The 2021 Income Sweet Spot For Maximum Happiness and Financial Well-being

Most people assume that the more money they earn, the happier that they will be. While this may be true, earning more money is much more difficult than it sounds, and very few people will ever actually make it to millionaire status. Even if they do achieve this milestone they will soon find out that their higher-income has drastically increased their tax burden and cut them off from specific government programs.

Due to this, many people will usually search for a “sweet spot” of income that’s more easily obtained than millions. This sweet spot will provide them with plenty of income to meet their bills while minimizing the amount they need to pay to Uncle Sam and also keep them eligible for government programs. This sweet spot is widely considered the income level that will help you achieve maximum happiness. 

Income for Maximum Emotional Wellbeing

Despite what it might seem, most people actually don’t need to earn millions of dollars in order to be happy. When looking at the bigger picture, strong relationships with your loved ones, physical/mental health, and time spent pursuing your passions are all more likely to make you feel happier than having a mountain of cash.

 That said, you definitely need at least a little cash in order to meet your immediate bills. If you are struggling to pay your rent or buy groceries then you will not be able to focus on pursuing your passions and your mental health might struggle. 

 According to GoBankingRates, the magic number for the amount that you need to live comfortably and be happy is about $75,000 per household. Keep in mind that this number will vary slightly depending on the cost of living in your city.

A household income of $75,000 is actually pretty low in my opinion. Especially when considering we have 3 growing boys. The need for a larger home, a larger vehicle, more food, etc. should be taken into consideration.

For us, We’ve really enjoyed living around $120,000 - $140,000 household income. I wouldn’t say I’m at maximum satisfaction (sales is pretty stressful), but I do have a lot of benefits, and flexibilities with the job that I work. Kayla has summers off and plenty of other days off, we’re both home every night, every weekend, every holiday. It’s not too bad!

The Income Tax Sweet Spot

 As it stands right now in 2021, the tax bracket for individual tax filers earning $86,376 to $164,925 is 24%. However, once you exceed $164,925 and start earning $164,926 to $209,425 then you will need to start paying 32% in income tax.

This is the largest percentage jump between the different brackets and will drastically increase the amount of your income that you need to give to Uncle Sam. Due to this, it’s actually better to earn underneath this threshold in order to save money in taxes unless you can quickly move to the mid to upper level of the next income bracket. Earning at the bottom of whatever your bracket is less efficient.

We’re a dual-income household and earn in the mid-to-upper 22% bracket. Honestly, the difference between a 22% tax and a 24% tax is so minimal, it’s not on our radar. For us, the 22% or 24% bracket will be where we live for the duration of our professional careers.

We will likely drop down to 12% when we’re financially independent and are paying ourselves in retirement. At this point, our kids will be adults, we will likely downsize in-house (or have a paid-off mortgage). We would likely withdrawal just under the $81k required to keep us in that 12% bracket rather than the 22%. That’s when we will want to pay more attention to the taxes at the time.

Much of our investments are in Roth accounts which provides additional tax benefits.

2021 Tax Brackets for Single Filers and Married Couples Filing Jointly:

Tax bracket 2021.JPG

Government Stimulus Sweet Spot

The year 2020 was the year of free checks from the government. Throughout the year, they sent out three different checks for $1200, $600, and $1,400. However, if you made over $75,000 as an individual or over $150,000 as a married couple then you were excluded from these checks, or the amount you received was greatly diminished.

The Verdict: $135k Dual Income Household

For married filing jointly, I believe the ultimate sweet spot is $120k - $150k. This places you squarely in the 22% tax bracket, which is a little above the happiness range of $75k household income, but we believe the tradeoff in the standard of living is greater. Also, higher-earning households have more flexibility when it comes to real estate exposure, upsizing in vehicles, traveling, etc… This range is also low enough to keep the government stimulus checks flowing.

Other considerations are state income tax (we live in Texas). If you live in high-income tax states like California, then you may want to consider moving to a low-cost living area with a more favorable tax environment.