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Earnings

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The amount of money that you can make varies from career to career.

Up to a point, earnings are correlated with emotional well-being and life satisfaction. Purchasing things that are considered necessities (by modern, developed world standards) requires a minimum amount of income. As discussed in the "saving for the future" section below, ensuring that one has enough income to meet these standards, especially in old age, requires that make more money per year than these figures indicate.

Some things that extra money can be useful for are:

  • Geographic flexibility — You can use additional money to live in desirable areas with higher cost of living.
  • Raising children — You can use additional money to pay the financial costs of raising children.
  • Saving for the future — You can use additional money to cover future expenses, whether they're expected (e.g. retirement) or unexpected (e.g. unexpected medical expenses).
  • Donating to charity — You can use additional money to donate to charity.
  • Luxury spending — You can use additional money to buy luxury goods and experiences.
  • Social influence — You can use additional money for social influence.

In addition to having significant potential benefits, having higher earnings also has significant potential downsides.

See also Earnings by career.

Income, well-being and life satisfaction

A 2010 study published in the Proceedings of the National Academy of Sciences found that emotional well-being increases with household income up to $75k/year but no further, and that life satisfaction increases with household income up to well beyond $120k/year.

This should be taken with a grain of salt. The study is based on self-reports, which can be unreliable. The study participants were asked to rank life satisfaction on a scale from 0 to 10, and it's unclear how to interpret these numbers, and whether they mean the same thing to different people.

It's worth noting that if you spend your money wisely, having a high income may make you happier than the 2010 study suggests.

Income needed for an adequate living standard

A 2013 report by the Economic Policy Institute estimates that the income level necessary for families (with two parents and two children) to secure an adequate but modest living standard is between $48k and $94k, depending on broad geographic location. This does not count money put into savings.

Geographic flexibility

Economic theory predicts that the more desirable a location is to live in, the higher the housing cost is there. This is born out in reality: for example, a recent survey found that New York City is the city in the United States that people collectively find to be the most desirable, and ApartmentList.com reports that New York City has the second most expensive housing in the United States. The cost of renting an apartment for a two parent, two child family ranges from ~$600/month in certain rural areas to ~$4000/month in Manhattan, New York. So your ability to live in a desirable location depends a lot on your income.

Raising children

The US Department of Agriculture estimates that the cumulative cost of raising a child from birth through age 17 (for a two-parent middle class family) is ~$240. This does not count the cost of higher education, which averages ~$60k for public colleges and ~$120k for private colleges.

Having more money enables you to comfortably raise more children.

Saving for the future

Earning more income enables you to save money for future expenses. Some examples of future expenses are

  • Retirement. A good rule of thumb is that in order to sustainably support yourself during retirement, you should invest enough money so that you can live off of the returns on your investment. The average returns on stock market investments are about 7% per year. In order for this to amount to $50k/year, you need to save roughly $700k for retirement. The sooner you want to retire, the more money you need to save per year. Having higher income enables you to retire earlier, and have higher standard of living after you retire.
  • Unemployment. People often lose their jobs unexpectedly, or are unable to get jobs. At any given time, between 5% and 10% of those who are looking for jobs are unable to find work. If you're unable to get a job, you'll need to use your savings, go into debt, or be supported by your family. If you've saved money in the past, you can live off of your savings without having to worry about going into debt or depending on your family.
  • Losses from stock market crashes. During the 2008 financial crisis, people's investments in the stock market dropped to 50% of their previous value, taking ~5 years to recover. This was disastrous for some people who were counting on using their savings during these years. The more money you're able to earn, the more money you're able to save, and this can lessen the degree to which financial crises have a negative impact on your life.
  • Expenses associated with medical conditions. An example of an unexpected medical expense: the cost of caring for a parent who has Alzheimer's disease can be up to ~$100k/year. Your parents might have savings that they can use for this purpose, but not all parents are in a position to cover these costs.
  • Twins. Between 2% and 3% of live births are births of twins. You might be planning on having one child, and end up with two.

Donating to charity

Middle and upper class people in developed countries such as America have the opportunity to contribute outsized social value by donating to charity. There are families in Kenya that live on $1000/year — this is about 50 times lower than median income in the United States. By donating ~$1000 to GiveDirectly, which transfers cash to poor Kenyans, an American can double the consumption of an impoverished Kenyan family for a year.

There may be charitable giving opportunities that are far more impactful than GiveDirectly, but GiveDirectly establishes a minimum amount of social value that you can contribute by donating to charity.

The more money you have, the more you can donate to impactful charities such as GiveDirectly.

Luxury spending

LearnVest points out that

  • Some people want an expensive home and/or a second home. Getting a second home can bump one's cost of housing up by ~$30k/year.
  • Luxury cars can cost ~$60k, in comparison with inexpensive but functional cars, which cost ~$20k.
  • Hiring a nanny to take care of your children can cost ~$30k/year.
  • Designer clothing can cost up to ~$20k/year.
  • Eating at expensive restaurants, taking up expensive hobbies such as sailing, and attending lavish events can cost ~$25k/year.
  • Traveling to exotic locations several times a year can cost ~$15k/year.

These estimates are rough, and the things that they refer to are vague. The estimates are only intended to give a rough idea as to the costs of luxury goods.

If you want a lifestyle that includes all of these things, you need an additional ~$130k/year in household income after taxes, beyond what one would need if one were living an adequate but modest lifestyle.

Social influence

People who have high earnings are often regarded as more important than people who aren't. If you have high earnings, you're in a better position to influence your communities.

People who have high earnings can make earmarked donations to community organizations, in order to influence their activities.

Potential downsides of high earnings

These downsides tend to be small for people with moderately high earnings, but can be large for people with very high earnings.

  • People being interested in you for your money. If people stand to gain from you financially, they may behave in a friendly way toward you even if they don't like or care about you. If you're very wealthy, people may attempt to manipulate you in order to get a share of your wealth. This can make it hard to know who to trust, reducing your comfort with people.
  • Reduced critical feedback. If people stand to gain from you financially, they may be less willing to point out ways in which you could improve, out of fear of offending you. This can limit your opportunities to grow as a person.
  • Reduced empathy. If you're wealthy, you don't need to depend on other people as much as is typical. When you don't depend on other people, you don't need to be attuned to their emotional states in order to navigate the world, and this can result in your capacity for empathy atrophying.