In an amazing Gallup poll highlighted by the Wall Street Journal, it says that 100% of those who make more than $500,000 are “very happy”! That’s right. Not 98%. Not 99%. But a pure 100%.
This is a breakthrough research finding that has amazingly received little publicity. When you find perfection, it must be revealed! Surely this study is more earth-shattering than a University of Alabama PhD finding that those who ate more fried chicken had a higher chance of a stroke. More money, more delirious happiness, not more problems, silly Biggy. Read: Evidence Making Money Has Never Been Easier
Hence, the simple solution to eliminating wars and eradicating all levels of sadness is to make over $500,000. Folks like Bill Gates, Larry Ellison, Mark Zuckerberg, Michael Bloomberg, Li Ka Shing, The Walmart clan, Ray Dalio, and anybody who just inherited a bunch of money can make a difference in the lives of so many. All they have to do is donate $449,000 a year to median families given the median household income is roughly $51,000.
I want to see a tag-team cage match between Princeton economist Angus Deaton and Princeton psychologist Daniel Kahneman who say that $75,000 is the ideal income for maximum happiness vs. Michigan Public Policy professor Betsey Stevenson (currently serving as a Member of the Council Of Economic Advisers) and Michigan economist Justin Wolfers who conclude that $500,000 is the magic number. Don’t you?
HOW DO THE RESEARCHERS REALLY KNOW?
Chances are high that Deaton, Kahneman, Stevenson, and Wolfers have never made much more than $200,000. Take a look at the chart below of income levels for professors and instructors at the highest paid schools. The best schools must pay academics a competitive wage to retain and attract the brightest minds, otherwise, they’ll lose out to research institutes such as Pew, Gallup, the World Bank, Wall St. and so forth. Older professors like Deaton and Kahneman might earn more due to consulting gigs, but I can’t imagine that much more.
Given the upper limit is ~$200,000 a year, my immediate question is how these researchers with their fancy PhDs can speak so conclusively about their findings if they’ve never known what it’s like to earn a higher income? Everything they are doing beyond their income level is just conjecture. That said, good research scientists analyze data, remove biases, and come up with a conclusion.
So what did Deaton and Kahneman do to come up with their $75,000 figure? They analyzed Gallup surveys of 450,000 Americans in 2008 and 2009 about their happiness levels. That’s fine, yet here are two other professors from Michigan who’ve come up with this new finding in a 2013 study analyzing Gallup surveys. In other words, everybody is just coming to different conclusions from a similar source.
I don’t have a hundred thousand dollars in funding and a full-time job to come up with such findings like my esteemed colleagues do. But what I do have is the experience at one point of actually earning the full range of income in the relevant polls (less than $10,000 to more than $500,000). I’ve also got friends who make over $500,000 who aren’t very happy, but stressed out of their minds. One fella made over $10 million the other year and is trying desperately to quit his hedge fund job and teach again.
PERSONAL PERSPECTIVE ON INCOME AND HAPPINESS, ANALYZED
Let me start off by providing my “steady state” happiness level. From 0-10, with 10 being deliriously happy all the time, and 0 being suicidal, I’m about an 8. I hardly ever fight with my loved ones, and if we do, we make up within 30 minutes and laugh it off. The only times I remember really feeling sad over the past three years was when I lost a tough doubles match, which ended up being the decider in my team’s 2-3 loss. I was in a funk for a week. Then my pet of nine years died by my side, and I was thoroughly depressed again.
But for the most part, I’m pretty happy. Many people have asked me randomly over the years why I’m smiling, when I have no idea I was smiling in the first place. It’s my default predisposition. I define Gallup’s “very happy” as somewhere between 8-9. The following is a brief chronicle of various stages of income and happiness in my career to provide some personal insight. My happiness figure with regards to money basically will revolve around an 8.
Less Than $10,000 A Year: Life kinda sucked financially. I was making $4.25/hour and getting beat up by a power-tripping boss at McDonald’s. My back hurt a lot due to moving heavy boxes at my other job. I rode a bike to school because I couldn’t afford a car. When I finally did buy a car, it was a POS Corolla hatchback. The muffler was loud because there was a hole I could not afford to fix. It scared a lot of girls away. At least I was fit and full of hope. Happiness level: 6.8
$30,000 – $50,000 A Year: Everything was exciting in Manhattan. It felt like the future had unlimited potential. Unfortunately, my job came at a price. I gained 15 pounds in a matter of six months due to all the work hours (5:30am – 7:30pm+) working in finance. My allergies were debilitating, I had chronic lower back pain, and I tore my plantar fascia by simply walking around the office one day. That’s how stressed I was.
I lived in a studio with my high school buddy for $1,800, maxed out my 401k, and lived like a student for two years. The studio was simply a slightly more luxurious dorm room. Who needs to sleep in luxury when all they’re doing is working? With a first year base salary of $40,000, I had to live pretty frugally given I already had dreams of financial independence. Happiness level: 7.5 because I was so thankful to find a job.
$100,000 – $250,000 A Year: Hello wonderful San Francisco! I felt like I escaped prison given how grueling everything was in NYC. The weather is depressing for five months a year given the grey skies. It’s sweltering hot and muggy for at least three months of the year as well. Meanwhile, everything is so expensive in NYC. But it was really the complete focus on money, money, money that started to get to me about Manhattan.
