# Why are people happiest earning \$75,000?

The study came out in 2010 saying that people are happiest earning \$75,000.

## But no matter how much more than \$75,000 people make, they don’t report any greater degree of happiness.

They say that any amount above that like going to \$85,000, people aren’t THAT much happier, than let’s say going the same distance from \$20,000 to \$30,000.

In economics, we call that effect diminishing returns.

They also say there’s two types of happiness: daily happiness and deep satisfaction happiness.

Those who earn above \$75,000 achieve a deep satisfaction of happiness, but aren’t necessarily happier on a daily basis.

## But it doesn’t make them any more jovial in the mornings.

Still, it made me wonder about the specifics of \$75,000 as the magic number aside, so I punched the numbers into a simple Canadian tax calculator.

Since I’m in Ontario, I’m biased to using that province a lot, and it gives you about \$58,000 net to play with, not taking into consideration any other taxes or tax credits.

## \$58,000 = \$4833.33 net a month

Each month, you’d have close to \$5000 to put towards your bills, which the authors have noted means you have enough disposable income to go out and comfortably spend on what you want to spend on.

## IT WORKS OUT TO BE A PRETTY COMFORTABLE NUMBER

You’d be able to put about \$2000 towards your mortgage, save \$1000 (which would be a hefty 20% net savings rate!) and still have \$2000 to spend on life.

I suspect that it is at this point, that most people’s household budgets would be properly satisfied.

The only ones who would be incrementally happier with more money past the point of \$75,000, are the ones who think that more money is never enough.

## PERHAPS BEYOND \$75,000 YOU’RE LOOKING AT MORE WORK

I’d also wager that beyond \$75,000, you’re looking at longer hours at the office, perhaps living in the middle-of-nowhere, traveling all the time, and/or more responsibilities.

All that adds up to more stress, and it takes away from the shininess of earning an extra \$10,000 more.

## PEOPLE GENERALLY DON’T WANT SUPER FANCY THINGS LIKE JETS

Even though we all think we all spend beyond our means, we aren’t really aiming at owning a huge mansion or a fleet of luxury cars in our daily lives.

(Lyon. Full of rich folks, as you can see.)

Most households would be happy to just have an ideal household budget, and some extra disposable income beyond their fixed expenses and their immediate needs, to do what they want.

Read my posts on ideal household budgets:

## IT IS ALSO ALL IN RELATION TO WHAT OTHERS EARN

Of course, we all know that how happy you are is relative to what others around you earn as an income as well.

We’re creatures who like to judge ourselves against what others have accomplished.

If you were earning \$75,000 while everyone was earning \$100,000, you’d be unhappy.

But if you earned \$75,000 while people around you earned \$50,000, you’d be beyond ecstatic.

## What do you think?

• ##### Paul

I agree with some of the more pessimistic views stated in the replies above. I live in Ontario, I’m 29, single male, and I make close to \$75,000 gross per year. This is certainly not enough to be happy. Your rent or mortgage takes about \$1800-\$2000 per month. Expenses round out to \$1250 a month. Given you are maxing out your RRSP to save for retirement, leaves you about 300-500 per month for other non-predictable expenses. For most college graduates, there is an additional OSAP loan of \$25000-\$40000, coming out to a repayment schedule of \$300-\$600 per month, for at least 5 to 6 years. So, I feel for people my age, \$75000 is certainly not enough to have any peace of mind. Comments please…

• ##### Sherry of Save. Spend. Splurge.

You aren’t wrong. You must be living in Toronto. Have you ever thought about moving somewhere cheaper?

I’d say \$75K is a great salary for a smaller town with more reasonably priced rentals and homes, but definitely not in Toronto.

• ##### Marvin

This is assuming you can still make \$75k in a smaller town. Admittedly, costs would be lower too. Instead of numbers what would be helpful is showing what percentage, after paying for food, clothing and shelter, can be saved for “living” and savings.

• ##### Sherry of Save. Spend. Splurge.

Absolutely. Cost of living plays a huge role.

• ##### Frugal Jim

RRSP makes sense only if you’re anticipating a (much) bigger salary by the time you retire. If not, you should consider the alternatives (TFSA, stock market, bonds, real estate…).

My OSAP totalled less than 20k, and that’s for college and university combined. I paid what I could right off the bat as I went along. I didn’t graduate and still don’t have my BA but I am making 80k. I am not even a manager. Next work level up from where I am now will unlock another \$15-\$20k/yr in earning potential for me, which is what I am working on now.

I am amazed that some people think an MBA will get them where they want/need to be salary-wise. It’s a waste of money upfront and another debt you’ll be paying off for decades. Learn for free at work. The best education you will ever have is your work experience. My employer reimburses my educational expenses so that’s another bonus.

Having said all this, saving is tantamount to earning. Don’t be a mindless consumer. I don’t own an Iphone, a car (no need), a house/condo (don’t see myself living here long term), and, most importantly (you can laugh, but I have saved thousands over the last couple of years!), i cook my own food. I rarely eat out/order in. I don’t drink and I don’t smoke. I have zero debt other than my credit card.

