How much salary is enough? Apparently, $75,000/year

Posted by Arjun Moorthy

Aug 17, 2011 7:12:00 PM

When I finished my undergrad degree in computer engineering in 1999 I got a job paying $54,000 a year, based in Seattle.  This seemed like way too much money for a new grad and indeed I was able to save 15-20% while living well.  My calculations at the time said if I reach that clichéd milestone of a six-figure salary I'd have more money that I would know what to do.  Well, 12 years later I've surpassed that milestone but financial bliss hasn't transpired; on the contrary I spend less time doing some things I love outside work and more time worrying about saving for the future.  How did my financial finish line move and how much salary do I need to be happy - now and for the future?


michael douglas on gordon gekko

I found one answer to the question of how much money do I need to be happy in a fascinating study by a couple of researchers at Princeton.  The found that in the US $75,000/year is about the mark when happiness levels flatten out and more money doesn't correlate with a significant increase in happiness.  (though there is no decrease in happiness as you earn more, just a flattening out of happiness levels).  Sure this number is an average and has to be adjusted for relative cost of living but it's unlikely to move by more than 10-20% anywhere in the US.

Ok, so I passed that mark a while ago... what happened? 

Well, as most adults know, marriage and children (in my case, the prospect of) quickly highlight how inadequate one's salary is.  Suddenly, your $75k/year is piddly as you have to save for children's education, buy a house in a decent neighborhood, save for retirement (with its soaring healthcare cost as we live far longer than prior generations).  Any decent retirement calculator will shock you as you learn that having a million dollars in savings is nowhere near enough. [1] When did a millionaire become a working class stiff?  What's wrong with this world?

No doubt some of the expenses we choose to make these days are debatable.  Nearly all parents desire for their kids to have more than they did - hence while they went to public school, suddenly private school is a must.  While our parents and many adults today paid for their way through college, now a college fund that pays through all of undergrad for children is the expectation.  What's interesting is that while our parents, and actually even my sister and I, grew up in very modest upbringings we never thought we were deprived.  Rather, childhood was simple and generally fun and adolescence was fun, if tough at times.  No complaints.

I'm not nostalgic for an impoverished existence (as Harry Potter author J.K Rowling recently professed "poverty itself is romanticised only by fools.")  But that $75,000/year mark is far from poverty and makes me wonder if we've lost our way in the proverbial rat race.

Capitalism's implicit "Greed is good" mantra seems too simplistic an argument and I think the real answer is more nuanced. [2]  How do you resist promotions and higher pay that are the reward to you doing a good job?  When you reach the $75,000/year mark do you say - "no thanks boss, I'm fine without the raise and happy where I am?"  That's actually not far from what my sister, a woman far more accomplished than me, has done to spend more time with her family - i.e. the thing she loves outside work.   Her decision was tough - not least because she saw so many of her peers getting so much farther ahead - but in the end did she perhaps end up in a better place?

Readers - what do you think?

[1] Warren Buffet recently suggested that he and other super-wealthy should pay far more in taxes.  His suggestions may have some flaws, but it seems as though a $1 billion in savings is probably at least one data point of having enough.  Well, that's a start...

[2] To be clear, I'm a proponent of capitalism and believe that a relatively free-market system which rewards the hardest working & most creative is a system that will encourage the greatest economic progress for the majority of the population.  The difficulty is where individuals gain at the expense of others - be it their team or society at large.  While capitalism is a better system than any other economic setup, unchecked capitalism has its downsides as we've seen in recent years on Wall Street.  (Side-bar but for a thoughtful blog post on CEO compensation reform, check out Harvard professor VG Narayanan's commentary).

Epilogue: some new research suggests maybe happiness does increase with more money but on a logarithmic scale (i.e. you have to keep doubling your salary to get to the next "level" of happiness.

Also, I realize now that's it's hard for people, including myself, to grasp the power of inflation and what that implies to your desired salary level.  My $54,000 salary in 1999 is equivalent to $81,000 in 2013 based on 3% inflation.  So (a) I passed that $75k/yr mark much earlier than the paycheck would have indicated and (b) that six-figure salary mark I yeared for back in 1999 buys is today $150k/year.

Topics: career path, career advice

Career Advice I Wish I Knew Earlier 

Hello.  I started this blog to distribute some of the best career advice I have been given over the many jobs I've had.  I've been fortunate to work for and with some great bosses like Brian Halligan, Francis DeSouzaNancy Kamei, and Rick Roberge, and some unique companies, like The Boston Consulting Group, that invest heavily in making each employee a success even after leaving the firm.

The advice and training I received here stands in contrast to my experiences with some not-so-great bosses and companies I've also worked for.  I'm continualy amazed at how valuable good advice has been in my career so I hope to pass on the good advice, and insights from mistakes I've made, via this blog. 

Thanks in advance for your comments, particularly when you can improve upon the ideas posted.

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