Editor’s Note: This article was co-authored with Heidi Geller.

For years, we heard that happiness plateaus at a certain annual income threshold. An article published in the Wall Street Journal in 2010 suggested that day-to-day contentment rose as annual income grew—but only up to $75,000. That was the magic number where happiness no longer rose in concert with the amount of money you make. After that threshold, you are just accumulating stuff.

Flash forward to the present day, and a rash of new articles hitting the internet doubt this claim. In fact, one recently published article in the Proceedings of the National Academy of Sciences of the United States of America (PNAS) academic journal explains how one’s experienced well-being can rise with income—even above $75,000 per year.

So, what does this all mean for you? Does happiness rise and fall with the amount of money we make? Is there an income limit you can reach where, once you hit it, you’ve achieved peak happiness? Or is there more to it than that?

Happiness Is Relative

Happiness does rise with income, but the increase in happiness is based on the percentage increase in your annual income—not how much additional money you earn. For example, compare two individuals: one who earns $40,000 annually and another who earns $1,000,000. The $40,000 earner gets a big happiness boost if they can double their income to $80,000. To get the same happiness boost, the $1,000,000 earner needs to double their income to $2,000,000. In dollar terms, the high wage earner must grow their income by 25 times the amount of the low wage earner to get the same happiness lift.

Although the PNAS study is being pitched as revolutionary in our understanding of wealth and happiness, it is not. At the end of the day, even though there is an increase of happiness with wealth, it is relatively small as income rises.

Additionally, the study only reinforces valuable lessons we have known for quite some time:

  1. More money often gives people more options and a greater sense of control. During a pandemic, they have more options on how to care for their children while they work at home. After a busy day at work, they have the option to order takeout food. For those with enough money, they even have the choice to relocate to their second home or rent a vacation home in the mountains or on the beach.
  2. People with higher incomes worry less about paying their regular bills such as rent. Although this is no big surprise, it does remind us that many people are literally living paycheck to paycheck, and that can be very stressful. For those of us who don’t have to worry about having enough to meet our needs, we can be grateful.
  3. The more money you have or earn, the less impact each additional dollar has on your sense of well-being. The pursuit of additional dollars merely for the sake of growing your wealth has sharply diminishing returns.
  4. High-income workers had a greater sense of time poverty than low income workers. Time poverty is not having enough time to do what you need and want to do. This is not really surprising, considering the incredibly demanding jobs of many high-income earners that leave little time for rest, relationships and fun. When comparing individuals at similar income levels, those with a greater sense of time poverty have a lower sense of well-being.
  5. Equating money with success is generally a bad idea. The more people equated money with success, the lower their sense of well-being. Said differently, if you measure your success based on the size of your paycheck, you are less likely to be happy. This is true for low wage earners, high wage earners, and exceptionally high wage earners.

The Truth About Money

For all of us, it is important we remember two fundamental truths about money: First, money is a tool—nothing more, nothing less. Like all tools, it can be used in both productive and harmful ways. Second, money matters; it’s just not all that matters or what matters most.

At Wealth Enhancement Group, our goal remains the same: To help you simplify your financial life and empower you to use your money to build a fulfilling, meaningful, and happy life.

 

David Geller

David Geller

Director, Behavioral Wealth Management

CFP® David joined Wealth Enhancement Group through the partnership with JOYN Advisors, where he acted as CEO and Co-Founder. He is the creator of the Behavioral Wealth Management™ model. A model that focuses on aligning wealth management with the integration of human emotions while taking into consideration an individual’s talents, wisdom, network and relationships. David has been featured in a number of prominent outlets including The New York Times, The Wall Street Journal and The...Read More