Over the last 3 years, I have saved close to 50k or 25% of what I have earned (started at the current company at 57k/yr) and lived comfortably.

\$1800-\$2000 a month on rent? I live for far less than that in one of the best areas in the city, in a 700sqft place. If you are struggling or want more cash freed up, rent is the first thing you should look into. Never, ever, pay more than 30% of your paycheque. Also, never, ever carry any CC debt beyond the 21 day grace period.

• ##### fitzsimmons

the study was not done in canada, using canadian tax rates and canadian dollars. \$75k in the states is a lot more than 75k in canada. maybe 90k in canada?

• ##### save. spend. splurge.

Perhaps! I am thinking more \$80,000 makes people pretty happy here. Even \$75,000 is still a nice number even with Canadian tax rates. Not all states in the U.S. have 0% in state taxes and only pay federal.

• ##### Tammy R

Hello Mochimac! I like the point about more hours on the job. When we decreased our income, our happiness increased but only because we could still pay the bills and enjoy more time together. We are now making less, spending less, and having waaaaaay more fun.

• ##### saverspender @ save. spend. splurge.

@Tammy R: Well the thing people miss is that when you make less you have to spend less too. (Myself included..!)

• ##### Chris Grande

I think it depends where you live but 75k sounds good. In an expensive city, it would adjust up, and in a low cost city maybe a bit down.

Perhaps we could clarify to say that 75k income either from work you enjoy, or from passive means would be really nice. Something to shoot for as I know you have written about that in the past.

However, if you have bigger goals (examples include – supporting your mom in retirement, becoming financially independent at an age younger than 65, etc) then you would have to work harder and earn more than 75k IMO.

I also think that regardless of income, having a goals and purpose in life helps make us happy. And we can think of anecdotes going either way (high income unhappy, low income happy).

Overall though, 75k sounds like the number for the average person to enjoy the things that “everyone” enjoys without working 100 hrs/wk.

Great discussion!

Chris

• ##### saverspender @ save. spend. splurge.

@Chris Grande: True. Passive income means would be dividend investing (you can see all my posts on that in my Investing Series), and it depends on if you want to work more to make more money, or live on practically nothing to save as much as you can.

• ##### Kathleen

I totally believe this. Past a certain point, we are only seeking out new Joneses to keep up with.

• ##### saverspender @ save. spend. splurge.

@Kathleen: You’re telling me! 🙂 I have Joneses all around me.

• ##### Pauline

\$5,000 is the monthly income I was targeting for passive income, to live comfortably and not have to work anymore. Now I live on considerably less than that, but it is awesome to have some wiggle room to invest some more, build wealth and lifestyle inflation.

• ##### saverspender @ save. spend. splurge.

@Pauline: That’s the key — the wiggle room to do what you want without having to check your bank account or balance, which is where I’d like to be, forever.

• ##### Cat Alford (@BudgetBlonde)

I saw that article, and I thought it was really interesting. I think 75k would be a very nice number for sure!

• ##### saverspender @ save. spend. splurge.

@Cat Alford (@BudgetBlonde): As many people have mentioned, it depends on cost of living too.

• ##### Debt Blag

My apologies, but can I make an obnoxious point? Inferring from the study, people aren’t happiest at \$75,000; in fact, they found that happiness and income were positively correlated throughout the income range. What happens at \$75,000 is that the rate of happiness with respect to income (i.e. the second derivative) starts dropping (and fast).

This makes sense to me. It’s somewhere around that income that money no longer becomes a huge factor in dealing with bad situations. In over-simplified terms, the difference between having to choose between seeing a doctor and eating will have a much bigger effect on my net happiness than the difference between getting extra cheese on my sandwich 🙂

http://www.pnas.org/content/107/38/16489.full

• ##### saverspender @ save. spend. splurge.

@Debt Blag: Not obnoxious at all!

A very good point. I guess as I was writing it, I was thinking more like: MAXIMUM HAPPINESS at \$75,000!.. as in, it maxes out at that income range in terms of money no longer being a problem.

Great point and an even better example with the cheese 😛

• ##### Bridget

I’m making about that but debt has really cut into it. When you think I’m putting \$10,000 of my net income towards debt each year it kind of deflates the fun balloon.

But yeah, I’m pretty happy! I go on lots of trips and more often than not, buy whatever I want.

I still want more money though. What does that mean?

• ##### saverspender @ save. spend. splurge.

@Bridget:

“I still want more money though. What does that mean?”

It means you’re expensive? 🙂

• ##### Debt Blag

@Bridget: Uf. You and me both. I’ll pay something like around 40% of my before-tax income to debt service this year.

• ##### Bobby

Wow, that’s some debt. Not related to an MBA, I hope. I make 75k working for a global CPG company with only a college diploma that the gov’t paid for and I have ZERO debt in life.

