The Key to Deciding How Much Money You Need to Earn
For a lot of us, a steady and ever-growing paycheck is a security blanket, something we can count on when money is tight. But security doesn't always equal happiness, and some professionals are leaving money on the table to pursue less lucrative dreams.
After earning a master's degree in professional writing, Kelsey Nolan pursued writing full-time, earning a salary writing for trade magazines.
In the end, however, the money wasn't enough to make her stay. She realized she had a desire for a work community that values writing and literature as highly as art and as politics, she said. So she exchanged a stable salary to work as the events manager at Skylight Books in Los Angeles.
To Nolan, her new job feels politically relevant, emotionally rewarding and part of something larger than herself.
“It seems crazy that I took such a deep salary cut,” Nolan said. “But I firmly believe that if I work full-time, it should be enough.”
How much is enough? Researchers have long been searching for a nice, round, universal figure as the financial key to happiness. And they believe there is a point, not where money can buy happiness, but where your happiness is no longer contingent on how much you earn—or don’t earn.
If there is a correlation between salary and happiness, very few people agree on it:
- In 2010, for example, the number was set at a yearly salary of $75,000. Researchers argued that daily happiness no longer improved when a person earned higher than this amount.
- In 2012, researchers were convinced that the price of happiness in America was $50,000 a year, and made the point that where you live has a significant influence on how much money you need.
- Most recently, however, a study from Purdue University set the salary significantly higher, at $105,000, which takes into account both previous concepts and calculates the “satiation point” for life satisfaction.
The magic number
There are financial advisors, however, who know that the magic number is deeply personal. Brittney Castro, a certified financial planner and CEO of Financially Wise Women, developed a calculator to help you find your own salary sweet spot.
Figuring out your magic number is an exercise in self-knowledge. What do you value? What are your priorities? These are tough questions that don’t always come with a concrete number. Aligning your values, however, to certain services or experiences can help you assign them a price.
Thom Qafzezi, CEO of Molto Crescendo, said his ideal job didn't have a price tag. He once made $170,000 a year as a director of a corporation, but then he started his own firm. Now he makes less but is much happier.
“It is certainly a hustle most days, but I ask myself, ‘Is my worst day working for myself better than my best day working for someone else?’" he said. "That usually snaps me back into reality and away from the fear of being out there on my own."
With some deliberate reflection, you can calculate your own happiness number by adding together:
- Your basic living expenses: housing, utilities, food, transport, medical bills, etc.
- Additional expenses that align with your values and help you achieve goals
- Your savings goals for the future: an emergency fund, a 401(k) or other retirement plan and debt repayments
- Any current expenses that are no longer serving you or that are not aligned with your goals
This number can help you determine if you have a spending problem or an earning problem.
A spending problem would show in the expenses you want to subtract. Are you making enough to cover the rest, but are still overspending in minor budget categories?
One of the areas where I struggle most is entertaining guests. Whenever I have houseguests, my grocery and home budgets quickly skyrocket. It’s a weak spot that I attempt, each month, to address.
Knowing your own weaknesses can help you curb spending in a particular area of your life.
If you've cut every superfluous expense and you're still struggling, you might have an earning problem. You may need to negotiate for a raise, start up a side hustle or even find a new job all together.
Of course, there are the intangibles, and their price can only be determined by you.
Qafizi said the flexibility he now has working for himself is worth the serious pay cut.
“I am okay with being ‘broke’ for the time being with the dream of growing the business to take me back to my compensation level in the future," he said.
Betting on your future earnings depends on your field, but it’s the reason many people take out student loans to pursue MBAs or law degrees. The return on investment is high, and the wager is often worthwhile. Knowing if your problem is spending or earning will help you move closer to your target salary.
A 'wealthy' mindset
But we also have an esteem issue. Coming of age in the Recession left many Millennials feeling that dollars are not part of our birthright, or the price of money is too high. Unwilling to sacrifice flexibility and freedom, Millennials are redefining words like "broke" and "wealthy."
The healthiest relationship to money is one that recognizes that you are worthy of it—a mindset that allows you to feel wealthy, not on the proposed salary by a team of researchers, but on the number you set for yourself, based on your own goals and values.
Understanding the reason behind your earning can help you know when you’ve earned enough, so you also know when to stop chasing more money just for the sake of it.