We all know that the more resources you have, the better your ability to achieve your goals. But few people think about how the psychology of spending and saving can increase happiness.
· Does certain spending create more happiness?
· Are there particular things we shouldn’t be spending our money on?
I recently read Happy Money: The Science of Happier Spending by Elizabeth Dunn and Michael Norton, which focused on five principles that can help individuals gain greater happiness from their spending:
1. Buy Experiences
2. Make it a Treat
3. Buy Time
4. Pay Now, Consume Later
5. Invest in Others
I’m going to do a deep dive into each of these through a series of posts to help you think about how your spending can truly improve your happiness. First up:
This hit home with me when my basement flooded – twice – this past August.
We had to throw out a massive amount of books, furniture, toys, clothes, and pictures that were destroyed. The damage was almost $20,000.
But aside from feeling a bit bummed because we lost some family and wedding photos, in retrospect I was more upset that we had accumulated so much stuff. Looking back, had any of it really made a measurable difference in my life and happiness? Seeing it all now made me realize whatever happiness those items may have brought at the time was relatively short lived.
Instead, all I could think about was the recent family vacation we took to Disney World, a trip that had a large and lasting impact on my happiness. How many similar experiences were missed out on because we used those funds to amass $20,000 worth of stuff?
Dunn and Norton show that money spent on experiences made them happier than material purchase (57% experiential to 34% material). Why? There are a few reasons, but these two stuck out:
· People define themselves through experiential purchases, which they feel reflect more of who they are.
· We are social creatures, and experiences allow us to feel connected to others.
If we know that experiences bring more happiness than purchases, what types of experiences are better than others?
What Types of Experiences are Better?
Dunn and Norton highlight experiences that:
· Bring you together with other people, fostering a social connection.
· Make a memorable story that you’ll enjoy telling for years.
· Are linked to your sense of who you are and who you want to be.
· Provide unique opportunities.
Another interesting finding: The largest material purchase that most of us will make — a home — while making us more satisfied with our lives, doesn’t increase our overall happiness.
As a financial planner, I spend my time helping clients set up systems for spending, maximizing investment returns, minimizing risk and taxes, all with the goal of increasing and protecting their wealth. However, we spend very little time and effort prioritizing how the use of these funds helps you increase your overall level of happiness.
When your money is prioritized according to your needs and joys, that is when you can attain both financial security and the most intrinsic value from the wealth you spend so much time earning and growing.