Does a high salary make you happy? To answer that question, we need to backtrack a little bit to our discussion about friends and wealth.
I’m convinced having rich friends can make you richer. But I’m even more sure having rich neighbors will make you work harder.
Just try buying a flat in London for less than £250,000. You need to strive simply to own the ceiling above your head. (Forget owning the roof – decent houses cost far more than a quarter of a million quid).
To get a mortgage for a £250,000 flat, you’ll need to earn at least £60,000 a year – assuming you’ve begged or saved £30,000 for the deposit.
£60,000 a year is a high salary:
- The median full-time weekly wage is £489 as of 2009 (Source: ONS)
- Only 10% of workers earn more than £971 a week
- Even in London, the median full-time weekly wage is £627
£1,154 a week: that’s the salary of our London flat hunter on £60,000 a year, who is looking at the cheap end of the London property market.
It’s well into the top 10% bracket. Yet he or she is likely to be laughed at by a central London estate agent!
Here comes the science bit
Incredible though it may seem then, depending on your aspirations it’s very easy to feel poor on £60,000 a year in London. The UK’s wealthiest people live here, and a row of terraced houses could re-finance the Greek national debt.
In contrast, you can feel pretty flush in Scotland or Wales on £35,000 a year.
This relative affluence is the sting in the tail of surrounding yourself with people with more money than you:
- You’ll get richer, but you’ll feel poorer
It also reveals the problem with chasing a high salary as a means of finding happiness. Discussing recent findings from The University of Warwick, researcher Chris Boyce says:
“Our study found that the ranked position of an individual’s income best predicted general life satisfaction, while the actual amount of income and the average income of others appear to have no significant effect.
Earning a million pounds a year appears to be not enough to make you happy if you know your friends all earn two million a year.”
This is the key problem faced by bankers. Despite their fantastical bonuses, most of them know peers and friends in their company earning far more. Even the top bankers are made miserable by those they believe are earning more elsewhere (although they probably don’t call them friends).
Most of us can’t understand why bankers chase money so greedily, or react so ferociously to any move on their bloated bonuses. That’s because we don’t live in a world where income is everything – and yet ironically that’s also the very thing that makes the typical banker unhappy.
We do all though live in our own social networks of friends and relatives. And as the researchers found out, such networks are driven by ancient instincts that even a chimp would recognize are to do with status and the perception of superiority.
The bottom line on aspiration
Obviously I like to think I stand apart from petty comparisons with my friends. You probably do, too. Yet I wonder how much we can really step outside of such influences, beyond taking radical steps like ditching our rich friends? I can’t deny I do leave an evening out with mine nagged by doubts about whether I’ve made the right choices in my life and my career.
Chasing a fatter salary is no guarantee of happiness, that much is clear. But that’s no reason not to earn as much as you can, provided it meets your other aspirations of self-fulfillment and professional ambition.
It’s just that if you think happiness comes with a high salary, you’ll be disappointed. Focusing on your own high salary will upset your poorer friends, and your richer friends will bring you down. Best to keep quiet and strive to opt out from such comparisons whenever you can.
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I wonder how Buffett’s neighbours feel. The guys lives in the same house he bought for $35,000 back in the 50s.
I’m wondering whether, despite aspiring to and earning a high salary because your neighbours have high salaries, do we end up poorer because our neighbours are wealthier (or seemingly wealthier?)
There’s an interesting 2009 statistic in the U.S. suggesting that the average millionaire (90% of them, actually) don’t live in houses valued above $1 million. Yet so many high salaried people do aspire for expensive neighbourhoods.
Thomas Stanley (author the The Millionaire Next Door) suggests that moving into a high status neighbourhood can be the kiss of financial death, as we try to keep up with the “Big Hat, No Cattle” Jones’s.
Reading your post also makes me think of Orwell’s Road to Wigan Pier, where he experienced the plight of the average coalminer’s salaries and working conditions.
