The Unexpected Ways a Big Raise Affects Your Happiness
Getting more money often leads to immediate satisfaction. The good feelings might not last.
Getting more money often leads to immediate satisfaction. The good feelings might not last.
Up and down the income ladder, people say more money would make them happier. When they actually get it, that isn’t always the case.
Some people who have gotten big raises recently say the money hasn’t changed their day-to-day life or hasn’t provided them as much joy as the things in their life that have nothing to do with money. Others were hoping for a bigger raise or felt conflicted about making more money.
Jess Tapia, a 28-year-old accountant in Hoffman Estates, Ill., thought for years that $90,000 was a salary that would make her happy. When a raise of about $20,000 pushed her pay to that level last February, it did—at first.
To celebrate, Tapia booked a vacation to Germany the next month. The good vibes soon wore off.
“By the time I came back from that trip, it kind of fell flat for me because it was just back to normal, back to the routine,” she said.
The past few years have been good ones for workers seeking higher pay. Median year-over-year wage growth hit a recent peak of 6.7% in summer 2022, after mostly staying below 4% for more than a decade before 2021, according to the Atlanta Federal Reserve. Many of those who switched jobs, or threatened to, made substantial salary gains.
And people with higher incomes do tend to be happier, many studies show. Research looking at lotteries and random cash giveaways indicates that additional money can make people happier for months or even years.
But moving up the income scale, it takes more money to generate the same good feelings, said Jan-Emmanuel De Neve, an economics professor at Saïd Business School at the University of Oxford who studies well-being. The proportion of the increase matters.
“If an employer moves somebody from $15,000 to $30,000, that will have an impact on people’s life satisfaction that is the equivalent of them moving somebody from, say, $60,000 to $120,000,” De Neve said.
A pay increase that takes someone from financially stressed to financially stable often leads to more happiness. At the low end of the earnings spectrum, a higher income is associated more with squashing negative feelings than producing positive ones, according to a 2021 paper in the journal Proceedings of the National Academy of Sciences.
Randeep Chauhan, a 30-year-old nurse in Ferndale, Wash., went from making about $45,000 in 2021 to $90,000 in 2022 after completing a one-year nursing program.
“Doubling my income didn’t double my happiness, but it came close,” he said.
For Chauhan, much of the happiness boost came from being able to stop worrying about being able to cover his family’s monthly bills. He said his blood pressure dropped to a healthy level after his change in pay, which he attributes largely to the drop-off in financial stress.
If you get a raise, don’t just spend it, said Neela Hummel, a financial planner and the co-CEO of Abacus Wealth Partners.
“The worst thing that can happen with a raise is that that money gets immediately folded into cash flow and a client doesn’t even notice it,” she said.
Many people also jump ahead to how nice a car or how big a house they could afford with a new paycheck. Instead, Hummel advises, take the raise as an opportunity to up your savings or pay down debt.
Chauhan said he has avoided lifestyle creep, putting money toward retirement savings and student loans instead of buying a new computer or phone. “There’s a weird rush in making money and not spending it,” he said.
Austin Benacquisto’s pay has rocketed upward over the past few years. The 29-year-old commercial debt broker in Atlanta made roughly $60,000 in 2019, $110,000 in 2020, $180,000 in 2021 and $325,000 in 2022, including bonuses.
His steps up to $110,000 and $180,000 felt better than the one up to $325,000, he said.
“The last 50,000 I made in 2022 just was for stuff in my house that I wanted,” he said.
Benacquisto’s pay fell to about $200,000 last year as his industry slowed down. The drop felt worse than the recent increases felt good, he said.
“This being the first decrease, it definitely stings,” he said.
People’s happiness with their pay is strongly tied to how it compares with the pay of others around them, say researchers who study compensation. Sometimes, those comparisons rankle.
A 30% raise made Ryan Powell less happy at work.
Powell, a 38-year-old finance director for a manufacturer in western North Carolina, received that pay bump in 2022. He had been hoping for more based on the salary information he had heard from recruiters, peers in the industry and his M.B.A. cohort.
The initial thrill of the raise lasted about three months, he said.
“The further I got into it, the more I was realising that I was anchored to the higher number,” he said.
Executives are more likely to leave their companies if their pay is low compared with other top bosses, according to a 2017 study in the journal Human Resource Management.
Comparisons matter closer to home, too. Living in an area where people tend to make more money than you is linked to being less happy, according to a 2005 paper in The Quarterly Journal of Economics.
One reason that Tapia, the accountant in Illinois, isn’t happier after her raises is that she feels guilt about making more money than her parents ever did. Her dad works in construction and landscaping.
“I work from home mostly, I’m comfortable and I’m always indoors. During summertime, he’s sometimes outside working 10 hours in 100-degree weather,” she said.
Tapia recently got another raise of roughly $10,000. She again booked a vacation to Europe but is hoping to extend her joy further this time.
“I’m starting to feel like this is going to plateau, so let me try and make the feeling last a little longer with this trip,” she said.
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New research suggests spending 40 percent of household income on loan repayments is the new normal
Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.
Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.
“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.
CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.
Sydney
Sydney’s median house price is $1,414,229 and the median unit price is $839,344.
Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.
Melbourne
Melbourne’s median house price is $935,049 and the median apartment price is $612,906.
Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.
Brisbane
Brisbane’s median house price is $909,988 and the median unit price is $587,793.
Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.
Adelaide
Adelaide’s median house price is $785,971 and the median apartment price is $504,799.
Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.
Perth
Perth’s median house price is $735,276 and the median unit price is $495,360.
Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.
Hobart
Hobart’s median house price is $692,951 and the median apartment price is $522,258.
Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.
Darwin
Darwin’s median house price is $573,498 and the median unit price is $367,716.
Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.
Canberra
Canberra’s median house price is $964,136 and the median apartment price is $585,057.
Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.
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