How much money you actually need..

Money. Our lives revolve around it. We all want it. We know we all want it. Most of it doesn’t even exist beyond the heavy-duty servers of some bank. And yet, the pursuit continues for this elusive thing. Despite its presence in everyday life, despite the fact that we spend most of our waking hours working towards money, it’s still somehow taboo to talk about it. 

We like to pretend that money is not important to us. And, sure, money is not the end goal. In fact, one of the most common regrets of people on their death-beds tends to be that they worked too hard - chasing after money, of course. For all its value, however, money still can’t buy you a meaningful relationship, or an experience. But, while money can’t buy any of those things, it can make them more accessible. Is happiness not easier to achieve once you know the bills are all taken care of? Is happiness not easier to achieve when you are able to give to a loved one something you know they deserve? At the very least, more money often equates to more choice in terms of how you wanna spend your time - whether that is with your loved ones or in chasing a passion you had as a kid. And even if you disagree with everything I just said, in order to change the world, you will still need the backing of financial capital.

Now, with that said, and hopefully having navigated through the awkwardness of introducing such a topic, let’s cut right to the chase. How much money should you be making? How much is enough? And, mind you, there is a very good reason to ask such a question. This is not just for curiosity’s sake. Studies show that when you have actually put a metric to a goal, and maybe even written it down, you are more likely to achieve it. People who vividly picture a goal are 40% more likely to successfully achieve it.

So, how much? What does the literature say? Well, the relationship of money and happiness is a complicated one. First of all, emotions are generally hard to track, and second of all, this question has not been researched all that much. However, anyone talking about this topic has to bring up a piece of literature from 2010 authored by Daniel Kahneman and Angus Deaton. Their paper looks into the relationship between income and happiness. But it goes a bit beyond that. 

The authors decided that simply looking into one metric as a measure of subjective well being would fail to capture the complete picture and confound the findings. So they looked at 2 things: emotional wellbeing, which is defined as the day to day satisfaction, and life evaluation, defined as the thoughts that come to mind when one thinks of life as a whole. You could also think of emotional wellbeing as sort of the short term happiness and life evaluation as the long term happiness. Now, what did the research find? It turns out, life evaluation rises steadily with income - the more people earn, the more positively they tend to think of life in general.

Emotional wellbeing, on the other hand, seems to plateau after an annual income of around $75,000 - meaning till that figure, for the majority of people, each bit of raise in income will feel great, but after it, your day to day happiness won’t go up by that much. 

So, there it is, right? That’s the magical number. Well, not quite. For one, this is a study from 2010. Because of inflation, today, that amount is closer to $93,000 USD. And I should also mention that this study was conducted with US residents as participants. What is considered a “good life” will definitely vary drastically in other parts of the world, let’s get that right.

There is more to it. Just recently, in the first few weeks of 2021, researcher Matt Killingsworth published the latest findings on the very same question. How much money should you be making to be happy? His findings? Experienced well-being continues to rise even beyond the coveted $75,000 mark. And not just that, it continues to rise just as steeply as before - meaning the return on investment isn’t any worse off the more money you make. Why does this research disagree with previous findings? 

Well, for a paper by Kahneman and Deaton, the data that was collected for emotional wellbeing were answers to questions about the previous day. That has the potential to fail to capture what a person was actually feeling in that moment of happiness or sadness because our minds tend to play tricks with us. Killingsworth’s research, meanwhile, is collected via an app which pings users at various times of day. It is more convenient than the traditional forms of surveying and, as such, he had a significantly larger pool of responses to base his findings on. This also allowed him to more truly capture what participants were feeling. So, if we are to accept Killingsworth’s findings, then both people’s day-to-day happiness, as well as their general outlook on life tend to improve with higher income. 

So does that mean we should all just aim for an astronomically high salary in search of happiness and hope that we get there someday? Is that a realistic target? There’s a thought experiment to try to answer that question for us as individuals. Author Brad Stollery came up with the idea for the experiment. It goes like this: How much money would you have to be paid, right here, right now to never receive another dollar of income from anyone else? 
Now you might think that that’s a straightforward experiment - you just aim for a really really high number. Somewhere in the hundred millions or billions for most people, I guess. The catch is that this experiment will be run in groups of 5 people and whoever has the lowest figure in mind will actually walk away with the money. The rest of the players get nothing. The game theory at play here is actually quite cool.

