The Key To Happiness Is Saving More Not Making More Money!

The key to happinessWe've discussed the curiosity of financial hoarding as well as one way in which to eradicate the disease by revealing our desires for public shaming. If we feel ashamed, we simply don't spend as much money. Some folks found it a little strange that I find delight in getting judged for having spending desires. After all, we should keep our thoughts pure in order to reach salvation.

The truth of the matter is that my love for saving money almost always trumps whatever negativity or difficulty I've got to endure to save more. The pain of working 14 hour days in my 20s was no match for the joy of having more savings in the bank. The delight of making active income keeps me engaged in retirement for 2-4 hours a day despite generating enough livable passive income to not have to work. Each comment I get about being wasteful for even thinking about spending money on a new vehicle or a watch makes me happier because it reinforces my desire to save more in order to save the children.

I even sacrificed eating tons of yummy cheeseburgers from Shake Shack and In N' Out Burger since 2000 just so I can always fit in my pair of Diesel jeans I bought for $140 on 5th Avenue in NYC. The guilt of spending over $50 for a pair of jeans at the age of 23 made me want to stay in shape forever so as to never have to buy another pair again! (Read: A Weight Loss Tip To Die For if you're serious about permanently losing weight)

Another reason why I'm obsessed with saving money is because I've been ripped off one too many times. From the Mumbai taxi driver who takes the scenic route to my hotel, to the electronics salesman who strongly pushes a product despite knowing it will be on sale the next week, to borrowers who promise to pay me back but never do – I've been thoroughly traumatized by my money spending experiences that I figure if I never spend money, I'll never lose!

The Key To Happiness: The End Game

The main focus on Financial Samurai is to achieve greater happiness through financial independence. We need to do more of what makes us happy, and less of what makes us sad. Based on my experience of earning $3.65hour flipping burgers at McDonald's to making much more than the President Of The United States during my time on Wall St., I absolutely believe that $200,000 a year is the ideal income for maximum happiness.

The one enigma I've been dealing with for the longest time is wondering what the hell is wrong with me for continuing to want to save so much. How much does someone really need after accounting for all the basic necessities for survival, especially if there's already a decent flow of passive income? I then stumbled across a survey by Ally Bank which really made a lot of sense.

Their conclusion based on surveying more than 1,000 people is simple: the more you save, the more likely you are to be happy. But what's more interesting is that saving money affects happiness MORE than how much you earn.

Take a look at the breakdown of the percent of people who felt very happy based on savings amounts:

  • 57 percent who have $100,000 or more in savings <— Big jump!
  • 42 percent who have $20,000 to $100,000 in savings
  • 34 percent who have less than $20,000 in savings
  • 29 percent who have no savings

Now take a look at the breakdown of the percent of people who felt very happy based on income:

  • 45 percent who earn $150,000+ <— A 3% decline!
  • 48 percent who earn $100,000 to $150,000
  • 43 percent who earn $75,000 to $100,000
  • 40 percent who earn $50,000 to $75,000
  • 25 percent who earn $25,000 to $50,000

There is a massive 15% increase in the amount of people who feel very happy when their savings increases to over $100,000. Meanwhile, there is a 3% decrease in the amount of happy people when income increases to over $150,000. Fascinating!

My hypothesis about the decrease in ‘happy people' making more than $150,000 is simply that making more money usually entails more stress and more work. The stress on Wall St. gave me a couple years of sciatica and lower back pain until I read Dr. Sarno's book in 2001 which changed my life forever. Towards the end of my career I had constant golfer's elbow as well as TMJ, where I grinded my teeth at night. Like magic, both symptoms disappeared within two months after I retired.

There is no happiness plateau with saving money in the survey because savings gives people peace of mind, pride, and independence. The less fear you have of going broke and the more freedom you have of doing whatever you want should definitely make people more happy! I just wish the Ally Bank survey didn't stop at the $100,000+ level.

Happiness And Financial Hoarding

We should eradicate the words “financial hoarding” from our lexicon and replace the words with “super saver.” Super savers are acting in a perfectly rational manner – we are saving more because the positive effects of more savings makes us more happy.

