Being rich is no fun when there’s no one around to share your great fortune. Once you’ve made the rounds in your home gym or gone skinny dipping in your infinity pool for giggles, life starts feeling pretty lonely again.
Many of us are either forcibly or voluntarily cutting back on our expenses due to unemployment or the unknowns ahead. On top of the stress of an uncertain future, scaling back our lifestyles can be a real bummer. And while I want to recognize that this transition will be much more difficult for some more than others, it’s a great time for all of us to step back and recalibrate our needs before we return to the hustle and bustle of our pre-pandemic routine. Managing personal finances effectively will help maximize your money but getting in the right headspace can save a fortune as well. Consider all the mindless purchases you make because of convenience, lack of time, FOMO, or complacency. Now that many of these luxuries and temptations are gone, we’re beginning to rediscover the ordinary and less expensive moments that bring just as much happiness and joy. So are these fleeting experiences an anomaly due to an unprecedented crisis? Or can we harness them for long-term gain? To find out, I turned to the research. Maximum Income for Maximum HappinessOne of the most well-regarded studies on the relationship between money and happiness is a study conducted by psychologists and economists, Daniel Kahneman, and Angus Deaton. In 2008-2009, Kahneman and Deaton conducted a survey across 1,000 US residents at different income levels and analyzed the impact of money on well-being. Well-being was evaluated in two ways - life evaluation and emotional well-being. Life evaluation focused on a person’s view of his or her own life over a longer period of time. Emotional well-being focused on the quality of day-to-day life, such as joy, anxiety, anger, and affection. There were two key findings in this research: 1. Life evaluation increases as income levels increase. The more income respondents made, the higher they rated their life evaluation (i.e. “best possible life”). What’s interesting to note as well is that increases in life satisfaction between high and low-income earners were relative. In other words, someone earning $20,000 a year who gets a 10% bump (i.e. $2,000) in their income will raise their life evaluation rating by the same amount as someone earning $100,000 a year who gets a 10% bump (i.e. $10,000) in income. Therefore, as you earn more income, it takes a larger amount of money to move the needle on your life evaluation scale. More money, more problems. 2. Emotional well-being levels off at $75,000 annual income. Adjusted for inflation (since this study was conducted in 2008-2009), the maximum level of happiness peaks at ~$90,000 per year. Even though respondents with higher income levels had a more positive view of their lives, their day-to-day emotional state plateaued after the $90,000 (in 2020 dollars) mark. This is presumably the threshold for comfortably meeting a household’s basic needs in the US. Respondents making lower than $75,000 a year (or $90,000 in 2020 dollars) reported decreasing happiness and increasing sadness and stress. Lower-income levels clearly exacerbate life’s misfortunes, most likely because of the inability to cover one’s basic needs. 
Life satisfaction (i.e. "Ladder") rating and emotional well-being metrics (i.e. "Positive affect", "Not blue" and "Stress free") plotted out by income level.
The study goes on to break down different characteristics within the high-income category to explore the effects of some of these differences. The chart below shows us for example, that older generations have higher life evaluations along with higher rates of emotional well-being (i.e. increased positive affect, lower “blue” affect, and lower stress). Graduates on the other hand, also have higher life evaluations but report higher levels of worry, sadness, and stress. 
Ratios > 0 for "Positive affect" reflect more feelings of happiness and joy. Ratios > 0 for "Blue affect" reflect less worry and stress. Ratios > 0 for "Stress" reflect less stress. Ratios > 0 for life evaluation (i.e. "Ladder") column reflect a higher life evaluation.
To me, these results make a lot of sense. If you’ve been making your way up the ranks in your career or are working towards personal life milestones, you’ll probably look back and feel some level of satisfaction about how far you’ve come. But if you think about an ordinary Wednesday, I’m guessing that the daily hustle can feel just about the same in years prior. Thanks to hedonic adaptation, it doesn’t take long for us to adjust to new routines or belongings and revert back to our baseline level of happiness. Even if your life circumstances have changed, you probably feel a similar mix of joy, stress, anxiety, or worry. Why else might happiness plateau after a certain point? Chances are if your income level has increased over time, your cost of living has too. The extra overhead of managing and financing more material goods or responsibilities can bring a host of new challenges as well. I certainly would not trade the four walls I have in my bedroom today for the three (real ones) I had during my post-college years in my small NYC apartment. But if I don’t keep my financial obligations in check, the stresses of supporting a higher mortgage and maintaining a larger home can quickly outweigh the benefits of a higher income. Am I Doomed?
Is a $90,000 annual income the end-all-be-all for maximum happiness? Absolutely not. To me, the main takeaway of this study is that our emotional state remains relatively stable in the long-run once we’ve established a comfortable lifestyle that meets our essential needs, regardless of the income level that may translate to. Any other extras will only provide a temporary boost in happiness.
There’s no shame though in continuing to work towards a high-powered career or high-paying endeavor. Building leadership and expertise in a particular field or industry is a rewarding and honorable pursuit. And reaching those milestones, whether personal or professional, gives us purpose and that boost in life satisfaction that we see in respondents of this survey. What this study suggests though is that extra cash alone won’t exponentially improve your day-to-day life beyond a certain point. If you’re not doing something fulfilling, it’s probably not worth the emotional or mental toll for the sake of raking in those extra dollars. Your time would be better spent working towards the freedom to do what you love instead. Well-being for Any Income Level
Making cutbacks or scaling back spending is never easy. The good news though is that evidence-based data shows there are many relatively inexpensive habits that can boost our mood - social connection, gratitude for what we have, helping others in need, moving our bodies, and being present in the moment. No private yacht required. These are the things we should be truly working toward to raise the bar for our emotional well-being. If we can tune into these daily practices, we may not even need to go back to some of our old ways!
Don’t believe me? I highly recommend the free online course, “The Science of Well-Being” by Dr. Laurie Santos at Yale. Dr. Santos provides a body of evidence-based research around the psychological drivers of happiness, including the study discussed here. If you don’t have the time to power through the class, many of the same topics are covered in “The Happiness Lab” podcast. Have an even happier day! Comments are closed.
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