How Much Money Is Needed for Maximum Happiness?
It depends... On a lot of factors
Here’s a question I have never seen a comprehensive answer for by a personal finance writer before:
How much money do you need to make to maximize your happiness?
In a past article, I reviewed a research paper that debunked the myth that happiness peaks when someone makes $75,000 per year. The major finding was that although the marginal contribution of money to happiness decreases over time—an extra $1,000 means a lot more to someone making $40,000 than someone making $250,000—all else equal, having more money adds to happiness.
In the real world, a tradeoff is required to make crazy amounts of money. If you’re a super earner making mid-six figures or even seven figures, you probably had to sacrifice a lot in your personal life to make that happen.
Think of the partner at a law firm who has become filthy rich but had to work 70+ hours per week for a decade to make it happen. Is that person happier than someone who is “moderately rich” but works 40 hours per week?
In today’s post, I wanted to answer the question:
When we take into account the cost of earning insane amounts of money, with the freedom money provides; what is the optimal income that maximizes happiness?
The impact of geography, gender, and education on income and happiness
Unless this is the first time you’ve read my work, you knew the answer to this enormously important question would be “it depends.”
Of course, that is the only answer; what makes me happy is probably completely different from what makes you happy and is driven by our past experiences and unique personalities.
A 2018 paper studied 1.7 million people across 164 countries to determine the income that maximized happiness depending on where you live, your gender, and your level of education.1
The tricky thing about studying happiness is that there are many different ways to define “happiness.”
This study used three different measures of happiness.
Life evaluation: How somebody thinks about their life as either positive or negative.2
Positive Affect: The extent to which an individual experiences positive moods such as joy, interest, and alertness.
Negative Affect: The extent to which an individual experiences negative moods or distress.3
A quick caveat before I show you what they found; All of these results are for single-person households—not families. So, if these numbers feel “low,” that is why. The more people that live in a household, the higher the income required to maximize happiness.
Income and happiness by geography
When every country was included in the analysis:
Life evaluation peaked at $95,000 USD per year.
Positive Affect peaked at $60,000 USD per year and;
Negative Affect was minimized at $75,000 USD per year.
These numbers varied significantly in different parts of the world.
Life evaluation peaked for Australia at $125,000, at $105,000 for North America at $105,000, and at $100,000 in Western Europe.
Income and happiness for men vs. women
The differences between men and women were not as significant as I thought they would be, with women requiring $100,000 for peak life satisfaction compared to $90,000 for men.
On the other hand, men required $65,000 for peak positive emotions compared to $55,000 for women. both men and women saw their negative emotions minimized at $60,000.
Keep in mind these are global, not country-specific numbers.
Income and happiness for different levels of education
The starkest contrast was by education level.
People with the highest levels of education required $115,000 to maximize life evaluation compared to $70,000 for people with the lowest education.
This is not surprising, given highly educated people are the highest-paid workers and compare themselves to other highly paid and highly educated workers.
If you make $80,000 and your best friend from University makes $120,000—odds are you won’t be at your peak happiness because people have a toxic tendency to tie their self-worth to how they stack up economically with their peers.
The bigger the pond you swim in, the smaller you’ll feel.
Think about subscribing to Making of a Millionaire!
The paid version of MOAM only costs $5/month or $50/year and gives you access to my full content of research-focused articles on making smart financial decisions.
You’ll also get a free digital copy of my books, The Financial Freedom Equation and The Rational Investor.
Income, well-being, and gender roles
Another paper from 2015 took a closer look at the impact of income and gender on what they called “subjective financial well-being,” which was measured by asking respondents to rate different aspects of their financial lives on a scale of 0-10. Think of it as a measure of your satisfaction with your financial life.
The first major finding was that income significantly impacted subjective financial well-being for men but not women.
What’s interesting is that they were able to determine why income is so important for men’s financial well-being has nothing to do with genetics and everything to do with the environment they grow up in. Meaning men are not born with a tendency to associate making money with self-worth; it is something that society teaches them.
The researchers believe—as do I—that the reason for this is the gender roles that we impose on men and women when it comes to money.
Every message I received growing up about money was that a man’s primary function is to provide economically for his family. Of course, we live in a world where many women are the household breadwinners, but that doesn’t mean all men will feel good about themselves if they are not the primary income earner.
Gender roles with money are deeply engrained and difficult to shake.
I am reminded of this quote from the movie Inception:
“An idea is like a virus, resilient, highly contagious. The smallest seed of an idea can grow. It can grow to define or destroy you”
The idea that men should make a lot of money once implanted in the mind is very much like a virus that can grow to define your relationship with money.