The only people who seem to bag on super savers are those who don't have the ability to save a good percentage of their own income or simply don't have a lot of money and are resentful towards those who do. Is it just human nature to try and make others feel bad for things which we cannot do. Perhaps the crazy people are the ones who get into massive consumer debt by spending more than they earn because their actions make them less secure about their future. But then again, I'm just judging because I haven't possessed the ability to splurge since I was in my early 20s.

The conclusion for ultimate happiness is to therefore earn roughly $150,000 – $200,000 a year and have over $100,000 in liquid to semi-liquid savings. But don't forget, if you are making $200,000 a year, based on my net worth by income chart, you should have about $160,000 in savings at 35, $240,000 in savings at 40, $360,000 in savings at 45, $480,000 in savings at 50, $600,000 in savings at 55 and $800,000 in savings at 60 if you allocate 20% of your net worth to risk-free assets.

It's amazing how all things come together now if we do a little detective work!

Related: Solving The Happiness Conundrum In Five Moves Or Less


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62 thoughts on “The Key To Happiness Is Saving More Not Making More Money!”

  1. Noor Ullah jan Jan

    The actual argument over whether you need to invest or repay debt usually targets financial numbers, for example rates of come back and interest costs. Maybe happiness should participate the equation too.

    Studies in a number of countries, including the actual U. S., Norwegian, Ireland and The country, have found high amounts of financial satisfaction among seniors. Happiness with the money situation has a tendency to rise with grow older, even though the income peaks in midlife after which generally declines.

  2. Pingback: Top Financial Resolutions For The New Year | Financial Samurai

  3. “Readers, do you agree that more savings is more important than a higher income for a higher happiness level?”

    I would agree. A higher income doesn’t really do anything for my happiness. My OCD, for better or worse, is centered around financial “hoarding”. Whether this contributes to happiness or not is debatable. It’s just how I am “wired”. It is what it is.

    “How much savings in the bank do you think it would take until your happiness plateaus?”

    I am 41 and my wife is 38. Speaking for myself my happiness plateaued when our net worth hit $2m. We’re at $3m now and our happiness level hasn’t changed in awhile. Consumerism used to provide happiness when we were in our 20s, but now I just find that material things just wear out and look “old and worn” after a year or so. Which further discourages me from pursuing materialistic sources of happiness.

    The brain is a weird thing, however, and it always throws hints that I might be happier if I considered buying that car, or that watch or whatever else looks “cool” at the moment. But it also recognizes that this isn’t true – that I will become bored of that item within months of it’s purchase. If not sooner.

    The sad cliché appears to be true – that the only way that I have found to maximize my happiness is to spend time with family and friends over drinks and food. Everything else has very limited to minimal impact on my happiness. Especially as I get older, this idea, for better or worse, seems to be the only means of happiness that I have been able to come up with.

  4. Totally agree..although more than 50% is easily manageable depending on your income or if you have multiple incomes in the house. My wife and i buckled down for years to reduce debt and save for an extended sabbatical driving through mexico/central america.

    Now, were back and convinced there’s no reason to go back to work (at least yet). We dont have an income so savings isnt possible, but there are other ways to reduce costs/spending. We are currently converting our garage into a small “mansion” for us to live in. We will keep renting the house and live in a great neighborhood rent/mortgage free!

  5. Ryan @ Impersonal Finance

    Awesome, thank you for putting this into words! I would much rather have more money in my savings account than I would be with some new ride. I also think there might be something in the percentage of income that is saved. Two individuals just beginning their careers might only be saving 20k a year, but that could be 50% of their take home income. It would be interesting to see how happiness corresponds to percent of income saved. But all in all, to eventually be my own financial man, I would rather be saving than spending right now.

  6. I believe we are missing the trick here.. one of the best criticism of motivation models is that people can be happy without having money.. read the list of countries on happiness index and you will find countries with little income and little savings but highest degree of happiness. Though the concept of super saving is really good as it offers you a cushion but question is what utility the extra savings offer us? is the real trade off of savings is not having to work anymore? if one do not have to work, than what is the real sustainable alternative?

