Can money buy happiness? Or does it just buy a better brand of stress? While financial security is essential, research suggests that beyond a certain income level, extra money doesn’t always lead to extra happiness.
How much money is enough for happiness?
A recent Australian study found that:
- A single person reaches peak happiness at an annual income of $184,000.
- A two-person household finds that incomes above $260,000 don’t significantly improve happiness.
- Interestingly, these figures align closely with Australia’s top marginal tax rate of 47%, which applies to incomes over $180,000.
Once people no longer worry about basic needs, additional wealth makes little difference to overall happiness.
Why doesn’t happiness increase with more income?
1. We adapt to wealth quickly
A $40,000 pay rise for someone earning $50,000 is life-changing. It opens up better housing options, travel, and lifestyle improvements. But a $40,000 increase for someone already earning $150,000 has a far smaller impact.
2. Higher income often means higher stress
Wealthier individuals often take on more responsibilities, demanding workloads, and financial pressures. This can reduce overall life satisfaction despite the higher income.
3. Keeping up with the Joneses
People compare their wealth to their social circles, rather than their past circumstances. As income rises, expectations grow—bigger houses, nicer cars, and higher lifestyle standards create an endless cycle of wanting more.
What happens when income drops?
While we adapt quickly to income increases, we struggle with income losses. A decline in earnings often leads to:
- Reduced spending power, forcing lifestyle adjustments.
- Higher stress levels, especially for those with financial commitments.
- Lower overall happiness, as people compare their current situation to past prosperity.
The key to lasting happiness: Experiences over material goods
Research shows that spending on experiences creates more happiness than buying material things. However, people often prioritise possessions, thinking they offer better value.
Why do experiences provide more happiness?
- Less comparison: We tend to compare houses and cars, but not life experiences.
- Stronger memories: Travel, concerts, and social outings create lasting emotional value.
- Deeper satisfaction: Experiences shape our identities and provide personal growth.
Final financial advice: Spend smarter, not just more
Jovan Cvetkoski, an expert financial adviser, suggests focusing on financial security and meaningful spending rather than chasing higher income levels.
If you’re looking for personalised financial advice, contact Jovan and the Knight team today to align your wealth with long-term happiness.
Frequently Asked Questions
1. Does earning more money make you happier?
Studies show that happiness increases with income, but only up to a certain point. In Australia, happiness peaks at $184,000 for individuals and $260,000 for two-person households. Beyond this, additional income has little impact on overall life satisfaction.
2. Why do experiences make us happier than material goods?
Experiences create lasting memories, contribute to personal growth, and are less likely to be compared with what others have. Material goods, on the other hand, tend to lose their novelty quickly, leading to diminishing returns on happiness.
3. How can financial planning improve long-term happiness?
Smart financial planning helps you reduce stress, build security, and focus on meaningful spending. Jovan Cvetkoski recommends balancing financial goals with lifestyle choices to create wealth that enhances happiness.