.-= Andrew Hallam on: Mariusz Skonieczny — Why Are We So Clueless About the Stockmarket? =-.
I agree – chasing a fat salary is certainly no guarantee of happiness. It’s not how much you earn, rather, it’s what you expect to do based on what you earn…
If you make $50,000 CDN and you want to live like superstar, you’re going to be very disappointed. Money is tool, not “a happiness pill”.
A great post and looking forward to visiting your site more.
.-= Financial Cents on: Good Call Carney (Raising rates was the right move) =-.
When I think it over, I’ve had a fairly reverse correlation between salary and happiness. In my case it’s probably biased because I never saw an increased income as a license to increase my spending. Also, spending for me seems to be slightly inversely correlated with happiness. I feel like a slight failure whenever I have to pull out my wallet for something.
That said, it always felt as an achievement to get a salary increase when it was above inflation. This achievement was coupled with a feeling of “I can’t believe they are paying me so much more for the same job”.
I have concluded that salaries are not well-connected to reality, so they’re kinda hard to take serious.
.-= Early Retirement Extreme on: The ant and the grasshopper =-.
I will tell you a secret mate. The answer is absolutely!
I have a post in the pipeline that is a tangent of this topic.
.-= Financial Samurai on: Is Becoming A Millionaire The Rule Rather Than The Exception? =-.
@Andrew – Perhaps Buffett is such an outlier that his neighbours are just happy to have extra security on the street as a result of his presence. I bet there hasn’t been a burglary on that road for 30 years.
Regarding the Millionaire Next Door, I read and enjoyed the book but as with all data mining I think you have to be wary of how you interpret the results. I lean towards your own thoughts on the matter, but you could ask did these millionaires become wealthy despite not buying more expensive houses (perhaps they woukd have enjoyed better capital appreciation over the years). Would they be worth twice as much if they’d moved somewhere wealthier? Clearer most people do not live in expensive houses, and yet most people do not become millionaires either, so the correlation is rather specious.
I think you can do that sort of thought game with a lot of The Millionaire Next Door, though as I say I enjoyed it nonetheless!
@FC – Also, earnings are very ephemeral, really, as many rock stars find out. It’s long-term income producing assets that really buy the ability to ‘live large’ without risks.
@Jacob – Yes, I’ve thought the same myself and reached the same conclusion – that given that I was at one point saving well over 50% of my annual income (in a town where 20% of the gross went on rent) that I’d never really enjoyed the fruits of living large. Eventually I think this parsimony caught up with me – in my new rough spending projections I’m explicitly putting in a line for ‘fun’ expenditure.
@FS – Will look out for that. Clearly you are at the income orientated end of the spectrum though. More power to you if it’s working for you! Also, you don’t seem bothered by your high income mates (I’m thinking of your poker games with VCs etc) which is a good tool in your armory – envy makes nobody happy.
I earned a high salary in London and owned a flat in the South East…. Working so hard I just wasn’t happy.
I earn far less now, own no property and live in Egypt right now…. Who knows where next. I am much much happier even though I have far less money.
.-= Forest on: Insanity Week 7 (Day 50) Fit Test Results…. Oh No!!! =-.
Sounds like you need to move out of London if you want to own a house 🙂 There’s a limit to how much quality of life it’s worth trading for the privilege of owning the roof over one’s head.
I moved out of London because of that issue more than 20 years ago. There’s life out of the Smoke too, though initially I missed the buzz of the city greatly. But I didn’t miss the sleazy bedsits and the skanky landlords one bit
.-= ermine on: Does Paying People More Get Better Performance? =-.
Try Daniel Kahneman’s (behavioural economics guy and Nobel laureate) take on this at http://www.ted.com/talks/daniel_kahneman_the_riddle_of_experience_vs_memory.html for a great discussion of experience, perception, memory and happiness.
money does not buy happiness but it does buy freedom and to me being free = less stress and less tress = happiness, so maybe money does buy happiness.
