How much money do you need to have every year to be happy? Have you ever thought about it? If you’re like most of the women I work with, you’re ambitious and eager to earn lots of it over your career—but have you ever really calculated how much money you truly need? Will making $50,000 a year make you happy, or do you need $100,000, $500,000 or maybe even $1 million?
We all have different life goals and things we want to use our money for, but it’s really important to discover how much you actually need in order to be happy and content in life. I call this your magic number. Now, I’m sure most of us would like to say $1 million is our magic number–but if that’s not what you really need to be happy, how driven will you be to actually make that much money?
According to research done by Dunn and Norton1, the amount people need to be happy averages about $75,000 per year. That means that people who made $75,000 every year were, overall, happy and content, and anything over that amount had no effect on people’s happiness or moods. So in essence, your magic number becomes your income goal. Anything above that is great, but if you have at least your magic number, chances are you’ll feel happy and fulfilled in life. Sound good?
Now the question becomes, what is your magic number? If you’ve never thought about it, now’s the time. To help you figure out your magic number, let’s look at Sara’s example below:
Sara wants to calculate her magic number.
- Sara starts by adding up her basic living expenses, including her housing costs, student loan payments, car payment, and other basic expenses such as food, gas, medical bills, etc. Her basic living expenses equal $40,000 a year.
- Next, Sara takes the time to think about what truly makes her happy in life, and concludes that spending time with her family and friends, traveling to new places and meeting new people, and maintaining her health fulfill her top values in life—in other words, love, connection, learning and health.
- So she decides she wants to spend money on the following things every year:
- A personal trainer to stay healthy and fit: $1,200 per year.
- Traveling internationally once a year to learn about and experience different cultures: $4,000 per year.
- Spending time with her family and friends over nice meals and mini getaways: $2,500 per year.
Sara also takes the time to realize that she does not gain any happiness from the following things:
- TV. She would rather spend her time meeting new people or trying new things, so she decides to cancel her cable.
- Designer clothes. Not so important to her, so she decides not to spend too much on clothes every year.
- The latest electronics. Sara would rather spend money on experiences as opposed to gadgets, so she commits to not upgrading her phone every time a new model comes out.
Then she reviews all her financial goals for the year and decides she wants to save:
- $17,000 into her 401k every year for her retirement goal.
- $5,000 into her emergency fund.
- $5,000 in extra student loan debt repayments.
In total, Sara calculates that her magic number is $74,700. That means she will need a net income of just under $75,000 to feel happy and satisfied. Anything above that would be great, and anything below that number would mean she would have to cut out some expenses—which may result in her feeling less happy or fulfilled. So $75,000 in net income every year is her goal.
Once you define your magic number, planning for your financial future becomes SO much easier. The magic lies in the fact that now you’ll know exactly how much money you need to make every year—and you’ll know exactly how to allocate it every month/year so that it brings you the most joy, satisfaction and happiness possible.