  7. First time posting on here, but this article reads like my life the last 2 years. Very interesting in regards to he drop in happiness that occurs over that 200K mark. I had the exact experience happen to me. I busted my hump for years and quickly rose within my company and then in another. I was extremely comfortable at 37 making 200K. I had a great life and the time to enjoy it. I worked hard, but enjoyed my job so it wasn’t “work” to me. It also played to my strengths, which made it even more enjoyable. I was asked to take a promotion within my company and thinking it was the smart thing and the next thing to do, I accepted. It wasn’t worth it, not even close. I moved away from a place I loved, took on responsibilities that really weren’t playing to my strengths and got away from a role that I enjoyed doing and what had made me successful. The money was great and the stock was even better, but I was constantly looking for opportunities in and outside of the company to get back to doing what I enjoyed. Fortunately I was able to get back to my old role after 18 months with my same company. I have zero desire to “run” the company and “climb the corporate ladder” anymore. I got a peak behind the curtain and realized I don’t have the desire to be the wizard. I would have to give up too much, and to me, it isn’t worth it. I feel fortunate to have found this out at a relatively young age and can now sit back and enjoy my life (and job). The downfall is it cost me about 75K to learn this lesson (company moved me over, but wouldn’t pay to move me back, so realtor fees, moving, etc…).

  8. Ben @ The Wealth Gospel

    I had an employee I used to supervise who rarely did his job, so we cut his hours. He always complained he wasn’t getting enough pay or hours. He showed me his bank statement once and said he just couldn’t deal with what he had. What I saw, though, was that he was spending $15-20 every day eating out and was going out every weekend spending $50-100. Some people you just can’t teach. It’s sad, really.

  9. supernova72

    I thought I had posted a this once but didn’t find it.

    On your net worth by income charts how would u account for a defined benefit pension plan on a net worth calculation? I’m behind per the chart (NW $970K @ 53 yrs old). However my pension will be $34K a year @ 55 yrs old until I expire.

    Thanks in advance.

    1. Easy. Capitalize the value of your pension. $34,0000 / 3% = $1.13 million. It’s worth $850,000 if you use 4%. 3 or 4% are realistic numbers. Add the value to what you have now and you are set!

      1. Thanks for this info FS,

        So should one go one step further and figure another $600,000 to the NW for a social security pension of $2000 a month? I am hesitant to do either because they both end at death of man and wife. We look forward to leaving enough for schooling for grand kids as that was done for our children.


    2. supernova72

      Thanks so much and that is simpler than I thought. I was trying to use a calculator (below) and when asked about interest rate I input what our plan is invested at (5.25%). I guess that isn’t very important once you start drawing so thanks.

      Makes me feel a bit better. They give us an accelerated income option from 55 to 62 unitl SS kicks in. In that scenario it would be $40K until 62 then a lower pension from that point on. Thanks again!

  10. I’m not so sure. The joy of saving money overweights the pain of a cavity, so they continue to save. If it didn’t, they’d go to the dentist and brush and floss more. Rational!

    We are beyond the idea of money hoarders. I think those who save a ton are acting perfectly rational.

  11. Justin - Victory Coaches

    This is a great post–the tie between happiness and money fascinates me as well. It also reinforces what I generally recommend, which is to set net worth goals (savings driven).

    A question on the $150K+ earners- do you know what they asked to measure happiness? Another hypothesis could be that these people are never satisfied (confused with happy) and are always striving for more. From what I’ve seen, it’s the $100-150K folks that seem to work the hardest, put in the most hours, etc…, not the people above them.

    1. I think it was a simple question: “Are you happy to extremely happy?” at various income levels. Definitely some subjectivity here as each person’s definition of happiness is different. But with a sample set of over 1,000, it’s statistically significant.

  12. Charles@gettingarichlife

    When we first bought our house and got married at the same time we were bleeding cash. That was a highly stressful time and I definitely was unhappy. Now that we are cash flowing every month I’m definitely happier.

  13. Saving and investing has been a way of life for as long as I can remember. I am concerned that I may not be able to switch on the spending gene when I retire though. I keep the saving on automatic and have for more than 40 years, but I love seeing it grow just a little more. I wonder if this feeling changes when I think I have enough or will I always raise the goal?

    1. I think you will always raise your savings goal based on what you’ve written. But, I will definitely help you spend your money by allowing you to buy me some kobe beef prime rib and a great bottle of wine when we meet up.

  14. It is probably more because job earnings are a concave yield curve (0-40-70-90-100-115) on top of expending more life energy to earn the decreasing jumps in salary, as opposed to an investment curve which is typically convex (0-5-10-30-60-100-150) while spending less and less time involved in its growth (ideally)… Holy crap, math works! =P. – I enjoy your blog and ensuing comments – Cheers.

