Maximizing Happiness with Smarter Spending

 In Personal Finance, Spending

W ith the irresistible subtitle “the science of happier spending” Happy Money was an entertaining read about how smarter spending is the only way to manage your money. Professors Dunn and Norton offer a tour of the research on the science of spending and explain how you can get more happiness for your money. The research they conducted boils down to five deceptively simple mandates (see below). Intrigued? I’ll go through my favorite passages from the book below. You’ll have to read the (short!) book to find out about the mandates that interest you.

  • Buy experiences
  • Make it a treat
  • Buy time
  • Pay now and consume later
  • Invest in others

Buying Experiences = Smarter Spending

U ntil recently, I spent an inordinate amount of time running numbers on whether it made sense to buy or rent in NYC. Long-time readers of this blog know that I’ve decided it makes more sense to buy when we’re retired and know exactly where we want to be (rather than paying all the dead-weight loss costs that arise because of frictions in the real estate market), and happily, the authors’ stance supports this decision. They note that although the rent v. buy tools are terrific for determining whether buying a house will turn out to be a good financial investment, buying a house often isn’t a good investment in our happiness. Apparently, “in a carefully controlled study of more than 600 women in Ohio, homeowners weren’t any happier than renters, though they were about twelve pounds heavier.”

T he main argument for why buying experiences reflects smarter spending is that experiential purchases provide us with entertaining stories and add depth to our broader life memories. Experiences reflect who we are, and defining experiences (e.g. traveling, Prom, marathons) provide more happiness than material goods because experiences allow us to define ourselves in a way that belongings never will. As humans, we revel in being able to distinguish ourselves from our peers, and since actions speak louder than words, the only true way to demonstrate our personalities is via the experiences we choose to undertake.

F urthermore, the authors state that reflecting on special past experiences can provoke feelings of nostalgia which provides a shield against diminished well-being when people feel a sense of meaninglessness. This also results in bolstered vitality and reduced stress and reassures us of past happiness and accomplishment. No matter how great your car is, it will not make you feel better when you have just lost your job because it imparts exactly zero hope that you will be able to achieve the career accomplishments you have already.

W hat’s interesting is that human beings are also apparently more likely to be drawn to something memorable versus pleasant. As Seneca wittily put it, “Things that were hard to bear are sweet to remember,” and boy do I have a treasure trove of horrible memories which have become beautified with time. When in doubt and given a choice, choose the hard way. I guarantee you the memory will warm your heart even in the coldest of winters. There’s nothing like overcoming an obstacle to make you feel invincible and proud of your tenacity.

Dunn and Norton argue that you get biggest bang for your buck if the:

  • Experience brings you together with other people, fostering social connection
  • Experience makes a memorable story that you’ll enjoy retelling
  • Experience is tightly linked to your sense of who you are or want to be
  • Experience provides a unique opportunity, eluding easy comparison with other available options

Beware the Trap of Comparison Shopping

W e recently entered a Haestens mattress showroom to start our mattress hunt with no background on the company and enjoyed a highly memorable 30 minutes testing out the various models on display. After realizing that there were no prices in the showroom, I asked for a catalog which weighted two pounds due to the glossy paper that was used. 100+ pages later, I still had no idea how much any of their mattresses cost and was then horrified to discover that the range is $27,500 – $150,000 per mattress and that the model we liked wasn’t on the low-end of this outrageous price scale.  Moral of the story: don’t enter showrooms where you have no idea what the price point of the product is and don’t succumb to the false lure of comparison shopping.

W hile comparison shopping sounds like a smart strategy, this approach can magnify minor differences between products, tempting us to pay more for features that will have no bearing on how we spend our future time. Quality matters. But the experience of comparison shopping tends to focus our attention on differences between products that lie above that threshold. If the differences in features will not alter how you spend your time, go cheap.

Stay Positive

My favorite quote in the whole book actually didn’t have much to do with smarter spending but did have everything to do with how we should live our lives.

What separates the suicidal from the rest of us is not an abundance of negative thoughts about the future, but rather an absence of positive ones. Anticipating good things produces a distinct pattern of neural activation in a region of the brain that is linked to the experience of pleasure and rewards.

I loved this admonition above all else because it tells you why it’s so important to have things to look forward to and to structure your life in such a way that no matter what happens in the interim, there’s something positive waiting for you just around the bend. This is why I schedule vacations so far in advance, why I fill my diary with events and outings to look forward to (especially after big weeks at work), and why I always have something I’m looking forward to reading at home. Life is hard and there are so many sundry annoyances that pester us daily. Just today I spent 3 hours with my health insurance company trying to get a price quote for what a procedure for an out of network provider would be and I still don’t have an answer because I live in one state and my health insurance plan is affiliated with another. Just about the only thing that got me through was thinking about the activities on tap for this weekend.

Invest in Others

I n the research on smarter spending, investing and connecting with others provided the most happiness out of any of the spending decisions that people made. Thus, the authors advise that you think of your own pro-social spending budget in terms of levels of connection. You’ll get the biggest happiness bang for your personal buck if you invest in others in ways that help you connect with people, especially people you care about.

A  mericans spend the most of their income on housing and transportation – categories that don’t make us much happier according to the scientific research. The category in which most people spend the least – investing in others – is contrastingly an excellent source of happiness. Even small purchases can make a difference for our happiness on a given day. For those fearing the implementation question, the question isn’t “Should I sell my house and give it to the Red Cross?” but “Could I reallocate even just $5 a week from one category to another?”

S  een in this light, there is nothing impossible about investing in others. After the disappointing news that Trumpcare had passed in the House, I went online and donated to Swing Left’s District Funds campaign which raises money in advance for the eventual Democratic nominee in each Swing District. These next few months will be tight for us cash flow wise because of our planned move, but my donation was better spent in the face of such dire need. I’m relatively lucky to have great health coverage and can’t believe how callous Trumpcare is.

Smarter spending bucks the perception that money can’t buy happiness. I fully believe it can- you just have to be deliberate about who you give your money (and power) to.

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