The Unexpected Ways a Big Raise Affects Your Happiness

Getting more money often leads to immediate satisfaction. The good feelings might not last.

By Joe Pinsker of The WSJ. Excerpts:

"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."

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."

"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."

"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."

Related posts: 

The Fun Things in Life Are Giving Us Buyer’s Remorse (2023)

How Happy Can a Windfall Make You? (2022)

Happiness Is Not What We Think It Is (2022)

Psychologists uncover new details about how money influences the frequency and intensity of happiness.  (2021)

More On The Economics Of Gift Giving. (2018)

What Brings More Happiness, More Time Or More Money? (2017, this study found that people that chose more free time over more money tended to be happier) 

Do income and happiness tend to go together? Yes, both within and across countries . (2017)

Science proves it: Money really can buy happiness . (2017)

Dagwood Bumpstead Explains The Hedonic Treadmill  (2015)

Does Money Buy Happiness? (2011)

Does Wealth Make Us Happier? (2010, maybe wealth buys freedom that makes us happier)

Does Or Can Money Buy Happiness?  (2008)

Interesting Book: Stumbling on Happiness  (2007)

Does Money Make You Mean?  (2007)

Related articles:

Money buys happiness after all  (By William Easterly and Laura Freschi, 2011)

The happiness wars (From The Lancet, 2011)