Why Someone Making $90,000 Doesn’t Feel “Rich”

Every few months, someone will publish an article about how folks making $xx,xxx per year don’t feel rich.

The latest I’ve seen is a MarketWatch piece where that number was $90,000. It referred to a YouGov survey in which 87% of 1,163 respondents said that if you made $90,000 a year, you weren’t rich or poor. The survey found that most people believed that at $30,000 a year is when you’ve escaped the “poor” category.

The median income of Americans of all ages is $56,516. The median income of those ages 15 – 24 is just $36,108, according to the Social Security Administration. A little less than a third of all Americans make less than $34,999 a year (32.1%).

But when you think “who could make $90,000 and not feel rich?” – there are a lot of reasons.

Very few of them have to do with the dollar amount.

This article aims to discuss why someone who makes $90,000 might not feel rich. It’s not meant to justify the feeling, but explain the mindset of someone who might make six figures but still feel like they’re behind the 8-ball.

Income is Relative to Cost of Living

Intuitively, we recognize that cost of living various across the country.

Living on $90,000 in California is a challenge. Living on $90,000 in West Virginia is far more manageable.

If you look at home values in the United States (Zillow), the median home price in California is $547,400. The median home price in all of West Virginia is $97,800. These are massive states and different areas within those states will vary in price, but I wanted to highlight the importance of cost of living.

The median list price for a square foot in California is $311. It’s only $93 in West Virginia.

That alone should tell you how (not) far $90,000 will go in the state of California, as compared to West Virginia.

If you ask someone from California if $90,000 is rich, they will say no. If you ask someone from West Virginia, they are more likely to say yes.

Income is Also Relative to Peers

This ties into the cost of living point, since many of your peers will live in the same area as you, but feeling rich has a lot to do with your peers. It’s hard for you to be happy if everyone else is doing better, even if you’re doing great.

If you earn less than all of your peers, it’s hard to feel rich. If your peers have nicer cars and nicer houses, it doesn’t matter how nice your car or house is. Even if it’s nicer than the house you grew up in. Even if it’s nicer than the house you lived in 10 years ago. You won’t feel rich because your peers appear reacher.

Social media hasn’t made it any better. When people update their “status” and share their vacations, their car, their whatever… you will experience the same thing.

What makes social media even worse is that you are bombarded by your peers’ bests. In a single day, you could see updates about someone’s vacation, their new car, their new job, their achievements, and other highlights.

(if this is a challenge for you, this post on TinyBuddha may help alleviate that problem)

The Hedonic Treadmill Runs Forever

The hedonic treadmill, or hedonic adaptation, is this idea that we always return to a relatively stable level of happiness regardless of any major positive or negative events. While this idea has been hotly contested, anecdotally it seems to feel accurate, right?

As people earn more money, they spend slightly more. It’s known as spending creep.

You get a raise at work and spend slightly more. Or maybe you treat yourself to something. And maybe that something has on-going costs, like a new car.

When you first do this, you experience a bit of extra happiness. But over time you return to your set point for happiness. Your couch is nicer, your car is nicer, your house is nicer… but it’s still a couch, car, and house. And some of those things require a little more upkeep.

What happens is your spending increases, your happiness returns to your set point, and now that increase in income is offset by the increase in spending.

The end result is that you are richer, with better stuff, but you don’t feel richer because your level of happiness has reverted to its set point.

The stuff I own now, in my late thirties, is far nicer than the stuff I owned in college. In terms of happiness though, I believe I’m around the same level of happiness as I was then.

Satiation Points Are Real

Money is like oxygen. When you don’t have enough, all you can think about is how to get more. When you have enough, more doesn’t have the same impact.

When you hit the satiation point, which varies from person to person, more doesn’t necessarily mean better. Studies have shown that satiation occurs at around $95,000 for life evaluation and $60,000-$75,000 for emotional well-being.

Sometimes, making more comes at a cost. To earn more, you might have to spend more time at work. You may need to take on responsibilities and stress. These all have negative effects on your lifestyle, which may not be worth it in the long run.

Consider the high powered executive who has to put 60-80 hour weeks for their six-figure job. If you are single, with no dependents, then 60-80 hours is a personal cost. It’s more time in the office.

If that same high powered executive has a family, those extra hours are hours that can’t be spent with a spouse or with his or her kids. The executive isn’t just trading hours for dollars. He or she is trading life events and quality time. When you have to do it to pay the bills, it’s an unfortunate added cost. But when you have hit satiation, do you really want to trade dinner as a family and books at bedtime for a job?

The feeling of being rich is often as simple as believing you can make those decisions without financial repercussions.

Disposable Income Defines Richness

Lastly, I’d like to make the argument that how much disposable income you have defines how rich you feel.

It’s not the top line income number, which gets reduced by taxes and your fixed expenses. The average household budget is fairly mundane but the average annual budget is $60,060. If you take the average taxpayer making $90,000, your net pay is likely somewhere around $65,000. After you subtract the average budget, that’s just $5,000 a year – or ~$416 a month.

An extra $416 a month in spending is a lot.

But few people would feel like an extra $416 would make them “rich.”

And “rich” is about feeling.