Opinion: How much money do you need to be happy?

A happy housewife woman pictured in a laundry room with washing machine

A washing machine is often the first purchase people make when they win the lottery - Credit: Getty Images/iStockphoto

Apparently, the first thing most new major lottery winners buy is a washing machine.

Not a four-bedroomed penthouse with substantial outdoor terracing overlooking Nice’s Baie des Anges, nor a Ferrari or a classic Rolex Oyster Perpetual. Gold, diamonds and other precious stones also come much later because for a surprisingly large number of people who scoop £50 million-plus, a humdrum washing machine is their priority purchase.

I suppose that if the door on your existing machine is prone to leaking, or it sounds similar to an Apollo spaceship at take-off when spinning and acquiring a new one would make you happy, then why not insert it at the top of your ‘items to buy’ list? Question is: would you bother doing the washing if you had recently banked £50 million or would you pay someone else to do it? How about if you won £1 million?

I mention this after a report published by Purdue University in Indiana concluded that there is an optimal point to how much money it takes to make an individual happy. Not surprisingly, researchers found the amount varies according to where you live.

Speaking following publication, the report’s author, Andrew Jebb, a doctoral student at the university’s Department of Psychological Sciences, said: “What advertisers tell us we need would indicate that there is no ceiling when it comes to how much money is needed for happiness, but we now see there are some thresholds.”

Three generation white family sitting in two rows of passenger seats in a car, looking at each other

Money is only a part of what makes us happy, along with a loving family, comfortable home and the opportunity to enjoy life experiences - Credit: Getty Images/iStockphoto

Mr Jebb continued: “the ideal income point is $95,000 (£67,857),” although the figure deemed likely to bring “emotional well-being” is somewhere between £42,857 and £53,571. The report added: “Emotional well-being, or feelings, is about one’s day-to-day emotions, such as feeling happy, excited, or sad and angry.”

The research was based on data collected from survey sample of more than 1.7 million individuals in 164 countries, taking relative purchasing power into account.

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Significantly, the study found once the ‘ideal’ level of income was reached, further increases tended to be associated with reduced life satisfaction and a lower level of well-being because “money is only a part of what really makes us happy.” Few would argue with such a statement; after all, how do you put a price on health, happiness, a family’s warmth and love, on enjoying intellectual and physical challenges, listening to music and a million other things?

Clearly, there are many more important things in life than money, so how do we achieve Purdue University’s ‘emotional well-being’ lower income level of £42,857 which leaves us free to pursue other interests?

There is no easy answer, although before trying to establish a definitive figure, I would recommend reading Lee Eisenberg’s excellent book, The Number, which you may find acts as a form of financial planning-cum-retirement planning handbook.

With millions of baby boomers in his sights, Eisenberg describes what he calls their “most vexing conundrum over the next thirty years: how do you keep a portion of your assets growing while at the same time drawing down funds to live on?”

From a financial perspective, the “well-planned lifetime consists of an accumulation phase, during which you work and save for the future [followed by] a distribution phase, in which these assets are drawn down…with taxes and other considerations taken into account.

“In the accumulation phase…time is your buddy. If you start young and keep your financial house in order, you’ll probably do fine…In the distribution phase, however, time is not a friend. Not only is it too late to accumulate all that much, what you have accumulated is subject to risks [including] longevity, health care costs, misallocated investments, excessive spending, inflation.”

The woman hand is putting a coin in a glass bottle and a pile of coins on a brown wooden table,Inve

Research has suggested that an income of £42,857 can result in 'emotional wellbeing' - Credit: Getty Images/iStockphoto

I doubt if more than a handful of us have lived a ‘well-planned’ financial life. Instead of diligently setting aside a small percentage of our salary each month and watching it grow over decades, there’s a strong probability that our salad days in particular were a time for fun, excess, laughter, living beyond our means and frequent periods when pay day couldn’t come quickly enough.

People stumble upon the idea of saving almost by mistake or necessity, often prior to getting married or buying a new washing machine and they soon recognise its longer-term value. When this realisation occurred in life will probably determine your proximity to the £42,857 ‘emotional well-being’ income level.

Don’t worry if you’re not there yet, but neither should you rely on hitting the lottery jackpot in order to acquire that new washing machine.

THE WEEK IN NUMBERS

  • 32.5% - Less than one third (£520 million) of the £1.6 billion allocated by the government to local authorities to help businesses of all sizes has been distributed. Town halls are also in charge of the £5 billion Restart Grant scheme aimed at hospitality and high street firms.
  • £275,571 - According to US fund giant Vanguard, pension savers paying annual fees of 2% on a £250,000 pension pot would be £275,571 worse off than someone paying 0.79% (Vanguard’s fee) over 30 years. The figure assumes annual investment growth of 5%.
  • £5.1 billion - Fast-growing British businesses attracted a record £5.1 billion in foreign investment in the first three months of 2021. The figure is almost double that of a year ago according to accountants KPMG.

ONLINE

Will growth in property values continue? Read Peter Sharkey’s blog exclusively at www.moneymapp.com/blog

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