How Much Money You Need To Be Happy
How much money do you really need to be happy?
That’s one of the first questions I ask someone when they are figuring out what they really want to do for work.
The most common response I get is $100,000 a year.
Then I asked them, “Where did you get that number from?”
Most are stumped by my question. They pulled that number out of thin air and have no idea why!
Others give me a more honest and revealing answer.
They basically tell me because it “sounds good” when they tell other people. More on that in a moment!
For whatever reason, all of us have been taught that making $100,000 a year is the minimum threshold to be considered financially successful. (I’ve seen articles written about why making $300,000 a year is the new $100,000.)
You know what’s even more interesting? Studies have shown that the impact of our annual income on our overall happiness isn’t exponential for everyone.
In fact, it plateaus around $100,000 for most people, which means a lower return on your happiness for every dollar you make beyond that point.
So why the gap between desiring $100K and attaining optimal satisfaction at $75K?
If you will permit me, let me share my own personal experience.
I once fell under the spell of the $100K unicorn. I worked my butt off to gain admittance to this supposedly semi-exclusive club. However, once I crossed over that magic threshold my satisfaction quickly vanished.
It’s almost like landing yourself on the waiting list of a velvet-rope club. You feel super important. You are high on the illusion of hanging with an exclusive group of people normally just out of your reach.
After spending a few minutes inside Xanadu, you realize it’s just another club serving booze. The people have more attitude, but the same insecurities.
I thought making $100K would finally make me less anxious about work, but it only made me more anxious. It did, however, make me realize two things: 1) I needed to discover my own source of happiness and 2) I wanted to answer the question, “How much money do I really need to make to feel satisfied?”
The Comparison Trap
You know the real reason why most of us want to make $100K a year?
We think it will impress other people. They’ll think “he’s made it”.
It makes us feel important.
Like it or not, we all like to feel important. Not only do we want to feel valued, we want to be admired. It’s part of being human.
We all have our own way of how we need to feel important. Making $100K is a widely accepted definition of success in our society.
The overriding piece of advice from Dale Carnegie’s classic book, How to Win Friends and Influence People is to make everyone feel important if you want to get along with just about anyone. That’s about everything you need to know about dealing with humans.
You know what else we crave? Status. We’re hardwired for it.
Here’s my take from all the books I’ve digested about how our brains really work: our instincts drive us to seek our self-worth by comparing ourselves to other people.
But not by just anyone, but by our peers and our tribe. People who are very similar to us. For example, you probably place much greater importance on impressing your colleagues than someone from a completely different profession.
I call our desire to feel important and our craving for status, “the comparison trap”. In our modern lives, these behaviors make us feel like we “aren’t enough”. They make us feel anxious.
Back in the hunter/gatherer phase of human history, these mental maps were life saviors. Life was unpredictable and dangerous. You needed people you could count on because your very survival depended on it!
If you weren’t considered an important part of the tribe, you might get left behind. Your status was determined by the value you brought to the tribe. It most likely influenced how much food you received, special privileges or the type of work you might do.
The basic survival needs for most of us today are more than satisfied, but our need to “prove ourselves” has not diminished. (Although far too many still go hungry in our country.)
So exactly how do we know if we are succeeding in life if we don’t compare ourselves to the accomplishments of others?
We need to look inside ourselves. We need to compare our accomplishments against our own personal benchmarks.
When you think about it, making $100K a year is someone else’s goal, but is it yours?
The secret I discovered to stop comparing myself to others is by giving a voice to my inner voice.
You can do that by developing a self-awareness practice, so you can finally learn about the real you. I believe the most effective self-awareness practice is writing about your thoughts, feelings and actions every day.
For me, happiness comes from helping others create their own work and from having faith in my daily work habits.
Whether I make $50K or $100K from my habits, it doesn’t matter. As long as I have enough to live the life I want to live and enjoy creating the work I do.
Calculate the Cost of Your Lifestyle
Rather than guessing how much you need to make each year, why not calculate it? It’s possible.
When you become focused on making $100K a year, you actually put off living the lifestyle you really want.
You might say to yourself, “After I make $100K a year, then I’m going to buy the car I’ve always wanted or I’ll finally take a trip around the world.”
When you calculate the true cost of your ideal lifestyle, it’s not as much as you might think. You can start living your dreams right now. It might be over $100K, but I’m guessing for most of you, it will be much less than that!
You can find out how much money you really need by calculating the following:
1) Your total debt. (Credit cards, student loans, car loan, mortgages, etc.) Your monthly debt payment is determined by how quickly you want to be debt-free.
2) Your monthly living expenses. (Utilities, phone, cable/WiFi, food, insurance, transportation, clothes, etc.) Calculate how much money you spent over the past year on all your basic living expenses and divide by 12 to determine your monthly average.
3) Cost of unbudgeted expenses. (Entertainment, recreation, gifts, trips, one-time purchases, emergencies, etc.) Add up all of your unbudgeted expenses for the past year and divide by 12 to determine your monthly average.
4) Cost of stuff and experiences you want. These are possessions and experiences you want, but think you can’t afford. Include anything you want to change about your life and its associated costs. When you finally put a real dollar amount on your aspirations, suddenly they seem a bit more achievable than you previously assumed!
5) Income and business taxes. To calculate your true annual income, don’t forget about paying your income taxes and any taxes related to a business you own.
Now take the total cost of all the stuff and experiences you want and divide by 12.
That’s how much it would cost you on a monthly basis if you did everything within one year.
If it’s too much, what does that money number look like if you spread out the cost over two years or even three years? Is it more doable?
If all these calculations are still too much math for you, I created a Lifestyle Calculator to compute everything for you. All you need to do is plug in your numbers.
Click here to download the Lifestyle Calculator now.
One final recommendation.
Once you’ve calculated how much money you need to make each year to live your ideal lifestyle, I highly recommend saving enough money to cover all your expenses for one year for exactly how you want to live.
For example, you might have determined you need $65,000 to live your ideal lifestyle, so I recommend saving that same amount.
Nothing will make you feel more confident about your career options than having a year’s worth of expenses behind you!
