
Jebb, A., Tay, L., Diener, E., & Oishi, S. (2018). Happiness, income satiation and turning points around the world. Nature Human Behaviour, 2(1), 33-38.