• ##### Gen Y

I remember reading this article on Time Magazine back in 2010. I do agree all is relative, when I look at peers who are struggling, I feel very very grateful. Then I look at peers making 6-digit incomes and feel a twinge of jealousy. I do my best to be on the grateful side most of the time.
Also, apparently us Canadians top the happiness list as eternal optimists who feel their lives are going well. : )

• ##### saverspender @ save. spend. splurge.

@Gen Y: Even I will admit to being jealous of people. Who isn’t? It’s how you deal with that jealousy (will it consume you or will you use it to be motivation / accept it?) that matters the most.

We are pretty happy folk overall. A lot of people who move here (immigrants from Europe) tell me that they’d rather live here than the U.S. 😛

I like the distinction between day-to-day happiness and overall life satisfaction. I think it’s easier to reach the upper limit of the former (it likely involves less factors), and it’s also probably more sensitive to factors that are not money-related (like the weather).

But I kinda question your \$75K budget. Now, I am not saying that a \$75K salary is not quite high. A single person with no kids would indeed live a life of relative luxury on that kind of coin (especially if they didn’t have a \$2K mortgage – yikes!). But if you’re the sole income earner for a family of 3-4, and making \$75K a year, I think it would be a different story – at least in Canada. It would take a fairly frugal family for the household budget to be satisfied on all fronts (especially if a mortgage or any other debt is involved). It might be different in (some parts of) the States, where the cost of living tends to be cheaper.

• ##### saverspender @ save. spend. splurge.

@AdinaJ: I agree that learning the distinction matters for me.

OOo good point. I was reading it at \$75K for myself as a DINK, but with a family, how much more money do you think they might need to be comfortable?

@saverspender @ save. spend. splurge.: I don’t know, it really would depend on their lifestyle expectations, debt levels, and overall financial plan.

What scares me is the math I find implied in many “average” families’ lifestyles. For example, around here, the average SFH price is currently a bit over \$400K; assuming around 10% down payment, that would mean that mortgage + taxes would run somewhere close to \$2K/month. Add another \$200-300 for utilities. Then add the financing, insurance, and gas for 2 cars – another \$1,000-1,500 easily if not more. You are already potentially at \$3,500, before groceries, cell phones, cable, household stuff, clothes, kids’ stuff, vacations, etc., etc. I used to think it was nuts that people on GVO’s show would routinely spend \$10K+ per month without living a particularly luxurious-seeming lifestyle; now, I am not surprised. It’s rarely obvious extravagances that put serious dents in people’s financial lives – it’s all the so-called necessities of life.

• ##### cj

Love your article. I suppose I could be happier, but I am pretty happy making less. What % of people on earth make \$75,000? And can the earth support everyone making that income?

• ##### saverspender @ save. spend. splurge.

@cj: It sure can be supported if the cost of living goes up 🙂

• ##### Jane Savers @ Solving The Money Puzzle

I grossed 49K last year and I am ok with that but I would be a lot happier if I made 75K.

You are right in assuming that it is all relative. I have money envy because most of my friends are wealthy or at least well to do. If I had lower income friends then I might not feel so frustrated with my inability to head to Rio for a long weekend or meet my friends in Vegas for a birthday celebration.

• ##### saverspender @ save. spend. splurge.

@Jane Savers @ Solving The Money Puzzle: I think we both need to get friends to ground us back to reality. Or at least, I do.

(which is why I started scheduling meets with more of my friends!)

• ##### StackingCash

It’s almost unfortunate that few people make that amount. That amount really provides for the basics and some luxuries. However, I feel it is not high enough to provide enough savings for the future.

The disparity in wealth is quite disturbing. I’m far from being a socialist, but I feel that the amount of corruption and a general unfairness exists here in the United States. It is at the point where I feel a French style revolution could occur here. The wealthy should really take heed to that and figure out how to provide jobs instead of outsourcing everything for the sake of profit.

Then again, I’m just extremely jealous of all the bling I see around me. I should move to the slums and be more content with what I have. Must focus on that for sure.

• ##### saverspender @ save. spend. splurge.

@StackingCash: Moving to the slums would be an option but the one thing that has stuck with me was what my mother said (she grew up in poverty):

It is easy to not want what you have never experienced before.

…meaning, if you already live a comfortable life, you would be good to stay at this lifestyle rather than upgrade it. People who live in slums don’t envy your life because they’ve never had it, but once they taste it, they can’t go back.

• ##### StackingCash

Unfortunately I have tasted quite a bit of luxury in my life. I also live in one of the worst cities that constantly flaunts wealth in my face, Las Vegas, NV. Words cannot describe it.

• ##### saverspender @ save. spend. splurge.

@StackingCash: Eeep. That’ll do it.

Erm.. you’re screwed then? *sigh*

Maybe you can move to the middle of nowhere, where luxury means eating oatmeal with honey instead of water for breakfast.

• ##### Gen Y

@saverspender @ save. spend. splurge.: I just saw your comment and it resonated with me. We have a saying in our culture that it is easy to go from rags to luxury, but it is extraordinarily difficult to go from luxury to rags.