Similar studies over here in the states has drawn similar conclusions about happiness and wealth.
Hmm, perhaps these studies explain why incomes can range dramatically (from 30,000 to over 200,000) and the people still refer to their income as middle class.
Comparing yourself to the Jones is very powerful and influencing… Luckily, I find that I’m not so disturbed by such displays of wealth. At work a few of my peers have BMW, Lexus, and a few Mercedes cars… but since they make the same as I do, I think they are foolish. I guess it depends on what your priorities are in life. For me, fancy cars and other displays of wealth isn’t my cup of tea…
Nice writeup!
@MR – Yes, cars are a particular mystery for me. If I was sufficiently rich that it didn’t matter I could see the appeal of cruising along and turning the ladies’ heads (being brutally honest, and a bit base!) but the long-term cost of keeping up with the Jones’ new sports car is financially crippling. I’d need to have a net worth of at least £2 to £ million before I started buying new cars, I think.
@Mark, thanks for that – had spotted it already a few weeks ago though and wrote my resulting thoughts on money, happiness and memories here on Monevator.
@ermine – I can understand that thinking! But, well, I don’t see the South East in general as being sensibly valued. The truth is I could buy a house now, even in London, if I redeployed all my invested cash into property. But I see shares as offering much better value than property presently. I’ve screwed up my position in the housing market so much that buying now would be like suddenly folding in poker. I ow longer expect to do well from a collapse, but I think toughing it out until shares and property are at least more in line is the best compromise for me.
Indeed, one reason I’ve bought Lloyds shares is as a hedge. I’ve put about 2% of my net worth into them. If there’s no double dip in UK property prices, I fully expect them to triple from here over the next 2-3 years. If there is, they could get diluted away and go nowhere – but property would be much cheaper, too. 🙂
money does not equal happiness your right.. stop looking towards money for happiness like you said you will be disappointed …. you can be rich and happy tho…lets not forget that
I’m a big believer that your friends and family determine your base happiness and a higher salary just lends to more fun memories in the form of vacations and entertainment. So, yes, a higher salary would make me happier, but only if it didn’t cost me my social life. Great post!
Having worked in the computer field for 25 years, I have done the same job for both low and high salaries. And, I can definitely say that it’s a lot nicer working for the higher salary.
It’s very nice having a little wiggle-room in your paycheck after paying all of the bills. More money for me just equals more freedom. And, I’m working about the same amount of hours for the higher check, I’m just making more per hour. I can’t think of any downside, besides the higher taxes.
Thanks for your thoughts Bret. I’d venture that’s slightly different though?
It’s not your salary making you happy – it’s you being more happy about the trade-off of your time versus what you’re paid for it?
@BinFS – Shamefully it’s only now I’m getting officially old that I really realize the value of family and friendship. Of course, a higher salary can support seeing more of your family or friends, in certain circumstances. But as you say, it’s important to realize what’s actually making you happy if it does – and not to lose sight in chasing money.
Great post, some great comments too. To share my side, I grew up with a great family but not a lot of money. I’m now 24 and I’ve searched up on coping with higher income.
Frankly I’m not used to this, I’m used to debt and struggling, so having a significant amount to play with now after bills produces a little anxiety for me.
The whole joneses theory is now more prominent than ever, I now notice colleagues buying flash cars, suggesting I do the same. As well as the latest gear and going to nice restaurants and bars and what not.
But inside, I’m still just a normal bloke who lives with his girlfriend and enjoys the local pub quiz and a wether spoons just as much as I always did. I get anxious I lose that you know?
So I’ve chased the high salary for a couple of years, now I’m here. What next? More high salary chasing? Start a family? Invest money? I simply don’t know, but what I do know is trying to keep up with everyone I work with certainly doesn’t make me ‘happy’.
In conclusion, I don’t think money brings happiness, cliche yes, but it’s the people you spend your time and money with which seems to reap the most gratifying rewards, for my own interests anyway, others may have a different outlook.