Is There Really a Magic Number When it Comes to Salary and Happiness?
They say money can’t buy happiness. But is this true? Explore the research behind money vs. happiness in this informative article.
October 25, 2021
Many people go through life thinking “I’ll be happy when I… get that raise, buy my first home or finally purchase my dream car.” However, as we’re often painfully reminded, these purchases and milestones deliver a spurt of joy, but the buzz fades just away as quickly as it arrived.
So, what really is the relationship between money and happiness?
Are wealthy people happier than those with average incomes or lower net worth?
Is there a “perfect” number when it comes to money vs. happiness?
What the science says about money and happiness
Science has attempted to tackle the complex relationship between money vs. happiness. Research results have been mixed, to say the least.
Princeton University study (2010)
A 2010 Princeton University study is perhaps the most well-known study on salary and happiness levels, as it’s been quoted in hundreds of publications and referenced in popular culture.
Some of the primary findings of the study included:
A higher income level improved evaluation of life but not necessarily emotional well-being
Measures of self “life evaluation” rose steadily with increasing income, up to the $75,000 level
The effect stopped increasing at roughly $75,000 in annual income (per person)
Lower income levels were associated with lower scores for both life satisfaction and emotional well-being
This popular study seemed to suggest that more money could buy more life satisfaction, but not necessarily more happiness or emotional well-being. It also, provocatively, suggested that earning more than $75,000 per year had no additional impact on life satisfaction or happiness.
These results would suggest that a single person earning $75,000 per year would have just as much life satisfaction as an individual earning $1,500,000 per year — or even someone as wealthy as Jeff Bezos or Elon Musk.
University of Pennsylvania study (2020)
A decade later, a Wharton School, University of Pennsylvania study directly contradicted the results of the Princeton study.
Some of its key findings included:
Experienced well-being rose linearly with income
well-being measures rose at an equally steep slope above $80,000 as they did below
Higher incomes may still have the potential to improve people’s day-to-day well-being
This study utilized a slightly different measure for well-being and a substantially larger dataset than the original Princeton study. It also pushed back on the idea that a “perfect” salary exists for happiness, rather, experienced well-being continues to increase as income increases.
Harvard study (2019)
A 2019 Harvard Business School study took a different approach. The study looked specifically at the relationship between money and time, and how this relationship could affect happiness.
Some of its key findings included:
Those who were willing to give up earning more in exchange for more free time reported higher rates of overall satisfaction, suggesting a potential to choose happiness over money
These individuals experienced more fulfilling social relationships, more satisfying careers and more joy
Those who were willing to “buy” time by outsourcing tasks also reported increased satisfaction levels
This study did not report data on specific salary levels, but instead focused on user-submitted survey results based on free time and happiness levels.
This data can be interpreted in a few different ways. First, it establishes that time is often more important than money, at least when it comes to happiness.
However, it also drew data largely from individuals who were financially secure enough to be able to outsource tasks. It’s easy to say “just pay for a housekeeper to free up your time and you’ll be happier” — but the reality remains that many people simply can't afford to hire help.
How much money do you need to be happy?
Truthfully? There’s no simple answer here.
As we can see from the prominent studies above, the findings have often been contradictory when it comes to the balance between money vs. happiness.
Few would argue that all rich people are happy, or that all poor people are unhappy.
However, most studies seem to suggest that there is a certain level of income at which point happiness becomes easier to obtain.
In other words, happiness can’t be bought — but if you don’t have to worry about how to pay your bills this month, it becomes easier to focus on the things that can bring you happiness.
The magic number
There is no “magic number” when it comes to salary and happiness.
However, there might just be a number for you that allows you to feel financially comfortable.
How do you find this number?
It starts with making a budget, so you know how much you need every month to meet your financial obligations
Next, figure out your savings goals — retirement, emergency fund, vacation savings, etc. — and make a plan for how much to save each month to meet those goals
Once you start saving money, your money starts to work for you. As your wealth grows, this can free up more of your time to pursue what matters most in your life
Finding a balance
Finally, remember that money is just one aspect of life. It can’t buy happiness, simply because dozens of other factors contribute to our overall contentment and joy.
Developing true happiness requires a careful balancing of all the major aspects of our lives: relationships, growth, career, purpose, fitness, health, family — and yes, money.
Want a helping hand on your journey to better financial health? Check out Tally.† Tally is a powerful finance app that’s helping people pay down their credit card debt.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.