How would your life change today if your income suddenly doubled?
I put this question on the top of a blank word document the other day and came to some very interesting results.
From a big picture perspective, my life wouldn’t change that much. Yes, I might go out to eat at nicer restaurants a few more times a month, I might travel once or twice more per year, I might purchase a nicer car for my wife, I might pursue some home renovation projects that I have been putting off.
However, from a day-to-day perspective, my life wouldn’t change that much. I would have the same routines and do the same work that I do today. Increasing my income wouldn’t necessarily increase the quality of my life.
Stumbling Upon Your Happiness
Harvard psychologist, Daniel Gilbert, has done a lot of research on happiness through financial success. What he found that the magic number was $40,000. Once your income reached $40,000, money wasn’t going to make you any happier.
I have seen a lot of examples where an increase has actually decreased the quality of ones life. They go out and buy a new car, even though the one they had been using since college is paid off. They live in a bigger place in a nicer area. They now have to purchase furniture to fill that space. Of course they need new clothes to say to the world that they have made it.
You probably have seen the same thing. Income goes up by $10,000 and so do expenses aka Parkinson’s Law.
Stumbling Upon My Happiness
As I continued to think about this question, I wondered what would improve the quality of my life if income wasn’t.
The answer that I came to was time.
Therefore, I shifted to a new question – If my amount of time doubled, how would that change my life?
It turns out a lot more then my income doubling.
I’m not talking about sitting on the couch free time but free time that will allow me to experience new things. Allow me to learn new things. Allow me to become a better writer. Allow me to spend more time with friends and family. Allow me to meet more people.
These are the things that are going to improve the quality of my life.
Your Turn
I challenge you to do the same thing. First, ask yourself how would your life change if your income doubled. Follow that up by asking yourself how would your life change if your time doubled?
Let me know what you find out in the comments.
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{ 11 comments }
I know there’s a point where the next X$ don’t bring the same incremental happiness as the last X$, but I’m curious how one measures such things. $40,000? No doubt, the guy who made $35,000 last year is happier at $40K than the guy who made $45K last year. This number is is below median household income, which is over $50K.
I am at the point in my life where a doubling of income would pull in my potential retirement date, although keeping it and sacking the extra money away would give us a better retirement. More choices at any rate.
As I ponder that $40K number I can’t help but wonder how many at that income level are saving for retirement at all?
I for one agree with the professor that money does not bring happiness. Some of the best times of my life took place when I was a young Soldier in the Army making $1,500 a month. I spent time with my wife and my son every night because we didn’t have money to go out to eat or go shopping.
Now that my income has gone up I spend more time worrying about the next mortgage payment, both cars, saving for kids college etc…what I wouldn’t give to go back to being young and broke lol.
@Joe – There are a lot of holes, that I need to dive into.
I think the most important thing is that once most people reach $40,000, there is a diminishing returns on happiness on anything above. So for your situation, it would of course make your life better if you doubled your income. Whose wouldn’t? However, it just doesn’t make as big of a difference once you’re above 40.
@Patrick – I know what you mean. Some of the greatest vacation I ever took were road trips that cost a few hundred dollars and lasted weeks instead of days.
There is defiantly a certain comfort in having little commitments. Unfortunately, it’s hard to live your entire life that way. The older I get, the more I realize it’s all about finding the right balance.
Forget the actual number for a moment.
There’s an aspect that should be intuitive. Below some level of income, one constructs a budget, even if after the fact, and sees that there are fixed expenses (Mort, prop tax, gas/electric, etc) and then there’s savings. With the saving rate being low, in general, I’ll put that aside right now. The rest is discretionary. At the “some level’ I reference, this discretionary spending money is probably less than 10%, if it were much higher, the saving rate would probably go up as well.
A 5% raise at this point, can be anywhere from a 50-100% increase to that 10% (or less), and I’d imagine when that occurs, one would be happier. It’s only at the point where discretionary income is high enough that the increase has less impact. The happiness delta is also a bit different when it’s a lump sum cash vs an increase in one’s annual pay.
I can see two scenarios (1) a couple is retired, house paid, $40K pension. Spending $30K. They may very well be at the end of their happiness curve, enjoying their grandkids, traveling as they like, just plain happy. (2) A young couple with young kids, in a house that’s probably too big, somehow burning through every last dime between house, college savings, child care, etc. An incremental $50K might right size their budget.
I’m not passing judgment on either couple. I am just curious as anyone to see how these kinds of studies are done with any valid conclusion. I find they either are created using contrived lab-rat experiments, i.e. a university, sit in a conference room environment, or use a survey that somehow naturally skews the data.
I looked a little more into research. Found another interesting article: http://www.guardian.co.uk/society/2004/apr/04/mentalhealth.observermagazine
Read work of Ruut Veenhoven about half way down the page.
I did some searching around. There isn’t much criticism on this study and an explanation to how it was performed. I read his book once, but it was on audio tape in the car. Didn’t get to take notes.
If my income would double, like JoeTaxpayer, it would probably just allow me to retire and become financially independent a lot sooner. Other than that, I don’t think my life or spending would change too much.
If my time would double, it’d allow me to pursue my hobbies and passions more, read and learn more, and spend more time with friends and family.
Great article. After basic needs are met, I think that the answer to our problems isn’t more money, but maybe it’s more time to do the things we enjoy, and not doing the things we don’t enjoy as much.
Thanks Daren.
I’m with you. On a day to day basis, things would be pretty much the same. Of course I would reach my goals a little faster, but in the present, everything is the same.
If our income doubled, we’d be able to retire even earlier or at least have enough put away to definitively retire as soon as my husband is eligible for his full pension in 25 years. Other than that, not much would change at all for a while. I’d probably be able to retire a few years before my husband and volunteer more. We’d also definitely take 3 big vacations a year instead of 1 or 2. Mostly, it would allow me to buy a Prius when my Aveo finally dies so I can stop drooling over my husband’s…
I’m with Joe.
We earn about $40,000 (after taxes) in a pension. We live quite well. House is paid off. We fund our hobbies and travel. And now that we THINK about expenses- they are down and we are saving!
Our daughter’s family makes about $50,000 and hardly scrapes by. The jobs are in a high cost of living area and they have a growing family.
It is all perspective.
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