What this article covers
Opher Ganel argues that money can buy happiness, and that the often-cited $75,000 income plateau sits closer to $200,000 once you adjust for region, family size and inflation. He lays out three reasons your next raise matters: it decides whether your income keeps up with rising prices, it compounds into every future paycheck and raise, and saving half or more of it speeds your path to financial freedom without belt tightening. He closes with practical tips for earning a bigger raise.
Key Takeaways
Your next raise determines whether your income keeps up with inflation
When CPI rose 6.8% in the 12 months ending November 2021, with gas and fuel oil up nearly 60% and used vehicles up over 30%, a raise below inflation meant a pay cut in real terms. Opher Ganel notes that falling behind forces a grim choice: tighten your belt, cut your savings rate, draw down savings or take on debt.
A raise compounds, so each one boosts every future paycheck and raise
Every raise sets a higher base for the ones that follow. Starting from $50,000 with 10% annual raises for 10 years, the first raise adds $5,000 while the tenth adds almost $12,000, and skipping just the first raise makes the later one worth $1,072 less.
Saving at least half of every raise builds wealth without cutting your lifestyle
Instead of budgeting or frugal living, Opher Ganel suggests directing at least half (he aims for two-thirds) of each income increase to savings and investments. You still enjoy a rising standard of living while accelerating your journey to financial freedom.
I know it’s unpopular to say so in some circles, but yes, money can buy happiness.
Certainly, as my mom’s experience of poverty early in her life taught her, having less money than you need buys misery.
Then there’s that research people love to bandy about, that they claim proved happiness stops increasing once you earn $75,000/year.
As I wrote elsewhere, that research doesn’t quite say that making more than $75,000 doesn’t increase happiness. What it does say is that one of two measures of happiness plateaus at $75,000 as a global average, while the other continues rising until income hits $95,000.
However…
- Those figures depend strongly on region, and in North America they were $95,000 and $105,000
- The figures were for an individual, not per family
- The figures were published in January 2018, based on research conducted earlier, so inflation would raise them by over 12%
Scaling to a family income today moves the peak happiness number to just under $200,000.
Chances are, you earn less than that.
There are also a few other things more money buys you that are arguably more important than happiness.
- Freedom of choice
- Control of your own time
- Margin of safety if something goes wrong
Now that we’ve established how important income is to your happiness, let’s dig into the 3 reasons your next raise is so important (and a few tips on how to maximize it).
Prices Are Rising: Will Your Next Raise Keep Up With Inflation?
Unless you’ve been living under a rock for the past year plus, you’ve seen prices rise faster than they have in decades. According to the US Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) went up 6.8% in the 12 months ending Nov 30, 2021.
The increases are especially high in gas and fuel oil (nearly 60%!); used cars and trucks (over 30%); natural gas (over 25%); meats, poultry, fish, and eggs (nearly 13%); and new vehicles (over 11%).
Your next raise will determine whether your income keeps up with (or better yet, outpaces) that inflation.
If it doesn’t, you’re looking at a grim choice – tighten your belt or reduce your savings rate (and if it’s already at 0%, drawing down savings or going into debt). Unhappy results all.
How Your Next Raise Compounds Into Every Future Paycheck
Sure, a raise means your next paycheck will be higher than your last, which is a great thing.
However, it does much more than that.
It raises the bar for all your future paychecks and all your future raises. If you get a 10% increase now, and another 10% next year, that second 10% builds on the first one, so it’s actually 11% relative to your last paycheck.
If you start from $50,000 and get a 10% raise each year for 10 years, your first raise gives you an extra $5000, but your 10th raise gives you almost $12,000. If you didn’t get that first raise, and did get the next 9, the 9th would be worth $1072 less.
Save Half Your Raise to Reach Financial Freedom Faster Without Budget Cuts
Budgeting is no fun (at least for normal people).
The only thing less fun is cutting expenses and living a more frugal lifestyle (again, for most people).
