How Much Money Is Enough?

How much money is enough? You wake up every day, take care of the hygiene, get something to eat, possibly exercise, or bring kids to school. Then you get to work, and you spend at least eight hours working. And you do this for forty-plus years—every day. You build a career. You get more money. You buy stuff. You increase your expectations, so you need more money. Your needs keep growing as your lifestyle evolves. As I wrote in How Money Destroyed Humanity, everything in your life revolves around money.

When coaching others on their career options, the question of money comes up pretty often. People often feel that it is not only about having a great job that they will enjoy, where they will find meaning and purpose but ideally one that pays well. The size of the compensation package is very often what decides which company people join. More money is better, right?

Unfortunately, this strategy ultimately leads to a life of disappointment and dissatisfaction. The moment you allow money to make life choices for you, you are on a slippery slope. And I’m not talking about getting a basic income to stay alive. That is given. Everyone needs a level of income that allows them to survive. In the USA or Europe, the difference between $15,000 and $30,000 is life-changing. I’m talking about the level of income that allows you to drive an expensive car instead of a cheap one. The same difference of $15,000 doesn’t make a difference if your income is high enough. The difference between $1,015,000 and $1,030,000 is basically a rounding error. But what exactly is the magic number when you should stop considering money a thing and focus on the job itself? What exactly is the salary where you should say to yourself, “my needs are covered, and I don’t need more”?

The magic number

It starts with stopping. Stop comparing yourself with others. It doesn’t matter what someone else makes. It doesn’t matter that your best friend has two houses and five cars. It doesn’t matter that your neighbor is paid double what you are. All that matters is to consider what you genuinely need regardless of what the world thinks.

This magic number depends on many things starting with your life mission and aspirations and the realities of the world you live in. It will be very different if you live in New York or rural Africa.

Studies show that in the USA, this number is, on average, $75,000 depending on the location where you live. If you make less than this number, any additional dollar you get increases your happiness. Once you get over this threshold, further increases in your compensation don’t increase your happiness level by much. Any extra effort and time spent on making more money have diminishing returns. It just stops making sense to pursue more money. Once you reach that level, stop thinking about money and start thinking about doing something engaging that will allow you to flourish.

The original number first came from research by Daniel Kahneman and Angus Deaton from the Princeton University. They postulated that there are two aspects of subjective well-being: emotional well-being and life evaluation. Emotional well-being refers to the quality of everyday experiences, the frequency and intensity of emotions such a joy, stress, sadness, or anger. Life evaluation then refers to how people think about their lives. You can have a joyful life and still think about it as bad, and vice versa. Kahneman and Deaton asked whether money can buy happiness for each of these two aspects of well-being. They observed that life evaluation correlates with income and education. Emotional well-being then reflects more closely health, caregiving, or loneliness. When compared with increased income, life evaluation keeps growing with more money you earn. However, emotional well-being doesn’t increase by much once you get about approximately $75,000 a year.

However, it seems that not everyone agrees. Matthew A. Killingsworth, a senior fellow at The Wharton School of the University of Pennsylvania, points to his research that the experienced well-being continues to increase even well above $80,000. There doesn’t seem to be the expected plateau. Though one has to be careful not to equate money with success. One explanation for why your well-being may keep increasing is that the more money you have, the more you feel in control of your life. And that is a powerful feeling indeed.

For all practical purposes, whether there is a plateau of experienced well-being at $75,000 or whether there is one at all doesn’t really matter. In the end, it is about attitude. It is about your view of the world and also about how you spend your hard-earned cash.

How you spend money matters

The “money can’t buy you happiness” quote is valid only if you spend your money wrong. If you purchase luxuries and generally any goods you consume or that just sit in your house, you don’t buy happiness. Hedonic adaptation kicks in very quickly. You get used to the newly acquired possessions, and your happiness level will be the same as before. However, when you use the money to spend more time with friends and family, shorten your commute, take longer vacations, invested in the future, or experience something new. You will see a more lasting effect on your happiness.

Psychologists Leaf van Boven and Tom Gilovich ran a survey to uncover what purchases make people happier. Those who spent their money on experiences, like a ski trip, going to a concert, were happier than those who bought material objects, like clothing or electronics. Experiences work. Curiously enough, they work partly because we often do them with other people. Buying stuff is motivated not to spend time with others but to impress others, leading to envy and generally separating ourselves from others. Experiences are more open to positive reinterpretations, are a meaningful part of one’s identity, and lead to social interactions and relationships. All that makes them more likely to contribute to happiness and well-being than a new car.

The experiment

Consider the thought experiment mentioned by Jessica Stillman and initially proposed by Brad Stollery. How much money would you have to be paid on the spot to be able to retire right now and never get any additional money from any other source? This money will appreciate at the inflation rate so that it won’t erode over time.

The catch is that several other people with the same background, skills, age, aspirations are being asked the same question, and only one of you will get the money—the one who will give the lowest number. This forces you to be reasonable and think about what you truly need. What is sufficient for you to live a good life? If you ask for an unrealistically high number, one of the other people will probably be lower, so you get nothing.

You can calculate the amount of money you spend, get something on top for rainy days and then say that’s it.

I urge you to run this thought experiment in your head or even play it as a game with your friends when going for a beer to get other perspectives that would keep you honest. The chances are good that you will be surprised how low that number is. It will also give you a healthy perspective on what is essential in life and that maybe you are doing pretty well without even realizing it. This exercise will allow you to make better career decisions and not be a slave to money.

What is your take on the topic? What is your magical number? Is there an income that you feel is enough for you or are you always trying to get more? If you had a job you love and someone offered you to double your salary if you do a work you wouldn’t enjoy, would you still switch?

Photo: Olichel /

Follow me on Twitter: @GeekyLeader

Categories: Life

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