This age-old question, how much money do you need to be happy, has every generation wondering check after check, what it would take to feel happy and fulfilled. The problem is that instead of first discovering our most essential elements in a joyful life, and working backwards to find a veritable range, we typically forge ahead on a blindly selected number instead.
Additionally, at a certain dollar amount, money doesn’t buy happiness. In fact, a famous Princeton study found that on average, the link between income and emotional well-being past $75k/year stops abruptly, yielding no further increase on happiness levels. So, besides keeping a roof over our head and food on the table, what other factors are important in being happy with the amount in the bank?
Continue reading to learn five important questions you can ask yourself to discover how much money do you need to be happy?
1. How do you like to spend your time?
True happiness comes from the times where we are with loved ones, experiencing new adventures, or making good friends. Depending on the way you like to spend your time on a day-to-day basis, the amount of money to fund those activities will change from year to year. Maybe in your 20s, you enjoyed lots of nights out and dinner with friends, but now you love taking your family on weekend trips, reading, and joining a high quality gym. Some activities are free such as hiking, whereas others such as a fitness membership will require an annual fee. To find the amount you need for these priorities, write down the 5 top activities you typically like to do, the estimated monthly cost for each, and multiply it by 12 for an annual dollar amount. This sum is the first step to understanding how much money you need to be happy, but it’s definitely not the last.
2. Where do you live?
In order to get an accurate picture about how much money you need to be happy, you need do evaluate your necessary living expenses. The cost of living drastically changes in each country, state, or town. Likewise, the amount of money you have can translate into much more or less depending on where you decide to call home base. Especially if you have multiple properties or plan to travel a bit, it’s a good idea to do some in-depth research on the area and its median costs of living to find the best combination of areas to live or invest in. Also, doing some research on neighboring areas may open up some close-by options for yielding more bang for your buck.
A new analysis by Doug Short, the VP of Research at Advisor Perspectives, adjusted the above-mentioned $75,000 “happiness benchmark” to reflect the cost of living in each state. Here’s an incredible map and chart to see where your state stands. In addition, make a list of your basic living expenses such as your mortgage, groceries, gas, car payments, insurance, and talk to a professional or use an online resource to compare the cost in another state. Increasing your well-being could be as simple as moving to another neighborhood!
3. What annual traditions do you like to uphold?
This section prioritizes the more significant annual “treat yourself” traditions that you should factor in when considering how much money do you need to be happy. Whether it’s an international family or solo trip, a Roley, an extra fancy dinner party, or a gift to your significant other, this lump sum should be estimated and kept aside before each year. The happiness you gain from using the money for an invaluable experience or gift is well worth the additional planning needed. This “stretch” goal is healthy to have because it challenges us to think bigger and to save ahead.
To get this number, it’s simple: Envision what your goals are for the next year. What is that memorable tradition you want to make happen? Look up all the costs related to it, talk to a consultant, or estimate it based on past expenses. Then, create a range for the dollar amount you want to put aside or save throughout the year so it’s fully funded by your goal date.
4. How will you plan for the unexpected?
Emergencies of any kind can put a quick damper on your happiness and stress level. To avoid the fear and anxiety of the unexpected, identify how much you need for an emergency fund by factoring in several variables. According to financial advisors, “the ideal emergency savings goal might be as little as three months or as much as two years of expenses”, depending on your personal situation.
Here’s a quick emergency fund calculator you can use which take in some of these factors, so you can have peace of mind.
5. Who is counting on you?
We all have someone in our lives that we want to make sure is living comfortably, no matter what happens. Whether that is your child or an aging parent, this section will help you build a nest so that you can provide the best care or education for those counting on you. Having the peace of mind that our loved ones will long-term happiness. Having the means to take care of those most important to us a crucial thing to know as you calculate understanding how much money you need to be happy. To determine this amount, you may need to think further ahead into the next 5 years and see what costs may be around the corner. To start, talk to your loved ones about what their goals are and how you can help them. Do some research together on the yearly costs associated with the intuitions they admire, and put together a realistic savings plan to put that amount aside.
Conclusion: How Much Does Your Happiness Really Cost?
To end this discussion, add up all your amounts, and what you will see is a dollar amount that reflects how much money you need to be happy, and why. We can all agree that money can’t buy everything. Love, family, and friends are the center of having a fulfilled and joyful life. Though money can provide us with the foundation and resources to enhance that core, real wealth means having the money and freedom to live the life you want.
“Real wealth means having the money and freedom to live the life YOU want.”
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