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Money Can Buy Happiness - It Costs $75,000 Per Year

It turns out, science has proven that money can buy happiness. The price tag is a $75,000 per year annual income, which puts you about 50% higher than the median income in the United States. I think there is considerably proof from psychology that this is a moving figure because people want to feel richer than their neighbors. So perhaps a better way – and this is just a hypothesis – to think about it would be that people like to feel approximately 50% richer in terms of household income than the average American family. Image © Adam Gault/Digital Vision/Thinkstock

In a major peer-reviewed study from Daniel Kahneman and Angus Deaton from the Center for Health and Well-being at Princeton University, the great debate of psychology – can money buy happiness? – has finally been answered.  It turns out, it can up to a point.  This isn’t some quick news poll either, it is a serious scientific finding resulting from analysis of 450,000 responses, providing a significant sample size.

Defining the Two Types of Happiness

The study begins by defining two types of happiness:

  • Emotional Well-Being: The emotional quality of a person’s day-to-day experience including the frequency and intensity of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant.
  • Life Evaluation: The thoughts that people have about their life when they think about it, reflecting upon how “successful” they have been.

Money Buys Emotional Happiness But Stops at $75,000 Per Year

[mainbodyad]On the emotional well-being, a higher income does, in fact, buy happiness but the effect levels off at an annual salary of $75,000 per year.  Since we know the median American household, a family that is the definition of “middle class”, makes between $34,738 and $55,330 per year, this is a nice premium.  (If your household makes more than that amount, you are by definition not middle class.  That range is the point at which 2 out of 5 households are richer and 2 out of 5 are poorer than your family according to the Federal Reserve.)

That means psychological happiness in terms of day-to-day emotional well-being taps out at a pre-tax household income of $6,250 per month.  The study authors propose that since happiness is directly correlated with having time to spend with friends and family, care for sick relatives, and pursue activities about which you are passionate, income above this level permits all of those things.  Someone making $300,000 per year doesn’t have any more free time – and in fact may have less – than someone making the magical $75,000 per year.

Financial Stress Disappears for Most People at $60,000 Per Year

Just as important, the study found that an annual income of $60,000 per year, or $5,000 per month pre-tax, is the magic line at which financial stress disappears.  Once you cross that threshold, unless you just mismanage your budget or have a true tragedy (such as a very sick family member or child), you aren’t losing sleep at night over your finances.  (If you are, you need to read a book of personal finance.)

There Is No Limit to the Level at Which Money Can Buy Happiness for Life Satisfaction Scores

On the other measure of happiness – life evaluation – there is no limit to the joy money brings.  On average, people rate their life a bigger success if they have $100 million than if they have $10 million.

[mainbodyad]Much of this, I would surmise, is not a function of having more money but of the success in a primary occupation that leads to that level of wealth.  In other words, it isn’t the money that makes people thrilled with their life, since we already know their day-to-day experience doesn’t change past $75,000 in terms of emotional happiness.  Rather, it is the fact they landed the CEO job or sold their company to Wall Street or signed a record deal.  The money, in these cases, is a symptom, not a cause.

The study is called High income improves evaluation of life but not emotional well-being.  The link lets you download an Adobe PDF copy of the research findings.

P.S. Of course, this is when someone inevitably whines, “But what if I live in New York City or San Francisco?”  Well, if you choose to live in one of the handful of most expensive zip codes in the United States without having an occupation that pays you enough to survive, stop being a child and own the choice.

For a vast majority of Americans, a $2,000 a month mortgage payment provides a 3,000+ square foot home with crown molding, a two-car garage, and maybe even a private swimming pool.  You would be able to have these things if you moved but you haven’t chose to do so.  Complaining that $75,000 isn’t sufficient is like whining that you only want to stroll the beaches at night but you hate that you can’t get a tan.