How much money do you need to be happy?
It’s not about how much money you have, but how well you manage it. We all know that money can’t buy love and money isn’t the key to happiness. At the same time, a number of studies have demonstrated what we instinctively know that having enough money to live comfortably makes a big difference to our overall well-being and life satisfaction.
A US poll,1 conducted in 2012 by researchers at the Marist Institute for Public Opinion, suggested that an annual salary of US$50,000 (AUD$48,500 at the time) represented a significant tipping point in determining happiness and personal satisfaction.
Households with annual incomes of less than US$50,000 were less happy than those with an annual household income of more than US$50,000. Some of the largest disparities between the two income levels occurred in satisfaction with housing, relationships with friends and overall satisfaction with life.
Another, more comprehensive US study2 by economist Angus Deaton and psychologist Daniel Kahneman analysed the responses of 450,000 Americans polled by Gallup and Healthways in 2008 and 2009. Participants were asked how they had felt the previous day and whether they were living the best possible life for them. They were also asked about their income. The study found that the lower a person’s annual income fell below US$75,000 a year (about AUD$115,000 at that time), the unhappier he or she felt.
The study pointed out that there are actually two types of happiness. There’s your changeable, day-to-day mood: whether you’re stressed or blue or feeling emotionally sound. Then thereâ€™s the deeper satisfaction you feel about the way your life is going.
While having an income above US$75,000 didn’t seem to have an impact on the former (emotional well-being), it definitely improved people’s overall life satisfaction. The more people made above US$75,000, the more they felt their life was working out on the whole.
This is certainly worth bearing in mind when you consider that the latest statistics show a couple would need an annual household income of AUD$56,3395 to have enough money in retirement. But can wealth be measured only by your income? A person may be wealthy today and poor the next. Managing and growing your savings over the long term will give you the greatest opportunity to enjoy life.
Of course, not many of us are blessed with the financial acumen or time to effectively manage our money single handedly. Even if we are, it can be tricky to navigate an often turbulent global economy, stay on top of the share market and keep abreast of frequent changes to legislation surrounding superannuation and taxation. This is why having an ongoing relationship with a trusted financial professional is so useful.
Overall life satisfaction also means being prepared for life’s swings and roundabouts. For example, establishing a financial safety net may ease the burden of major unexpected bills or events that might otherwise put your family’s financial wellbeing at risk. While enough money may not buy happiness, managing it well can bring the peace of mind that can make a huge difference to your quality of life.
SOURCE: Colonial First State Investments Limited
1 Generation to Generation: Money Matters, April 2012.
2 High income improves evaluation of life but not emotional well-being, published by the Center for Health and Well-being at Princeton University, August 2010.