The Magic Number which represents the Tipping Point of Financial Happiness

When it comes to how much we are earning a year, there is a direct correlation to its ability to bring you happiness.  Of course, this totally makes sense because according to Maslow’s hierarchy of needs – if you currently can’t afford a decent home or enough food to feed your family, then more money substantively improves your situation. However, the catch is this – there is a “virtual ceiling” to this direct correlation – and that number is 75,000. Local currency probably applies (not strictly in USD context)

Backed by research, according to a new study from Princeton University’s Woodrow Wilson School. Here’s the research paper.

Maslows-Hierarchy-of-Needs

The Gist of Things

According to the study, no matter how much more than 75,000 a year people make, they don’t feel any greater degree of financial happiness.

How?

The researchers took the pain to distinguish between two things that are often mixed up: emotional well-being versus what’s called “life evaluation”.

maslows-new-hierarchy-of-needs
This should be it in modern times? Ha-ha!

Emotional well-being is what they equate with financial happiness. It refers to the experiences you have on daily basis… being happy, sad, frustrated, thrilled, etc.

On the contrary, life evaluation is how you rationally think about your life. So if someone asks you how contented you are with how your life is going, it is not referring to the type of emotions associated with our feeling to day-to-day events, but rather it refers to “life evaluation.”

Here’s why this difference is important: income over 75,000 increases life evaluation scores, but does not have the same impact on overall happiness.

If you have reached the stage where this kind of annual income is within your grasp, you probably have enough expendable cash to do things that make you feel good, like going out with friends or have a good meal during weekends with your family.

The Question to Honestly Answer is…

At this stage, then you need to ask yourself this:

Do you want to feel good about your life, or actually feel good?

financial happiness correlation

If you double your income to 150,000, you will probably think-  “I’ve done pretty good for myself.”

But doubling your salary won’t necessarily give you more joy, day-to-day. It won’t make you more excited by your work or help you feel closer to your friends and family.

Earning over $75,000 a year, especially in a secure, comfortable job, will probably make you take things for granted, complacent in self-growth or living your life “in the abstract”. A position where you feel good about to be in, but it would not make you feel alive, vibrant, and excited.

Based on the above, it is also true that wealthy people do generally fall into two camps. The first group genuinely love what they do and find fulfillment in their work. But the second group take more satisfaction from their influence, standing, power, and money. Members of the latter group are the one who are trying to convince themselves that they are happy, when the sad truth is that happiness escapes them, because more money won’t buy them financial happiness – hence the ever-popular saying.

In a nutshell, this is definitely a point to take note when you do your retirement planning.

What do you think? Do you agree or disagree with the researcher’s conclusions?

Adapted from Bruce Kasanoff – $75,000 Buys Finncial Happiness; More Money Does Not

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