Economist Angus Deaton and psychologist, also Nobel Prize winner for Economics, Daniel Kahneman analyzed 450,000 responses by Americans polled by Gallup and Healthways in 2008 and 2009. The participants were asked about their income; how they felt the previous day; and whether they feel that they’re living the best possible life.

The study explains that low income is not the cause of sadness itself, but it made life’s adversities harder to bear. For example, among divorced people, 51% who made less than $1,000 a month say that they feel sad or stressed the previous day, while only 24% of those earning more than $3,000 a month reported similar feelings.

The study doesn’t say why $75,000 a year is the magic number to be happy. Probably, at that level, people have enough expendable money to make them feel good.

But looking at the larger picture, the study also concludes that high incomes don’t bring you happiness; they only bring you a life you think is better. The more money people make, the more people feel that their life is going well. This makes sense, especially that past studies on money and happiness assert that it’s relative wealth or status (or how much more money you have than your neighbors) that affects our happiness.

So, in the end, it’s not really about having $75,000 to be happy. It should be about feeling happy even without having much money.

Source: Time

Conventional financial planning pegs the number to be 3-months’ worth of living expenses. The recession showed that it should now be at the very least half-a-year’s worth. If it’s possible to up it to a year’s worth, then better.

In case of such setbacks, your emergency fund should be there to make sure that you have ample flexibility to get back on track. It should, however, never run dry.

While it’s meant to cover your monthly expenses, you should, still, at the very least, make sure that you minimize its use.

Do odd jobs to cover daily expenses. Sell your old stuff to support your fund. Most importantly, cut costs.

Being jobless would definitely trim many of your daily expenses but with no income, you should be ready to give up some parts of your lifestyle. All your previous “necessities” (e.g. cable bill, dinners, deliveries, movies) will not be luxuries.

Try to get back on the job hunt as soon as possible. If you have a six-month emergency fund, then make the third month your deadline for getting work. This would ensure that you’d still have a bit of buffer left for other possible emergencies.

This obsession over money can be unhealthy. Often times these same people will be neglecting everything else just to put up their millions thinking that they need at least eight figures to retire on.

The problem is, other aspects of their lives also suffer – spouses feel neglected, children don’t get to know parents, and health issues arise from all the stress.

The lack of feeling content can actually kill as earning money becomes an obsession all the while the question, “How much do you really need?” rarely gets addressed.

Material happiness does contribute to the overall but it’s only a part of it. Don’t believe the Mastercard bullshit about “everything else.”

As the Seneca said, “It is not the man who has little, but he who desires more, that is poor.”

Let us expound on the topic. Given the recession, you should have at least six months to a year’s worth of living expenses as emergency fund.

First of all, let’s be clear on what things do you actually need an emergency fund for.

What are emergencies anyway? Your mother-in-law’s birthday is not an emergency. Your anniversary isn’t an emergency. These are events that happen yearly so there’s no reason to consider them emergencies.

A blown water pump in your car is an emergency. Hospital bills from your kid’s broken foot from a skateboarding accident is an emergency. Getting laid off is an emergency.

So in such unfortunate instances, you’d only be thankful that you have your emergency stash to tap into. But what do you do after? Once your affairs are in order again, well, you should replenish the fund, of course.

It might take a few sacrifices again such as deferring buying that new widescreen TV but it’s always important to keep your emergency fund topped up.

Rainy days come fast and plenty these days so why leave a nasty gash on your umbrella?

I have some friends who, years after college and working steady jobs. Sure, it’s a great way to save up money but it doesn’t really give them a better sense of independence.

It’s pretty hard to explain it but being on your own makes the responsibilities more apparent. There’s nothing like the pressure of having to make sure that everything is settled on a monthly basis – savings, bills, rent, food and other living expenses.

That’s why there is also a great value in teaching kids money smarts as they grow up. Exposing them to the idea that money is earned helps. Behavior and psychology also plays a huge role on how people view money. Kids are bound to pick up the spending habits of mom and dad.

Relying on your family for money is a great sign that you have a lot of growing up to do financially. It’s pretty harsh. But in a dog eat dog world, you should be looking out for your own hide anyway.