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How much money do you need to be happy?

Select spoke to researchers about the relationship between income and happiness.

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Patchareeporn Sakoolchai | Moment | Getty Images

Money permeates every aspect of our lives, influencing where we choose to live, what we do, where we go to school, what we eat, among other things. Having money frees us from dealing with issues like housing insecurity or an inability to afford medical care.

Yet when I looked into the research on the connection between money and happiness, I found that the relationship between the two is actually quite complicated. It seems that even psychology researchers can disagree on the effect that money has on people's sense of wellbeing and happiness.

How much money do you need to be happy?

What I did find was that more money often means more happiness, but not always. According to Jon Jachimowicz, a business administration professor at Harvard, the primary benefit of making more money is that it serves as a buffer when negative events in life happen. For example, if you don't have time to cook, you can order takeout or if a medical emergency occurs, you can swiftly cover the bill.

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"Money is not just a way that people can buy themselves happy moments; it is also a crucial tool for safety, security, and stability," says Jachimowicz. "Money can help soften the blow of bad times; a lack of money can make even benign things much more distressing and painful."

While a previous study by Daniel Kahneman and Angus Deaton found that people's sense of wellbeing plateaued when they made at least $75,000, new research challenged this notion, finding that there was no leveling off effect at $75,000. Put another way, your happiness increases with your income, even if you make above $75,000.

Kahneman and Deaton's research had measured happiness by looking at people's evaluative wellbeing. This measure of happiness asks people to evaluate their feelings retrospectively or after an event has occurred.

Matthew Killingsworth's new study examined experienced wellbeing or people's emotions as they occur. By using this new measure of happiness, Killingsworth determined that as income increased, people's evaluative and experienced wellbeing increased. In other words, making more money was associated with feeling better on a daily basis and liking your life more overall.

However, getting a job that earns you significantly more money won't necessarily make you happier either.

Laurie Santos, a psychology professor at Yale and host of the podcast The Happiness Lab, notes that while Killingsworth's research shows that making more money has an effect on happiness, the magnitude of that effect is small on large incomes. 

She suggests that practices like writing in a gratitude journal and exercising have a bigger effect on people's happiness and may be more realistic than trying to make significantly more money.

"Again, I think our intuitions are wrong— it might be that if we worked on our mental health and burnout, we'd perform better at work and this might lead to more positive outcomes in terms of our job success and salary," says Santos.

Indeed, there's multiple studies that back the idea that happiness, positive emotions and cheerfulness precede higher pay, not vice versa. This means that more cheerful and happier individuals with positive outlooks on the future are more likely to perform better at work and therefore, earn higher salaries.

Find out what works for you

Regardless of how much money you make, taking stock of your finances is a good way to understand whether your current income allows you to achieve your financial and life goals, whether that's owning a house or being able to take vacations regularly. If you have the resources, consider hiring a certified financial planner to help you understand what's important to you and how you can reach your financial goals,

If you're not in the position to hire a financial planner, consider creating a budget and tracking your spending. Apps like Mint and YNAB can help you understand how much money you're spending and what you're spending money on. Through this process, you'll get more insight into where you're money is going and potentially reallocate your income to things that bring you more happiness.

Mint

Information about Mint has been collected independently by Select and has not been reviewed or provided by Mint prior to publication.
  • Cost

    Free

  • Standout features

    Shows income, expenses, savings goals, credit score, investments, net worth

  • Categorizes your expenses

    Yes, but users can modify

  • Links to accounts

    Yes, bank and credit cards

  • Availability

    Offered in both the App Store (for iOS) and on Google Play (for Android)

  • Security features

    Verisign scanning, multi-factor authentication and Touch ID mobile access

Terms apply.

You Need a Budget (YNAB)

Information about You Need a Budget (YNAB) has been collected independently by CNBC and has not been reviewed or provided by YNAB prior to publication.
  • Cost

    34-day free trial then $84 per year or $11.99 per month (students who provide proof of enrollment get 12 months free)

  • Standout features

    Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as the "zero-based budgeting system" where no dollar is unaccounted for). Every dollar is assigned a "job," whether it's to go toward bills, savings, investments, etc.

  • Categorizes your expenses

    No

  • Links to accounts

    Yes, bank and credit cards

  • Availability

    Offered in both the App Store (for iOS) and on Google Play (for Android)

  • Security features

    Encrypted data, accredited data centers, third-party audits and more

Terms apply.

While budgets may not work for everyone because people's income and expenses vary from month-to-month, they can be a useful tool to help smooth consumption over time. In other words, budgets can help you understand how to balance periods of higher spending with periods of lower spending, so you can maintain your standard of living, whether that's while you're retired or in your 20s.

Bottom line

So what's the takeaway from all of this research? Well, money is integral to ensuring that we can cover our essential expenses like housing, food, transportation and medical expenses. It is, however, only one factor that affects our happiness.

Practicing gratitude, getting enough sleep, exercising and spending time with loved ones all have a positive impact on our wellbeing and sense of happiness. And if you think getting a higher-paying job is the key to your happiness, it might actually be the other way around — being happier can affect your work and how much you get paid and eventually lead.

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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