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.