Is 200k a year good? [What the Data Says] (2024)

Is 200,000 a year good in the US? How about a place like New York City? What actually is a 'good' income?

A few weeks agoI wrote a messageshouted, “How much income do you need to be rich?” where I examined the top of the income spectrum in the United States, by both age and education level. Although this post was intended to look at incomeshighestearning households, I also received many follow-up questions about the rest of the income distribution.

In particular, a reader asked me if making $200,000 a year was considered a good income. So I thought I'd answer this question by taking another deep dive into household income in the US before giving my opinion on what a "good" income is.

To start, let's provide some context about whatto the mediathe family income is in the United States

What is the average income in the United States?

If you were to take all households in the United States and line them up based on their household income, the household would be right in the middle of the rowabout $70,000 per year. Half of households would earn more than this amount and half would earn less. This was the median household income in the United States in 2021, according to the US Census Bureau, and is a good starting point for our discussion.

Unfortunately,as I indicated in my previous postincome varies based on things such as age and education level. We know that older households generally earn more than younger households and that highly educated households generally earn more than less educated households. Without taking these other factors into account, average household income is not a good comparison tool.

For example, in 2022, the median household income in the United States was just $70,259. But after controlling for age, we can see that the median household income ranges from $49,000 (for households aged 75 and over) to $92,000 (for households in their late 40s to early 50s):

The wide range of incomes illustrates why the median is much more usefulalreadyyou rule by age.

But we can go even further than this. If we adapt to the level of educationolder than ageThe median household income in the United States ranges from as little as $27,000 (for high school dropouts) to as much as $161,000 (for college-educated households):

As you can see, you are passing on this informationbothage and education level provide a much better insight into whatthe middleof the income spectrum looks like for different households in the United States.

Now that we have some context for what household income looks like in the US, let's take a look at where $200,000 would put you in the income distribution.

Where does $200,000 a year put you on the income spectrum?

If you had an income of $200,000, you would be in the top 12% of household income, orthe top 5% of individual incomesi 2022.

While I prefer family income over individual income, no matter how you slice it, $200,000 a year puts you on the higher end of the income spectrum. For this reason, I consider not just $200,000 a year a good income, but a very good income. Even if you live in an area with high housing costs like Manhattan, you would be in the top 25% of households at $200,000 per yearaccording to the U.S. Census Bureau. Yes, that's the top 25% of some of the highest-earning households in the world.

This suggests that even in New York City you can live a decent life on $200,000 a year. How you define 'a decent life' obviously depends on your obligations. Making $200,000 while single in New York is very different from making $200,000 while trying to start a family. Nevertheless, this data suggests that $200,000 is a good income regardless of where you live.

But this raises a bigger question: what actually constitutes a “good” income?

What is a 'good' income?

Whenever we use subjective language to describe objective data, confusion arises.Research published in Harvard Business Reviewshowed this when they asked 1,700 people to assign probabilities to a list of probability words such as 'always', 'probably', 'maybe' and 'never'. For example, if I say, "It always rains in May," what does "always" mean to you? Does this mean there is a 90% chance of rain in May? 95% chance? 100%?

If you repeat this exercise with some probabilistic words and plot the distribution of answers, you will get a diagram like the one below:

The important thing to note in this plot is that some probabilistic words have a wider range of interpretations than others.

I mention this study because the same applies when we try to define what a 'good' income is. Everyone will interpret the word "good" slightly differently, which means everyone will have their own definition of a good income. And if your definition doesn't match my definition, then we disagree.

Nevertheless, I will tell you my definition of a good income: it is the top 25% or the 75th percentile. It's not a big income (as the top 10% or higher), but it is also better than the median income. It is aGoodincome.

If you accept my definition, then that's finehouseholdsincome would be $130,000 per year (in 2022) and a goodindividuallyincome would be $82,000 per year (i 2022). Of course, these point ratings don't paint the full picture. After adjusting for age, we see that the 75th percentile of household income can range from $88,000 to $169,000:

We can once again go a step further by also adjusting for education level:

After adjusting for these two factors, we have much more insight into what constitutes a good income in the United States.

Now that I've provided itmindefinition of a good income Let's wrap things up by discussing why the only definition of a good income that matters is yours.

The only good income is the income we define

Maybe you read this piece because you wanted to know if making $200,000 a year was a good income. Perhaps you read it hoping to learn more about what constitutes a good income. Unfortunately I can't give you the right answer, but it is possible.

Because the only good income is thatvanthink it's good. That's not what I think or what the data shows. It's what you feel inside that counts. This isn't cliché fortune cookie wisdom either. This is fundamental to the way we judge ourselves and our financial lives. Because we can let the outside world define our values, or we can define them for ourselves.

Warren Buffett named this after himInternal scorecard. According to him, everyone has both an Inner Scorecard and an Outer Scorecard. The Outer Scorecard is what the world sees of us. It is our material possessions, our public achievements and our career successes. However, there is also an Inner Scorecard, the way we judge ourselvesin relation to our own norms and values. Buffett claims that the internal scorecard is all that matters.

And I completely agree. Because the inner scorecard determines how we really feel. If you make $500,000 a year but feel like you need to make $1 million. USD, you probably won't be as happy as someone who makes $50,000 a year and thinks they only need to make $30,000.

Our income does not define us, it defines usinterpretationof our income.

Therefore, you can change your income or change your interpretation. It's up to you. Thank you for reading!

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This is message 335. Any code I related to this message can be found here (see analysis 331):https://github.com/nmagiulli/of-dollars-and-data