growth

The Money Fallacy and Income Plateaus

I’ve written about why I’m taking a break/sabbatical in the middle of my comfortable career. Its because I learned something over time. That money is not necessarily the “end all be all” we make it out to be in the U.S. Much of the importance we place on money stems from our psychological desire to control our environment and to live in comfort. There is nothing wrong with that, but we need to take it down a notch or risk having your happiness tied to money, or possessions, or a “number”. Someday I’ll be happy, when I have X dollars and I’m comfortable.

But this is a fallacy. And it’s VERY risky. Its why the two most dangerous times in one’s life are the year you were born and the year you retire. That’s crazy. How the h*** can that be? Because when most finally get their “number”, they no longer have purpose and they’ve let their relationships and overall well being atrophy over time. Its another result of living life in the “Drift” and ignoring the 5 Regrets of The Dying I mentioned here. We are really just animals.

Don’t get me wrong, I think being fiscally conservative is a great thing and money provides many benefits. But I have lived and learned to know with 100% clarity that money is not what we need as human beings after certain basic needs are met. Remember, we are just animals. We have other social and psychological needs that wire us and underpin our happiness. We’ve lost sight of this somehow.

To prove this, Princeton economist Angus Deaton and psychologist Daniel Kahneman (author of Thinking Fast and Slow) discovered there is an income plateau, after which more money has no measurable effect on day-to-day contentment. The number is currently ~$75,000 per year. Obviously cost of living depends on where you reside, but the point is it’s much less than most people think. And not much more than the current median income of $50,000-$60,000. This shocked me. And as I thought about it, I took a hard look at my life and noticed that I knew a lot of happy people that didn’t make a ton of money or have huge houses or fancy cars. But they had the other important stuff, like healthy relationships and a life that was aligned with their values.

Further, having lived in both Mexico City and São Paulo, Brazil (two cities with extreme poverty), I have seen many people who are well below poverty lines, but have the other human elements that supported their happiness. Money truly wasn’t everything and it made a big impact on me.

Your income plateau number may be different, but keep in mind there are plenty of millionaires who are miserable. How can that be if more money brings happiness as we are led to believe in this country? Lawyers are a great example. They are known to be some of the unhappiest people (Sorry Lawyers, this is proven) but often considered “successful” based on the misguided importance of money, security, and material possessions in this country. I know many Lawyers and Bankers that are truly unhappy deep down. Don’t let people fool you. The majority of these people are not honest with themselves (I wasn’t).

So think about what makes you truly happy and how you can bring more of that into your life. We now know more money isn’t necessarily the answer. And thats actually quite helpful and freeing for me.

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