No, Happiness Does Not Plateau at $75,000 per Year
More money = more control = more happiness
“Money doesn’t buy happiness.”
That phrase is often said by people with lots of money who have never known what it’s like to live without enough money.
Of course, money buys happiness. But not because it allows us to buy fancy toys and live in a big house. Money buys what all of us desire: freedom and a sense of control over our lives.
In this article, I review compelling research that debunks the myth that our enjoyment of life maxes out when we earn $75,000 per year.
Debunking the myth of the $75,000 “happiness plateau”
The brilliant behavioral economist Daniel Kahneman published a paper in 2010 that found that emotional well-being or happiness does not increase as a result of making more money beyond a $75,000 threshold.1
This was thought of as a happiness plateau, and most people accepted it as gospel because, well, who are we to argue with Daniel Kahneman?
But a more recent paper by Matthew Killingsworth, a senior fellow at Penn’s Wharton School, finds that more money increases happiness beyond the $75,000 threshold.2
Killingsworth Studied 33,000 individuals providing real-time feedback on a well-being app. Participants were asked to fill out short surveys randomly during the day. The app collected 1.7 million responses to questions like “how do you feel right now” or “how satisfied are you with life?” Killingsworth calls this type of real-time feedback “experience sampling.”
The idea is that you collect enough snapshots of people’s lives over time to build a clearer picture of what makes them happy.
The major finding was that more money made people happier, even above the $75,000 per year threshold.
The marginal contribution of money to happiness decreases over time. An extra $10,000 means a lot more to someone making $30,000 than it does to someone making $300,000. But the person making $300,000 is still happier if you hand them $10,000.
Pick up your copy of The Financial Freedom Equation
Financial Freedom = income from work you love + investment income > living expenses.
Achieving that definition of “freedom” is much faster and more enjoyable than the path to “early retirement.” I wrote an entire book about how to do it.
Pick up your copy of the book here
(Upgrade to a paid subscription and get it for free here.)
Money buys control, and control leads to happiness
Killingsworth’s hypothesis for why more money continues to make us happier; it’s not about buying more things. It’s about buying more control.
As Killingsworth told Penn Today3:
“When you have more money, you have more choices about how to live your life.
You can likely see this in the pandemic. People living paycheck to paycheck who lose their job might need to take the first available job to stay afloat, even if it’s one they dislike.
People with a financial cushion can wait for one that’s a better fit. Across decisions big and small, having more money gives a person more choices and a greater sense of autonomy.”
The more money we have, the more often we can say “no” to things that make us unhappy. Once we have enough wealth, we gain enough control over our lives to choose to only engage in activities that fulfill us and make us happy.
How to slowly begin buying back more time
When you hear the phrase “buy back time,” what’s the first thing that comes to mind?
Most people likely think of early retirement.
It’s understandable because working means trading in your time for money, so retirement, by definition, means trading money for time.
In a previous post, I criticized the FIRE movement for giving people the idea that early retirement is the only way to buy back more time.
The reality is that early retirement does not equal immediate retirement—it takes most people decades of saving and sacrifice to reach early retirement.
There are much easier ways to buy back time and increase your happiness today.
In that same post, I pointed to research that shows one of the easiest ways to increase your happiness is to pay someone to do the tasks and chores you hate the most. This not only buys you more time to do what you like but also spares you the discomfort of engaging in activities that reduce your happiness.
I hate yard work.
For the first five years as a homeowner, I spent countless hours pulling weeds and mowing the lawn. Not only did I hate these tasks, I wasn’t good at them. Paying a professional to help with the basic landscaping frees me to spend more time on activities I enjoy and less time on activities I hate, and as a bonus, my lawn looks a lot better than when I did all that work myself.
I know what you’re thinking; paying people to complete these tasks for you is expensive.
Yes, it is.
This illustrates Killingsworth’s point “When you have more money, you have more choices about how to live your life.” The more money you make, the more you can afford to buy back time today.
If you are spending your money in a way to maximize happiness and you still feel a desperate need to “retire early,” that probably means you hate your job. The solution to that problem is to find work that pays well and that you enjoy—not live in misery for 17 years until you can save 25 times your living expenses.
Find work you enjoy, keep increasing your income, and buy back time. More money buys more control, which is how you buy more happiness.
For more reading on managing money and doing work you love, pick up a copy of my book, “The Financial Freedom Equation.”
If you’ve read the book and enjoyed my writing, would you mind leaving it a review here. Reviews are essential for self-published authors like me.
Kahneman, D., & Deaton, A. (2010). High Income Improves Evaluation of Life but Not Emotional Well-Being. Proceedings of the National Academy of Sciences, 107(38), 16489–16493. https://doi.org/10.1073/pnas.1011492107
Killingsworth, M. A. (2021). Experienced well-being rises with income, even above $75,000 per year. Proceedings of the National Academy of Sciences, 118(4). https://doi.org/10.1073/pnas.2016976118
Berger, M. W. (2021, January 18). Money matters to happiness—perhaps more than previously thought. Penn Today. https://penntoday.upenn.edu/news/money-matters-to-happiness-perhaps-more-than-previously-thought
Cool article. Always love to see those who challenge status quo.
Is it actually true that handing someone with $300,000 a cool $10k will make them happier or was that an assumption? Yes more control generally makes us happier, does that have a cap though? At some point does an extra $10k really buy you more control?
I guess that may depend very much on lifestyle, but really seems like some people seriously don't need or want that control or are ahppy where they're at, independent of money