Contrary to the popular saying, money can buy happiness, but only if you spend it in the right way. Behavioral economists and social psychologists have studied this topic – the intersection between money and happiness – quite a bit in recent years, and we can all benefit from their findings.
As you might expect, up to a certain income level, money helps to eliminate anxiety and increase the feeling of security. For example, having more money may mean you worry less about grocery shopping, going out to eat, or paying your mortgage. Nobel Prize-winning research shows that increasing one’s annual income from less than $25,000 to $50,000 can make you more than twice as happy. However, once you have the income to meet basic human needs, it seems additional income doesn’t provide much in the way of additional happiness. A more recent study reveals that the payoff in happiness level for income increases over $95,000 is slight.
So, if you consider yourself relatively affluent and lucky when it comes to material wealth, how do you maximize your assets to bring greater happiness?
Let’s talk first about what doesn’t work. If you are looking for lasting happiness, you will want to avoid buying more “stuff.” That’s because although we might think a new sports car will make us happy, what we are imagining is the first day we own that car, when it is bright, shiny, new and exciting. As we grow used to owning the car, it no longer offers the same thrill and our happiness returns to the status-quo, pre-new-car level.
There are, however, ways to spend money that have been shown to provide a greater level of contentment and joy. One, for instance, is to spend money on others. In one experiment, 46 students were given $20 to spend. The students who were told to spend the money on others – treating a friend to lunch or donating to charity – were happier at the end of the day than those who had been instructed to spend the money on themselves. Shopping for and purchasing the perfect gift, and then seeing the joy on another’s face when they open that gift, provides much more lasting contentment than buying something for yourself.
Giving to charitable causes that are important to you also tends to produce a high level of contentment. Using your money to do good in the world, and seeing the impact of those efforts, results in a feeling of well-being not found in material goods.
Another category of spending to consider involves experiences. When researchers interviewed study participants about their recent purchases, they found that money spent on activities such as plays, concerts or dinners out brought far more pleasure than material purchases.
Think about your last vacation. What do you remember? What really sticks? Those memories that bring a smile to your face are in fact an ongoing source of contentment and joy. To further extend the joy from your next trip, try to savor the time you spend planning and looking forward to the journey, and take lots of photos while you are there so that you can review and revisit them when you get home.
Our options for experiences may be limited due to concerns over and the effects of the COVID-19 pandemic. This might be a good time to explore experiences you can enjoy from home. Ever wanted to learn to paint, become a better cook, or speak French? Classes in these and many other topics abound online. Perhaps you could team up with a child or grandchild to take a class together, even though you might not be together in person.
An often underappreciated way to spend your money is on saving yourself time. There are many tasks that you may not enjoy, for example, doing the laundry, house cleaning or yard work. Consider spending money to eliminate these tasks that do not bring you joy so you can use the time on something that does.
Interested in examining your own spending habits? Track your purchases for a month and categorize each purchase as either an experience, material good or gift for others. At the end of the month, look back over the list and think about the pleasure each purchase brought you, and for how long. Do you notice a pattern?
Money may not be the only key to happiness, and likely not the most important one. However, thinking about how you spend your money, and choosing wisely, can go a long way in bringing joy to your life.
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The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Partners. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
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