Mar 26

How much money do I need to be happy?

Reading Time: 7 mins

Everyone asks, at some point, how much money do I need to be happy.

Even if we convince ourselves that money doesn’t have anything to do with happiness, we all secretly want to be a bit richer too.

But can money actually buy you happiness?

Is there a money/happiness equation, or does having more money actually make you miserable?

I believe in having a richer life in the real sense. Much of the time, this means having less money so that you can have more of what makes you really rich. However, we can’t live on nothing. Here are my findings:


How Much Money Do I Need To Be Happy?

Man smiling

Good question! Of course there’s no definitive scientific answer, but there is something known as the Easterlin Paradox. This explains that, although rich people tend to be happier than poor people in any given society, rich societies generally tend not to be any happier than poor societies.

In other words, countries do not become happier as they get richer.

As strange as this sounds, it actually makes a lot of sense.

The Centre for Well-being at the New Economics Foundation has found that at lower income levels, say a salary of £15,000, there is a strong relationship between income and well-being.

But as you move up the income scale that link disappears. So, people do get happier as they get richer. But only up to a point – pretty much at the point where their needs are met and they’re not worried about paying for food, shelter and so on – and then they stop. After that we don’t get any happier no matter how much money we make. In fact some of us become more miserable.

Of course, you need a minimum amount of money to survive in our society, and the Rowntree Foundation has recently tried to come up with exactly how much.  They reckon that single people need to earn at least £17,100 a year before tax to achieve the Minimum Income Standard (MIS), and couples with two children at least £18,900 each.

Now while that estimate means you can survive, it probably isn’t enough for you to be happy and without money worries.

The ideal scenario is to have enough money so that you’re not anxious about your finances. It’s a situation where you still need to be sensible with your hard-earned cash, but as long as you do that life should bubble along comfortably.


So how much do you need for that to become a reality?

Young man holding handfuls of pound notes

Actually, it’s a lot less than you think. Opinions differ, but most studies put the figure at which the relationship between money and happiness  stops at somewhere around £29,000 – £31,000. Theoretically speaking, any income over that rough marker is likely to only have a minimal effect on your happiness. Other aspects of life, such as having…

  • fulfilling friendships
  • rewarding work
  • loving family members

…play a much bigger role in our happiness once our income reaches a certain level.


How to avoid the miserable side of money

Poverty and bankruptcy

Sad man with empty wallet

Money may not buy us happiness, but poverty, and in particular debt, can certainly bring unhappiness, particularly if it leads to bankruptcy and homelessness.

There’s no getting away from it – being in debt is miserable.

You can get yourself back in the black more quickly and easily than you might imagine though.

Get started with our seven quick ways to pay off debt hereThis is a step-by-step guide to getting out of debt, and we show you how you can beat your credit card balance.

We’ve also got loads of information about bankruptcy and repossession.

And once you start to get things back on track, we tell you how to manage your money so you can be better prepared, and start building up wealth for the future.

Have a look at our article on detoxing your finances and you can get in control of your money, and make it work its hardest to get you the best return.


Great riches

Wealthy couple in open top car

On the other side of the fence, things aren’t exactly rosy for those with money to burn either.

Consider the famous American engineer and aviator Howard Hughes, who was one of the wealthiest people in the world during his lifetime. A crippling obsessive-compulsive disorder and a severe drug addiction (which he of course had the money to fund) meant that he spent much of his later life as a distressed and miserable recluse.

He went from being a Hollywood darling to a man who didn’t wash or cut his fingernails for months on end.

And again of course in Michael Jackson we saw an incredibly wealthy but desperately unhappy individual, whose obsession with his appearance led him to an early death.

As with Howard Hughes, his money bought him yes-men and hangers-on who just facilitated his unhappiness and addiction.

So how do some of the über-rich people of today like Warren Buffett, Bill Gates and Oprah manage to stay so apparently happy even with their incredible wealth (well, all right, Oprah goes up and down a bit)?

Perhaps it’s because they give so much of it away to charity, or maybe because to some extent, they still don’t really live the millionaire’s lifestyle. Yes they have money to spend on luxuries, but they are not horrendously extravagant.


How to be rich without trying

Slow and steady does it

common snail

Warren Buffett is the perfect example of a patient millionaire. He didn’t acquire his wealth overnight from one lucky break, he worked hard at being a clever investor, and built up his riches slowly and steadily. And you can do the same.

Investing isn’t as complicated as you think. Our investing section is packed full of top investing tips and guidance too. Over time, just making small daily savings on things that aren’t essential, and cutting back on a few little luxuries can help you build up wealth. We tell you how to invest in stocks and shares ISAs, Exchange-traded funds, and index-tracking funds.

We can show you how to save £4,000 a year simply by scaling down, which will allow you to regularly pay into a savings account, or into longer-term investments. Just think, putting away £100 a month for 40 years, into something paying around 10%, would net you over half a million pounds!


How to feel rich right now

Actually, though, the best way to really feel rich right now without any effort at all is to hang around with people who have less than you. The moment you do that, you’re instantly rich by comparison.

No, seriously – much of the time we feel happy or sad, rich or poor simply by comparing ourselves with others. Surround yourself with people who earn twice as much as you and you’ll feel poor and miserable. Spend a few weeks in sub-Saharan Africa and you’ll be amazed at how easy you have things – you’ll feel rich and happy in no time.


“comparisons are odorous”

Poorer man comparing himself to richer man

MoneyMagpie Great Easter Egg Hunt Word = ChickWe are creatures of comparison, according to Professor Andrew Oswald of Warwick University and he says that because of this, “emotional prosperity and mental health appear from the latest data to be getting worse through time.” And as the Western world gets richer (OK it might not feel like it right now, but in general we are) it’s getting more and more ridiculous.

The multi-billionaire Jim Clark recently said “I think that what Larry Ellison and Bill Gates have is phenomenal wealth. I’m just a two-bit billionaire.”

Actually there’s no truly objective measurement of richness – it’s mostly subjective.  There’s a Chinese proverb; ‘poverty is needing more’. You can have any amount of money but if you think you need something more, you’re poor. And perhaps thinking about happiness in terms of the less traditional markers, and simply considering your day-to-day happiness – which beyond a certain point isn’t related to how rich you are – is a better way to look at things.


gratitude is riches…and happiness

Elderly woman relaxes on the sofa with a cup of tea

So the very best way to be rich without really trying at all is to realise – and be grateful for – the fact that we genuinely are all much richer than we think already.

The remote Himalayan Kingdom of Bhutan – which is intensely Buddhist and by Western standards, poor – has attempted to,  in all seriousness, work out its Gross National Happiness. Normally countries are obsessed with their Gross National Product, or Gross Domestic Product – measures of how much money they’re making each year. By their government’s measures, 68 per cent of the Bhutanese people are happy. And this is a country which has only had television and the internet since 1999; a place where traditional cultural heritage is still very much at the forefront of people’s everyday lives.

We feel a little uncomfortable acknowledging that people in economically poor countries can nevertheless be so happy. That’s until you look a little closer though. There are a few things we can learn from those people, and in a strange way we might be learning from them in the recession. When we’re all forced to curb our spending, the reasons for their being so cheerful become apparent – they are content enjoying life’s simpler pleasures.
Yes, it’s a cliche but it’s true.

Happy Middle Aged Couple

Until the credit crunch hit, we had become a fast paced, throw-away, want-it-now society. But the Recession helped us get back to basics a bit, learn to live with less and appreciate the small stuff.

Things that don’t involve spending much, or any, money can make you happy. Which means, shock horror, that you don’t have to be a millionaire to enjoy yourself.

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