  15. Bryce @ Save and Conquer

    We have over $120k in “savings” by way of CDs and i-bonds. We typically have around $5k-to-$10k floating around in our checking account at any one time, as well. Everything else is invested in low-cost passive index funds in a reasonable asset allocation for our ages. We are pretty happy with that.

      1. Umm…I’m a bit too embarrassed to get into it into too much detail lol. Toys and clothes for the kids. Gear for the hubs. Diamonds for me.

        But before you shame me on the diamonds! I’m also a GIA student and I know how to get the best deals on diamonds and how to sell them at a profit when I tire of them. Also a little hint, they were fancy color diamonds, and they are being bought these days by inventors…check out how much they have increased in value in the past 10 years and some of the hammer prices they have been going for at recent auctions!

        In general I know how profit or at least break even on things I want.

        I posted some fun comments on how to do that yesterday for the stuff you were wanting…I don’t see them though… did firefox eat them, or did you not want me to give your readers bad ideas lol :)

        1. Cool. But how do you know they are not blood diamonds!

          I’m still in Hawaii for another week and basically all comments go to spam filter for moderation. I have to manually approve then so it takes time. There should be a “pending approval” message after each post. Your comment should be live.

  16. I would agree with that statement. Especially if you have the money invested, you basically reach a point where the savings can increase your income and help you save even more. That and savings provides you a form of stress relief. You don’t worry about financial emergencies because you have the savings to cover them. Less stress is always going to correlate to increased happiness.

    1. Indeed. Money is constantly sited as one of the biggest stresses. If you have money, then that goes away. The fascinating thing is more savings vs. more income for more happiness.

  17. Done by Forty

    Thought provoking stuff, as always, Sam. My favorite wrinkle in the data is that there’s a 3% decline in happiness at the very top of the income ladder. I think you nailed the reason: the people at that income tier are almost always working a preposterous amount, as that is expected of positions earning that much. The negative impacts on their life are greater than the benefits of the extra $100k+.

    I wonder if continually saving more has a similar plateau/decline in happiness. The data doesn’t capture the difference between someone who’s saved $100k and someone who’s saved $1M. Might there be a similar wrinkle at the top?

    1. I can answer your question based on my experience saving more than $100k in CDs: every $100,000 more in savings continues to provide similar incremental happiness if the interest rate return was the same. But bc interest rates have declined it takes around $160,000 to achieve the same $100,000 feeling.

      When I look at the cash flow generation of my savings, that is when I feel the happiness.

  18. Being financially secure makes us happy. We don’t cut back on the few things that matter in our lives, but save aggressively on the other things we don’t care about. Having money saved makes us more relaxed and happy, than getting into debt.

  19. I think saving is very important when you’re starting out. It will give you a head start on investing and it will build good habits that will last a lifetime.
    It’s how much you keep, not how much you make, right? A lot of people make a lot of money, but they spend it all. Having a lot of saving provides security and that ties directly to happiness for many people.

  20. I absolutely think that more savings is more important to happiness than more income. Regarding the question of how much savings is needed before happiness plateaus – for me, this is an issue of being able to walk away from my corporate job as soon as possible (I am 46). Until I reach that goal, I don’t think that my happiness will plateau – in fact, I think there is as much anxiety (maybe more) about being 80% to the goal vs. being, for example, 40% to the goal. Being 80% there, you can see the goal line but it is still a bit out of reach. I think this weighs on the happiness factor as we continue to save a good % of our income but still haven’t quite made it to the end goal.

    1. Hi Dave

      I definitely hear you about there being more anxiety when the goal is closer. I also know why. If things go belly-up, you have way more to lose at 80% complete than at 40% complete. But, setbacks are all part of the game. No risk, no reward.

      And, at least for me, there’s also the age thing. I keep having birthdays every year. And, in my profession, there’s definitely a steep drop-off after 40 in terms of employability, with 50 being considered only fit for the most basic work or the dustbin. That adds an element of pressure to an already very emotional deadline.

      On the upside, though, investing has an interesting way of compounding on itself. So, at the present pace, you may be at 80%, but with reinvesting your gains/cashflow/whatever, you may actually be closer than that.

      One thing Sam has said more than a few times already, though, is that you need less than you think to retire. I’m guessing that many of us on this blog may already have enough, but “to be on the safe side”, we overachieve as usual, because that’s just the way we roll.

