How Much Is Enough?

By Brendan M. Crews, Authorized Representative, AVMA LIFE


Discussions of finances, investing, and retirement often lead to the same question: How much is enough? How much money do you need to stop worrying about money? When pressed, some people offer a concrete – if unrealistic – sum like $20 million dollars. Others answer the question sarcastically with “more than what I have now.” Coming up with an exact answer is difficult for most people and depressing for others who realize they may never reach the number in their head. Worrying about money is ingrained in most of us. That’s what makes the question “How much is enough?” more of a psychological one than a financial one.

Can money buy happiness?

The simple answer is: Yes – but only up to a point. Research abounds on this topic. And while it doesn’t all agree, it generally points us to the conclusion that more is better -- up to a point – and that point is lower than you probably think. A 2018 research paper published in Nature, entitled Happiness, income satiation and turning points around the world, used data from a Gallup World Poll of over 1.7 million people to measure happiness by income level. In U.S. dollars, they found a significant increase in emotional well-being with rising income up to about $60,000–$75,000, then it leveled off. From there, rising incomes increased personal life evaluation scores (your personal feeling of success), but not emotional well-being, up to about $95,000 before leveling off again.

In layman’s terms, once you have enough money to meet your basic needs and have some left over to spend on things you want, happiness plateaus. Research from economists Betsey Stevenson and Justin Wolfers found similar themes with slightly higher upper thresholds of $105,000 of income. Beyond this point, they found very little difference.

It can be hard to imagine that someone with $10 million dollars doesn’t feel happier than someone with $1 million, but survey results of millionaires done by the Harvard Business School show that on a scale of 1-10 they score only .25 higher. If you asked someone with $1 million dollars if they would be a lot happier with $10 million or asked someone making $100,000 a year if they would be significantly happier making $150,000, people always give a resounding YES. Yet time and time again the research shows that it just isn’t the case.

One of the most logical explanations for this disconnect is how we derive our feelings of happiness and success. Simply put, how does what we have compare to our peers? Our culture is one of comparative success that follows a predictable pattern.

  •  Step 1 – Make more money.
  • Step 2 – Feel better about our relative status in life.
  • Step 3 – Buy a bigger house and a nicer car in a new neighborhood.
  • Step 4 – Realize that we are again middle of the pack compared to our new peers.
  • Step 5 – Watch our happiness and satisfaction drop to previous levels.
  • Step 6 – Repeat steps one through five.

In the financial planning world, this cycle is called lifestyle creep. As your income and net worth rise, so do your expenses and expectations. This process creates a viscous cycle in which we feel we cannot get ahead or, worse yet, that we are falling behind as debt and spending rise faster than income. The transition from academic life to professional life is one of the points in our lives when we are most susceptible to this type of thinking.

How do we break the cycle of lifestyle creep?

That is a tough question that we certainly won’t solve here. But we can look at some strategies for increasing happiness and overall satisfaction with our lives.

Dr. Daniel Crosby, Chief Behavioral Officer at Brinker Capital, offered his thoughts on the formula for happiness in a 2019 article. In this insightful piece, Dr. Crosby shares the PERMA model, developed by psychologist Martin Seligman to describe five basic needs that contribute to happiness:

  • Positive emotion – We need fun
  • Engagement – We need deep work
  • Relationships – We need other people
  • Meaning – We need to be working for something bigger than ourselves
  • Accomplishments – We need to be better today than we were yesterday

These needs apply to us all, and it is easy to identify when one or more are not being addressed.

Next, Dr. Crosby lays out the case for how our happiness is tied to our expectations. When our reality doesn’t meet our expectations, it makes us unhappy.

Why is that a problem? If we tie it back to lifestyle creep, when our expectations are rising faster than our reality, our life seems lackluster by comparison. Our happiness is tied to our expectations, and our expectations are tied to our peers. Now imagine our peers feeling the same pressure. It creates a domino effect of lifestyle chasing.

The obvious solution, as Dr. Crosby points out, is to want what we have. For us, this advice falls into the “simple but not easy” category. Taking time to appreciate what we have is important. It provides perspective, gratitude, and more empathy towards those less fortunate.

It is great advice, but it isn’t a silver bullet. We can’t help how we feel. If you have a stable job and are diligently saving for retirement, you may still feel anxious about not saving enough. If you are retired and living comfortably off your investments, you may still be nervous about running out of money. We know there are things in life we can’t control, and no amount of retirement projections can guarantee results or absolve us of fear. Despite this lack of control, a little perspective to reset our expectations in life can go a long way. Understand that a dramatic increase in wealth isn’t what will drive happiness; our relationships, passions, and attitudes will.

Maybe the answer to how much is enough shouldn’t be measured in dollars, but rather in moments well spent with the people we love.