Annual Salary Needed to be Happy

What annual salary do you need to be happy?  $1 million?  $200K? $100K+?.  Well the answer according to a wide range of research is even lower – around $40K to $75K a year.   Daniel Gilbert, professor of psychology at Harvard University, says once you have enough money to meet basic needs – food, shelter, but not necessarily cable —incremental increases have little effect on your happiness.

Penelope Trunk, the owner of Brazen Careerist agrees and says the magic number is about $40K a year to meet those basic need.  Once you make this amount, whether you are happy or not depends on your level of optimism and quality of your relationships.

Nobel Laureate Daniel Kahneman and Angus Deaton of Princeton University also agree and say anything above $75K a year  will not buy you more happy feelings.  This was based on analyzing 450,000 responses from daily surveys of 1000 US residence between 2008 and 2009.  They do however make a distinction between happiness and life satisfaction.

  • Happiness is defined by plenty of day to day positive feelings (enjoyment, smiling, laughing) and absence of negative feelings (anger, sadness, worry and depression)
  • Life satisfaction is defined by a longer term assessment of whether you are living the “best possible life” for you.  It’s a judgment of life based more on logic and comparison with others and not a momentary feeling.

Kahnman and Deaton found in their study that “while hedonic well being or happy feelings rises with income, it plateaus around $75,000, although life satisfaction ratings continue to improve.”  They conclude that “Perhaps $75,000 is a threshold beyond which further increases of income no longer improves people’s ability to do what matters most to their emotional well-being: spending time with people they like, avoiding pain and disease, enjoying leisure.  It is also likely that when income rises beyond this value the increased ability to purchase positive experiences is balanced, on average, by some negative effects.”

With the federal poverty level for a family of four set at $22,050, $75K a year is a still a substantial amount, but on the other hand, very achievable.   The question remains – What’s more important to you – happiness or life satisfaction?

It’s a difficult question for me to answer.   My instinct is to say I want both of course, but I also truly believe Kahnman and Deaton’s conclusions “when income rises beyond this value the increased ability to purchase positive experiences is balanced, on average, by some negative effects.”  Higher income will come at a price –  less time with family, more stress, maybe even health issues from over-working.

So I choose happiness.  This is easier said than done.  My Chinese upbringing and MBA education almost naturally makes me focus on life satisfaction.  Can I make more, do more, achieve more, own more?  It’s a slippery slope as the answer to all these questions is inevitably yes all the time.  I realize the more I focus on what I still have not achieved, the less I can appreciate what I already have.  This is a good reminder of what’s really important in life – good health, time with family and kids, ability to help others, being appreciated and respected.  At the end of the day, once you make $75K a year, happiness is a choice.  It’s just amazing that more often than not, we choose to worry about the future than be happy in the present.  What will you choose?

– Lei

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