  21. The First Million is the Hardest

    I can definitely see how savings and happiness would be related. Having ample savings and not having to worry about many money issues is a huge burden to life off of someones shoulders. If you don’t have to stress about how you’re going to pay for a car repair, or how you’re going to eat if you get laid off you’re sure to be a happier person!

  22. I do both! I am a high income earner and I save at least 50% of my income. Although it is much easier when you make more to save more. My savings does not sit in my accounts it is being invested back into rental properties which are then bringing in more money. It makes me very happy!

  23. I’m not so sure about the saving-vs-happiness in my particular case. Of course, it’s necessary to have some sort of financial cushion.

    But when my savings gets into the 6 figure range, I tend to get a little antsy to invest it and feel like it’s wasting away. To me, it’s like coming home from a hard day’s work and seeing my money sitting on the couch, watching TV and saying “Dude, we’re out of beer and cheetos!”.

    Get off your duff, savings!! Go get a job and start paying your way around here!

    Tough love…

    1. Very good point, which is why I write “liquid to SEMI-liquid.” In other words, putting the savings in a CD ladder or online bank account to earn 1%-2.5% at current rates. At least it’s growing and provide that cushion.

  24. Yep, happiness increased as we got older and could easily afford to max out retirement savings. Pay increased as well. So when I was laid off recently, it was as if handcuffs were removed. There is so much clarity now. I enjoy things I had no time for in the past like simply watching a hawk stalk it’s prey from the tree top. There are no more commutes in heavy traffic. On a whim I can jump on the motorcycle and take a ride to nowhere and clear the mind…or just ride to the shore and watch the waves roll in.

    1. “Clarity” is a very powerful word. This is something early retirees experience as well. We often see things much more clearer and wonder why we didn’t leave or do things to get out even sooner.

  25. Gotta admit saving a lot does provide a nice psychological boost… sort of feels like you’re progressing in life and working towards something better (financial freedom).

    For those who are sick of their day jobs, it’s even more empowering b/c you can look back on the progress made each month and know that you are getting closer and closer to the end game.

    Yes, I do agree that happiness should be the end game. For a lot of people on the journey, financial freedom = happiness = end game!

  26. I go through mini waves of spending. I just finished all my holiday shopping phew! But most of the year I’m really not spending, I’m saving. I love being able to transfer money leftover from my paycheck into my savings account every month. I’ve done a better job at then investing that cash too instead of just letting it sit there earning practically nothing. It definitely makes me happy to see my savings grow!

  27. Frugal Sage

    Of course saving a larger percentage of your income is more rewarding than earning more.

    If you save 40% of your income, your final goal of achieving a perpetual retirement income stream – only needs to hit the lower benchmark of 60% of your current income. Which means you are actually saving 66% of your real retirement needs.

    Just because you have money doesn’t mean you don’t have financial troubles. Those who earn heaps and spend it all, still live pay check to paycheck.

    No matter what income rate you are at, a savings cushion provides comfort.

    Of course, having said all of that, I wouldn’t mind having the best of both worlds :)

  28. I agree with Matt above. A good exercise is to name your portfolio. Mine’s called “Gratitude and Freedom.” What’s yours?

  29. Dee @ Color Me Frugal

    Thanks for the great post. It’s intriguing to see that happiness is affected much more by how much you have in savings than by how much you earn. Intuitively this makes sense, but the message hits home more when you see that 15% jump once you breach the $100K in savings mark. And to see that amount in savings yields more happiness than any of the levels from income alone in this study is also interesting.

  30. I definitely find a lot of happiness in saving, though I sometimes worry that it’s not totally a good thing. I mean, I firmly believe in the value of saving, but I think it needs to be balanced with an enjoyment of spending on things that make you happy.

    1. I totally agree with the idea of how saving needs to be balanced with that great feeling that each person gets while spending on those things that make us happy but sometimes those things cost way more than its actual value, however we tent to like it a lot and not care about the price.

  31. We have definitely become more happy since turning in to super-savers a few years ago. We have a sense of purpose now, a plan, and we work together to make it happen. I’m definitely more hopeful for the future because of this and saving more has actually allowed up to “up” our lifestyle because we’re wasting less and have more money to take nice vacations and enjoy ourselves.

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