The interesting thing about this experiment is that it pits two of your impulses against each other, and in doing so forces you to be reasonable. Because, of course you wanna aim for a high number, but you also wanna win and have the money. So you just can’t aim for a stupidly large number. Of course, this experiment is talking about money paid as a lump sum while most of the research looks at salaries. The perceptions of wellbeing might as well be different for the two of them, but it's hard to see why the thought experiment won’t work with salaries too. Go ahead and ask yourself that question and see what you come up with. The answer might help you more vividly visualize a target that you can work towards. 

Of course, we all want to achieve happiness, but more income is easier said than done. When should we really stop trying? And what if the circumstances are simply not there for a raise or a promotion? Well, that’s where the other part of the puzzle comes in: our adaptation. 

Don’t get me wrong - it’s a wonderful thing. Being able to adapt is what has allowed our species to come so far. But at the same time, it also means that whenever presented with an improved quality of life, we rapidly adapt to it and begin taking it for granted. It would explain why most people live their lives from 9 to 5 chasing after that next raise, because staying where you are, regardless if you make 5 figures a year or 7, brings with it a heavy feeling of obsolescence. 
Then there’s obviously an element of comparison. We have known this for a while now that comparison is the thief of joy. You might have a 7 figure salary, but you won’t be anything close to happy if you compare yourself with Jeff Bezos, who has more money than brain cells, literally.

Studies also show that for the same salary, people living in a rich neighborhood feel worse than people in a poor neighborhood. While both participants likely take joy from their salaries, they also compare them with that of the “Jones.” If the Jones’ make less than you, you are happy; if they make more, you are not. 

Research also says easily accessible money improves wellbeing more than money that is stowed deep inside someone’s pension. The closeness of a number that you can glance out of your pocket can be a reassuring breath of air. Having only $500 worth of disposable money in a bank account can improve life satisfaction by up to 15%.

Then, of course, there is a question of what you do with the money that eventually leads to happiness. If you simply make more money for making money’s sake, you might still get some joy out of it, assuming you are successful, it’s much like a game. But the elation will pale in comparison to that of a person who spends his hard-earned cash in a better way. Buying time is often seen as one of the best ways to spend your money in that it allows you to focus on the most joyous aspects, while offloading the more laborious aspects to someone else who will happily do them. The gig economy has made this more accessible than ever before - allowing people to spend more of their time for the things that truly matter, even if it means having a little less in the bank account. This might mean paying someone to do the dishes so you can read a book to your child in bed, or it could mean purchasing a more expensive ticket to be able to spend some time with family.

Material possessions also draw a lot of attention when it comes to the relation between wealth and happiness. The research is clear on this too - spend on experiences, not things. The reason is that experiences are exclusive, nobody can feel what you felt on that trip with your best friend. Nobody can buy that exclusivity. Despite the fleeting nature of an experience, it can last a lifetime. And, unlike the value of objects, which tend to depreciate over time, experiences only seem more enjoyable in hindsight. Our minds tend to overlook the small bumps in an experience - the delayed flight, or the poor wi-fi - and remember only the good parts. So instead of aiming for a certain salary figure, it might make more sense to aim for experiences, and pursue the ability to afford those experiences. Of course, this is not to say that material possessions cannot be an experience. A song might be an experience. A cup of coffee might be an experience. An expensive car might be an experience. That’s really up to the individual to decide. But people generally overestimate how happy they will be once they have that one new thing. However, once we have it, the feeling of satisfaction slowly erodes and we are back where we started. 

On some level it might be a bit troubling to accept that money does indeed “buy” happiness, or at the very least buys ways towards happiness. But, really, haven’t we known this all along?

More importantly, though, this realization has to be qualified with the ideas of what's really important - people, experiences, and time. Not only can it inform our career choices and how much we want to invest chasing after this “thing,” but it also tells us why generosity is important, why a more equitable future is one to strive for. 

Because remember, the only reason any of us want money is to inevitably get rid of it in the end.

- MA, MM