Illustration by Erin Taj

Will $75,000 a Year Make You Happy? Is 30 Percent of Income the Max to Pay in Rent?

Why these standard of living benchmarks are mostly useless

Last fall, economist Angus Deaton won a Nobel prize for discovering that $75,000 was a magic number. Specifically, a magic salary: It’s the “happiness plateau,” his studies concluded, above which further increases will have minimal impact on a person’s day-to-day sense of well-being.

When Deaton and psychologist Daniel Kahneman’s joint study was published in 2010, the $75,000 figure joined another magic stat: 30 percent, the maximum portion of one’s pre-tax income that should be spent on housing for it to be “affordable,” according to the Department of Housing and Urban Development.

These types of numbers have intrinsic appeal: Everyone likes defined benchmarks, especially in a realm as dauntingly complex as personal finance. But a new study from the personal finance site SmartAsset makes the case that these numbers are practically useless in the real-life context of how urban-centric Americans get by (or don’t) these days.

The study, published earlier this week, analyzed average rent prices in major American cities, from San Francisco to Detroit, according to the 30 percent benchmark and came up with the average income needed to afford a two-bedroom apartment in said cities. The results, naturally, will make most urban Americans laugh… to keep from crying, that is.

Obviously, the requisite salaries vary dramatically. Detroit and Phoenix only require individuals — assuming they share a two-bedroom apartment with a friend or partner—to make about $19,000 and $25,000, respectively, to live comfortably without breaking the bank on rent. As you go up the rankings to the more expensive cities, though, things get a lot uglier.

For New York and Los Angeles, the per-person income necessary to afford housing ($79,000 and $73,000, respectively) is around the same number that Deaton’s study concluded makes for a happy individual. That would be sound logic… but not when you consider the aforementioned thresholds for less-wealthy cities, to say nothing of the wealthiest: San Francisco (of course), where a resident must make about $108,000 a year to afford one bed in a two-bedroom apartment. That’s unfortunate, since the median income in the area is around $30,000 a year less than that. (The problem is primarily with real estate inflation, of course, but the results are the same regardless.) A $75,000 salary is not likely to keep many Bay Area residents’ moods sunny on a day-to-day basis, but in places like Phoenix or Houston, you could live like a king on a salary far smaller than that — your own two-bedroom apartment, all to yourself!

The SmartAsset study reflects the reality that if you live in a major American city, especially on the coast, and you’re not sharing a bedroom in a co-op with 15 other people, you’re probably spending far more than 30 percent of your income on rent, because you’re probably not making a fair wage to begin with. (SmartAsset mentions this, citing a Harvard study that estimated about 46 percent of Americans were spending more than 30 percent of their income on rent in 2014, and noting that New Yorkers spend about 70 percent more on rent than the rest of the country.) At least there’s overtime pay to look forward to now, right? Unless you’re making between $47,477 and $74,999, that is. In which case, you’re too rich for overtime, but still not rich enough to be happy.

My condolences.

Devon Maloney is a culture writer living in Los Angeles whose work has appeared in Wired, Vanity Fair, Grantland, Vulture, and The Los Angeles Times, among others.

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