How happy would you be working for $75,000 a year? I imagine that as you embark on a career in a few months or years, you’d be delighted to earn that kind of money doing something you liked. I also imagine that as you look into the future, you have hopes and dreams of earning a six-figure salary, too. How happy do you think you’d be if you earned $150,000? Twice as happy as you were earning $75k? A new, fascinating area of research explores how happy people are on different subjects, including personal finance, and the results might surprise you.
A lot of happiness research confirms what we already know – earning enough income to satisfy basic necessities – a nice home, worry-free transportation, comfortable retirement savings, and good schooling for your children – is very important to personal happiness. So is having enough extra money for a vacation or two each year, some nice stuff, and a little extra for flexibility and emergencies. How happy do you think you’d be if you had all that? Unsurprisingly, surveys conducted asking people about their levels of happiness show that people who earn about $75k a year are pretty happy, as they have enough income to satisfy all of their basic needs, with a little extra left over for fun.
You might be thinking, “That’s great, but I’d be twice as happy if I earn $150,000.” Too often, we think that the best jobs are the ones that pay the most. Survey results don’t agree with you. People who earn $200k are not happier than people who earn $75k. That’s a little strange, but we might be able to identify some reasons for this. Higher paying jobs are often a lot more stressful, which reduces your happiness level. Maybe you live in a more demanding social network and feel pressure to keep up with peers. What would you do with the extra money? Probably one of three things – you could go on more vacations, buy nicer stuff, or put it in savings and retire sooner.
There aren’t a lot of that have the flexibility for more than a couple vacations a year, and while a brand new Mercedes might be a lot nicer than a Honda, would you really get twice as much enjoyment out of a car that’s twice as expensive? Would you really get a lot more enjoyment out of a top of the line 70” plasma television over a reasonably nice 50” one? What about retiring early? If you’ve taken a job that you love, you’re not likely to want early retirement – you like your work. However, if you hate your job, retiring early doesn’t make up for all those years you dreaded it.
There’s a famous story about an investment banker on vacation in Mexico, enjoying the tranquility of fishing from the pier of a quiet village. He talks to a local fisherman, who loves the peacefulness of his job and the free time he has to spend with his family, every day of his life. The banker sees an opportunity to help the fisherman expand his business, build a multi-national fishing empire, become fabulously wealthy, which would enable the fisherman to move from his small house to a huge mansion and a big office to manage his growing empire. The fisherman asks if it would be very stressful. The investment banker replies that it would be stressful, but with the high income he could save and retire early, spending his retirement fishing peacefully from the pier of a quiet village and spending lots of time with his family.
These columns offer a lot of advice – don’t borrow too much, save money, spend wisely, etc. – but you should also consider the big picture: there’s much more to life than making money. As you embark on a new career in the near future, look for work that interest you, is meaningful, and can make you comfortably wealthy – enough to satisfy your basic needs with a little extra for some nice stuff and a little fun. Maximize your happiness. All the research suggests that really wealthy people aren’t much happier, so look for jobs that put you on a career track that makes you happy, not necessarily the ones that pay the most – money does not equal happiness.
 Kahneman, Daniel and Angus Deaton, 2010, “High Income Improves Evaluation of Life But Not Emotional Well-Being”, Proceedings of the National Academy of Sciences.