Americans: $105,000 A Year = Happiness, But Why?

Can money buy Happiness?

We’ve all heard the phrase “money can’t buy happiness”. Hearing this phrase invokes one of two reactions, either dismissal as one thinks about all the things you could possibly do with unlimited money, and the other is to agree wholeheartedly. However while money doesn’t buy happiness per say, being broke is no fun, while on the other hand, being extremely rich is a lot of fun. Interestingly enough the ideal income for Americans is one that neither allows the person earning it to be rich or broke. According to a study that was quoted by USA Today, when asked “what the ideal income was” American agreed that $105,000 was the optimal income for happiness. Implying that earning any more than that would make one, less happy overall.

Hours worked isn’t proportional to income

But this led to me asking, why it was the best income possible? In my opinion it lies in two reasons, one reason is the perceived amount of work it takes for people to achieve a high income and the other reason is the lack of understanding people have about other income streams. The first point is quite obvious to point out, the general consensus is that the more you earn, the more you must work, which is true for the most part but it’s not proportional. For example the average worker may make $40,000 and work 40 hours a week, which equates to $1,000 a year per 1 hour worked a week. However if we take someone that makes $1,000,000 a year there can be no way that they could work 1000 hours a week because it’s obviously impossible as there are only 168 hours in a week. When you move up the corporate ladder and the earnings ladder your earnings become more “efficient”, in a sense as you build more skills than the average person has, which means your time is worth more to people.

There always needs to be more than one revenue stream.

The second point that I stated earlier is more of a societal issue, which is people think that you should have only one revenue stream. From there perspective they see the higher ups in their respective companies working around the clock for a low six figure salary. Which of course, is nothing to sneeze at, but may not be worth 120 hours a week to most sane people. However what they don’t see is the extra $30,000 a year that person makes from their rental houses that they own. They also don’t see the other $20,000 in dividends awarded to them from companies they invested in. And they for sure don’t see the increases in their net worth through the appreciation in value of other non-dividend investments and even their primary house.

Cost of living?

Another point that I feel is worth mentioning is that studies like this include a vast array of people from all parts of the country, and even the globe. For example $105,000 will probably be a poverty wage for someone in extremely high cost of living cities like New York or San Francisco. However $105,000 will allow you to live like a king in rural Kansas or Wyoming. It’s all about cost of living when determining what the optimal income is.

In conclusion money, in my opinion is should be used as a tool in order to clear up more time for yourself. The old adage that “Money can’t buy happiness.” is 100% correct. However what money can buy is time, time for your family, time for your hobbies and time for yourself. I believe that you should not aim for a certain salary and call it good because “well if I made more, I would have to work more” because doing that would only ensure that you would be working many more years than you need to. However working 100 hours a week for a pretty good salary isn’t ideal either. The point is to find balance between your working life and your home life until you finally have enough money in become financial independent and retire early.

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