A salary of $100,000 has always been the magic number for me when I was growing up. I saw myself being the CEO of a big bank, as a felt drawn to a radical career and big money. Since I’ve never had much money growing up, and I wanted to live comfortably without money stress, this was the life I envisioned for myself.
As I grew older, I started to understand that money can’t buy you happiness. The $100,000 I once wanted is just an arbitrary number now. Sure, I still am convinced you should try to maximize your income in any way you can. Get that promotion, work smart to show what you’re worth, ask for that raise, go for whatever you want! BUT, money is not the end goal anymore. It’s a tool that can help you in fulfilling your needs. Nothing more, nothing less.
Money is for sure not the end all be all that my 15-year-old self thought it would be.
Now you might wonder, how much money is enough? That’s an important question, but the answers to that will widely vary. What I think is enough, is not nearly enough for someone else.
I run into a study published in the Nature Human Behavior journal that talks about exactly this: what is the exact salary you need to be happy?
How Much Money Do You Need To Be Happy?
According to the study in Nature Human Behavior journal, there is a salary for optimal happiness. There is a point where every extra dollar in your bank makes you happier, but there is also a point where every extra dollar in your bank doesn’t add to your happiness.
How is that possible? That’s because of the concept of diminishing returns. I learned that in my microeconomics class. If you are earning $100,000 when you have $10 in the bank, you will be much happier than if you are earning $100,000 when you have $1,000,000 in the bank.
It’s just like when you’re eating a tub of ice cream. The first few bites you really enjoy. After that it’s okay. Then you have to push through. There is no additional satisfaction from eating more. You may even experience negative effects when you continue.
[Related Read: The Process Is Not Interesting – No One Wants To See It]
The Exact Salary You Need
The study in the Nature Human Behavior journal has a beautiful graph where you can exactly see the income for which your happiness is maximized, depending on the region you live in.
You can see that globally, individuals need $95,000 to achieve optimal happiness for their goals. ‘LE satiation’ is referring to life evaluating, meaning that participants imagine a ladder with steps 0-10 where 0 means ‘worst possible life’ and 10 ‘best possible life’. This suggests that goals, unexpected events, and comparing to others are also included.
The $95,000 overall is the point where, globally, extra money does not change the level of your well-being. Please note here: the $95,000 is for an individual, so it would likely be higher for couples and families!
When you are going beyond $95,000 with your income, it will decline overall happiness. This is following the concept of diminishing returns. Once all your needs are met and you are sufficiently wealthy, you might be limited by other resources. For example, you will be limited by time, which will take from your opportunity to pursue fun activities or time with your loved ones.
Differences Around The World
It makes sense that in different parts of the world, different optimal amounts are needed to be happy. For example, individuals living in North America would need $105,000 and individuals in Western Europe and Scandinavia need $100,000.
But if you look at other regions, like Latin America and the Caribbean, you only need a $35,000 salary for optimal happiness. Because the costs of living and wages are lower, you can reach optimal happiness with a limited amount of salary. Now you understand why I’m going there for my second mini-retirement after I’ve been there for my first mini-retirement already – lower cost of living!
We can say that location has an incredible effect on the salary amount that brings you optimal happiness.
What do you think, how much money do you need to be happy?
This post is produced and syndicated by Radical FIRE.
Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page
When I started working for a company 10 years ago, my ultimate goal was to earn €60k a year. I thought I would be able to do everything I wanted with that! Over the years that goal shifted higher and higher as I kept getting promoted. 10 years fast forward and my salary is now €125k. The point at which I started not really caring anymore was at about €90k, so almost in line with the research that you showed!
That’s really interesting, thank you for sharing Bart! It seems that this is really the amount that we need then – only a few more €€ to earn and I’ll also be there (let’s fast forward 10 years, shall we?). When all your needs have been met and you’re living comfortably, the extra money will certainly not hurt but it will also not add any significant value as it did before.
I love this topic. Even in middle school, I remember telling my history teacher I thought several people in India and South America were happier than Americans because they prioritize family, know how to live on little, and aren’t obsessed with comparing themselves to others.
I could logically see this, but not excape the capitalistic messages drilled into my brain. In general, the coversation about the connection between money and happiness intrigues me, especially when referencing other countries. In addition, without weighing health and social well-being into the equation, I now wonder if the question itself should be more complex. Thanks for adding to the question…
Thanks for your comment Savvy!
I def agree, when you are in South America you notice that there are other things that they value besides things they own. I’m a big advocate of only spending money on things that matter to you, not to keep up with the Joneses and buy things just because everyone is doing it. Of course, this study mentioned is only looking at arbitrary numbers, but it’s interesting to think about these kinds of things and to reflect on our own life