What if I showed you a simple way to save more and accelerate your way to financial freedom without tightening your belt or pinching pennies?
Interested?
You can read the full details here, but the gist of it is simple – assign at least half (I personally strive for 2/3) of each increase in income to your savings and investment for the future. This lets you build wealth faster while also increasing your standard of living.
Your next raise? That’s right, half to 2/3 of it goes into that financial freedom express bucket.
Bonus: How to Ask for a Raise and Improve Your Chances of Getting a Bigger One
As promised up top, here are a few ways you can improve your chances of scoring a higher raise.
- Think from your boss’s perspective – she doesn’t care about what you need or want (e.g., that your commute costs jumped 60% in the past year) – she cares about how you improve the company’s bottom line. This means you need to figure out how to make yourself more valuable to the company – learn new skills, take on more responsibilities, support high-priority projects, etc.
- Think some more from your boss’s perspective – make her (professional) life easier and she’ll be more likely to hand out merit raises to you than to your colleagues. This means figuring out what she’s worried about, what she hates to spend time on but has to, etc., and then reducing the time, effort, and stress these things cost her.
- Finally, the simplest one – ask! But do it intelligently. Don’t just say you want or need more. Share a list of your achievements in the past year, and how they impacted the company’s bottom line. Then, ask for a raise that’s commensurate with that level of effort and impact.
The Bottom Line: Why Your Next Raise Is Worth Pursuing
It’s not hard to believe that your next raise is good for your happiness, but the above shows you more reasons why that’s so, beyond the simplest – more dollars hitting your bank account. Once you know how important that next raise is to your happiness, present, and future, you’ll be well-armed to overcome any trepidation in pursuing the biggest raise you can achieve. Then, the bonus points will help you strategically pursue it.
Frequently Asked Questions
Can money buy happiness?
Opher Ganel argues that it can, at least up to a point well above what most people earn. Having less money than you need buys misery, and more money also buys freedom of choice, control of your time and a margin of safety if something goes wrong.
Does happiness really stop increasing at $75,000 a year?
Not quite. The research behind that claim found one measure of happiness plateaus around $75,000 as a global average, while another keeps rising to $95,000. Adjusting for higher North American figures, family rather than individual income and inflation since publication puts the peak at just under $200,000 for a family.
Why does a raise matter more than the extra money in one paycheck?
A raise lifts the base for every future paycheck and every future raise, so its effect compounds. In the article’s example, starting at $50,000 with 10% annual raises, the tenth raise is worth almost $12,000, and missing the first raise reduces later raises too.
How much of a raise should you save?
The article recommends assigning at least half of each income increase to savings and investments, and Opher Ganel personally aims for two-thirds. This lets you build wealth faster while your standard of living still rises.
How can you improve your chances of getting a bigger raise?
Think from your boss’s perspective: make yourself more valuable by learning skills, taking on responsibilities and supporting high-priority projects, and make your boss’s work life easier. Then ask, backed by a list of your achievements over the past year and their impact on the company’s bottom line.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the author
Contributing Writer, Wealthtender
My career has taken some unexpected turns, from earning a PhD in experimental high-energy physics, to conducting cosmic-ray research in Antarctica, to supporting NASA projects and programs, to running my own consulting business. I also run several other small businesses and help my wife run her Marriage and Family Therapy practice.
Those experiences taught me to question assumptions, think critically, and recognize that real-world decisions of any significance rarely have simple answers that apply to everyone. Today, I bring that perspective to writing about personal finance. Drawing on my analytical background, business experience, and research, I explore financial decisions, challenge conventional wisdom, and help readers understand the tradeoffs that can affect their financial well-being. To complement my own research and experience, I also weave insights from financial professionals into my articles, drawing on their expertise and real-world experience helping clients navigate financial decisions and challenges.
At medium.com/@opher-ganel, you can read more of my articles and subscribe to receive email notifications when new ones come out.