What is the perfect salary for happiness and wellbeing?
There is an old proverb that says, “Money is just a piece of paper and it could be worthless tomorrow”. Yes, I agree. Paper money can be worthless tomorrow. The state of the earth is changing in every generation, so does Money. Now we are living in a world, accepts digital claims or digital rights as money with the existence of paper money. We are trading our time in the name of work to earn that money as a salary. Money buys happiness certainly to some extent but what is the magic number? Definitely, this number changes from person to person. As per research conducted by Purdue University, the individual average salary in the USA is $95,000 but $60,000 to $75,000 satisfies human emotions for well-being. Dont buy this information. Research is always derived upon the facts but the facts don’t change our minds.
Emotional well-being, or feelings, is about one’s day-to-day emotions, such as feeling happy, excited, or sad and angry. We try to achieve life satisfaction, influenced by higher goals and comparisons to others.
More Money, More Emotions
As human beings, we are never satisfied with anything easily, it applies to happiness as well. “The pursuit of happiness” is one of the US’s “unalienable rights. To achieve that happiness with money, we should calculate the magic number based on what you need, rather than what you want. First of all, ask yourself how much money would you need to live comfortably for the rest of your life?. We spend a lot of time earning money than planning for the future with the same money. Once you break down your current salary with spending style, then you know how much salary you must earn.
Let’s consider, An Individual living in Illinois state and he earns $95,000 a year(2021) before tax. The annual net paycheck amount that is brought home after taxes and deductions from salary is $61,991.04. If you max out your 401K and IRA Contribution (Calculation made for an individual below 50), then your annual net paycheck amount differs. Either you can contribute after-tax retirement accounts like Roth IRA or Tax advantage retirement account like Traditional IRA.
For 2021, you can contribute up to $6,000 to a Roth or traditional IRA. If you’re 50 or older, the limit is $7,000. The most you can contribute to a 401(k) is $19,500, or $26,000 if you’re 50 or older.
Use this link to calculate your biweekly amount after taxes and deduction here. https://www.paycheckcity.com/calculator/salary#select-state-calculator
In my opinion, you should max out your contribution to 401K and IRA, evenly across two retirement funds i.e. 50–50 if your employers allow contributing Roth 401k or, else the decision is simple i.e. $19,500 to 401k tax savings retirement account and $6000 to Roth IRA)
After retirement saving account contribution, your total biweekly check amount will around $1800 (rounded off to near number for simple calculation). In other words, your payment will be $3600 monthly or $43,200 annually. Now comes a difficult part of the calculation, tracking monthly expenses. Tracking your spending regularly can give you an accurate picture of where your money is going and where you’d like it to go instead. As of now with $95,000, your spending style should be managed within $43,200 annually. Means, Average necessary expenses of the individual will be $33,780 — $35,000
On average, you can save ~ $8000 annually. In turn, You can save $80,000 in 10 years. These magic numbers are not for a current lifestyle, so $80,000 — total savings maybe not enough to live your life after 10 years. So you should invest strategically into any mutual funds or stocks. If you invested those $8000 + $26,000 (Retirement) annually for a 10% return, the total net worth might be around ~$320,000.
If you are able to double up the savings amount annually, then you are able to achieve half a million in 10 years. It doesn’t mean you should double up your salary. Your salary should increase from $95,000 to $130,000. To increase your savings two times a year, your future salary should be 35% higher than your current salary. As a couple, if you are making $150,000 annually, then you are able to increase your total net worth by more than a million dollars in 10 years with proper investment.
If you want to achieve financial independence and retire early in 10 to 15 years, your total net worth should be 25 times higher than the average monthly expense which is 25 * 50,000 = 12,50,000