Income and well-being by personality type
Where you live, your gender, and your level of education all play a role in how much income it takes to be your happiest. Your personality type also plays a huge role.
A 2019 paper looked at how income impacted happiness for the big five personality traits: Openness, Conscientiousness, Extroversion, Agreeableness, and Neuroticism.4
The researchers found clear evidence that increased income was associated with increased mental well-being and lower levels of depression.
They also included a broader definition of financial well-being, including household assets and debts, and found this measure had a greater impact on emotional well-being. Making more money is nice, but having more wealth does more to increase happiness. It’s not about how much money you make; it’s about how much you have.
The researchers took the fascinating next step of examining how the big five personality traits impacted the relationship between income and well-being. They wanted to know whether the impact of income on happiness was different for different personality types.
Here’s what they found for each of the Big Five personality types.
Extroversion. The more extroverted someone is, the less likely that making more money will make that person happier. Another way to read that is that the more introverted a person is, the more likely an increase in income will make them happier.
Agreeableness. Agreeable or highly empathetic people were less likely to be happier when making more money. The reverse is also true; the more money non-agreeable people make, the happier they will be.
Openness. People who demonstrate openness to new experiences are more likely to become happier when making more money.
Neuroticism. The more often someone experiences feel negative emotions like fear, anxiety, guilt, or sadness, the less likely it is that making more money will make them happier. The reverse is also true; the less often you feel negative emotions, the happier you’ll be as your income rises.
Conscientiousness. For those with a high level of self-control, making more money increases their happiness.
Will making more money increase your happiness?
The answer remains yes.
But how much money you need to maximize your happiness will depend on where in the world you live, your upbringing and relationship with money in your formative years, your level of education, and your mix of personality traits.
That might sound like I haven’t given you anything concrete, but based on the research, even highly-educated men in rich countries—the group with the strongest relationship between income and well-being—does not appear to need more than $115,000 USD to maximize their happiness. That is a high number but not an impossible achievement, and other groups of people would require significantly less than that.
Finally, an important point to remember is that income is probably not as strong a predictor of happiness as overall financial well-being.
Those who work long hours and make lots of money but don’t save any of it may lead more stressful lives than you think. If your goal is to maximize happiness, it’s important to focus on increasing your income, but it’s even more important that you use that income to increase your assets and pay down your debts; that will have the biggest impact on your well-being.
How much money you have is just the first layer of “buying happiness.” In future posts, we will explore critical topics like how you make your money, what you spend it on, where you live, and the impact each of these factors has on your happiness.
Consider becoming a paid subscriber to ensure you don’t miss out.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
Jebb, A. T., Tay, L., Diener, E., & Oishi, S. (2018). Happiness, income satiation and turning points around the world. Nature Human Behaviour, 2(1), 33–38. https://doi.org/10.1038/s41562-017-0277-0
Stutts, L., Guerrero, B. M., Brigano, M. O., Everett, G. E., Maupin, A. N., Pham, A. V., Carlson, J. S., Levin, E., Noggle, C. A., McKinlay, A., Naglieri, J. A., Curb, L., Barney, L., McKinlay, A., Hamit, S., Del Vecchio, T., Naylor, J. M., Axe, J. B., Slish, M. L., & Noggle, C. A. (2011). Positive Affect. Encyclopedia of Child Behavior and Development, 1121–1122. https://doi.org/10.1007/978-0-387-79061-9_2193
Stringer, D. M. (2013). Negative Affect. Encyclopedia of Behavioral Medicine, 1303–1304. https://doi.org/10.1007/978-1-4419-1005-9_606
Syrén, S. M., Kokko, K., Pulkkinen, L., & Pehkonen, J. (2019). Income and Mental Well-Being: Personality Traits as Moderators. Journal of Happiness Studies, 21(2), 547–571. https://doi.org/10.1007/s10902-019-00076-z
If you've never before seen this question addressed by a financial writer, you simply haven't looked.
Great topic and set of questions raised in this post. I don't know the answer for me, however somewhere along my corporate career I started questioning myself along these lines.
The realization about what makes me happy drove me to retire early at the age of 50. My fondest childhood memories were the time I spent with my dad when I was 17 and he was retired (he married late). I wanted to replicate the same with my 16 year old son and I am happier than I ever imagined. At some point, we need to question whether the rat race is leading us towards joy or preventing us from experiencing sources of happiness that are staring us in the face every day.