San Francisco provided a much more balanced lifestyle. There’s wine country an hour north. There’s amazing skiing/snowboarding in Lake Tahoe. I was sold on the city when I went snowboarding in two feet of powder on a Saturday and played tennis in 72 degree and sunny weather on a Sunday. Besides finance, there’s a great tech/internet, healthcare, and arts industry as well.
I shared a crappy 2/1 with a random roommate for $1,600/month in SF ($200 less a month than the studio in Manhattan), but I was making 2-3X more. The place was at the edge of noisy Chinatown, but at least it was close to work. Lifestyle inflation was kept well at bay as I worked very hard my first several years to prove my worth at my new SF firm. After a couple years in SF, I saved up enough to buy my first property. It felt more meaningful to finally work for something more than just savings. Happiness level: 8.5 because I felt I finally found a place where I could live forever.
$250,000 – $500,000 A Year: Life is hectic, but good. I got a promotion and felt like I was on the steepest portion of the career growth curve. Lots of responsibility was handed to me as my Director left to become a client. But the pressure was immense because it was the first time I was fully responsible for a multi-million dollar business. It was tempting to spend money on fancy clothes, cars, and toys. Instead, I just raised my savings rate from 50% to 75% in my continued quest for financial freedom. I used my savings to buy a single family house at the end of 2004 and moved in early 2005. I finally felt like I had arrived because there were no HOA neighbors who could tell me what to do.
Going to business school part-time was a real ass-kicker. But it felt great to graduate in 2006 and have so much free time on the weekends again (no more 8-10 hours every Saturday). I drove around in a 1997 Honda Civic for a year until I decided to live it up by buying a six year old BMW M3 for $15,000. It was a fantastic car that I drove for two years until it began having transmission problems. Happiness level: 8.2 because I got used to the earnings and savings, but the stress increased.
More Than $500,000 A Year: The bull market felt like it could last forever until it came crumbling down in 2008/2009. 2007 bonuses were paid in 2008, and receiving the money always felt like a great big high for about two months. After that, it was back to the pressure cooker of trying to generate more revenue and rank better with institutional clients. It was a never ending cycle that finally halted.
Every day I felt fortunate to have a job during the downturn. Compensation was slashed in half as banks tried to avoid the fate of Lehman Brothers, Washington Mutual, and Bear Sterns by preserving capital. Because I lost 35-40% of my net worth at one point, I did a lot of soul searching. I was scared I’d lose it all due to leverage in real estate, despite having 25% of my net worth allocated in FDIC-insured CDs.
Being in the finance industry during a financial crisis really made me feel absolutely useless. Something had to change so I started Financial Samurai as a way to cope with the financial loss. Helping real people with their financial problems felt very rewarding so I continued on this unlucrative hobby while slowly losing interest in my day job until I finally left in 2012. Happiness level: 7.5 due to financial loss, disinterest in my occupation, and fear of the unknown.
Back to $100,000 – $250,000 A Year: Although I’m making several hundred thousand dollars a year less now, I don’t miss it. I’m very happy because I’m doing what I love. I used to love working in finance for the first 10 years (1999-2009), but I was getting bored and the financial crisis quickened my disillusionment. Furthermore, I’ve got so much more freedom now, which is probably the biggest reason for a bump in happiness.
My ideal income for maximum happiness is $200,000 because it feels right to pay roughly $50,000 a year in taxes based on the services and redistribution efforts the government provides, as opposed to paying more than $150,000 a year in taxes. Nobody is angry anymore for folks in this income range, even in super liberal San Francisco where two bedroom rentals average $3,700 a month.
At $200,000 a year per individual, you can still save 50% of your income, which for lifelong savers like me is an important thing to do. You’ll never have to worry about where your next meal will come from, or how the gas station is gouging you for 25 cents more a gallon, or how you’ve got to spend $20 on a cab home because the bus wait is 40 minutes, or ridiculous college tuition inflation.
The feeling of making a large sum of money is like getting into a college of your choice, passing a difficult exam, or having someone you’ve liked forever reciprocate their interest. But that feeling dissipates very quickly, especially if all you’re doing is saving it in a bank or investing it in the stock market. Eventually, you’re no longer too worried about starving on the streets. This is the reason why turning funny money into real assets feels so much better. You can actually see and touch your earnings. Happiness level: 8.9
Real happiness is spending time with family and friends. Real happiness is experiencing new and exciting things. My one word definition for happiness is “progress.” Even if I wasn’t making big bucks during my career, the thrill of a promotion with new responsibilities was good enough to make me happy. Going from a win-loss record of 6-4 in tennis to 7-3 the next year makes me happy. Watching Financial Samurai grow bit by bit every month makes me happy.
For researchers to say $75,000 a year is the maximum income level for happiness is absurd, because it doesn’t take into account where one lives and many other factors. The $500,000+ income level where everybody is “very happy” also is silly. Nothing is 100%. When you are making this level of income, the pressure is generally immense. People may be counting on you to pay their bills. You might be under a constant magnifying glass to perform by superiors. You might experience a lot of guilt too. You can’t just kick back and earn $500,000+ a year.
Most all of us have been financially poor once, unless we were just born to wealthy parents. Focus on progress instead. Money will eventually come. I truly do not believe we fluctuate more than 1.5 points +/- from our steady state happiness level, no matter how much or how little we make.
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