I just finished reading Happy Money: The Science of Smarting Spending by Elizabeth Dunn and Michael Norton. It's a life-altering book. Seriously, get it and read it.
To provide a quick summary, Liz and Mike observed through their research that we tend to follow our intuitions when it comes to spending money. That same research shows our intuitions are usually wrong when it comes to predicting what makes us happy.
Here are their five principles for successfully spending your way to happiness:
1. Buy Experiences
2. Make It A Treat
3. Buy Time
4. Pay Now, Consume Later
5. Invest in Others
Here are some examples that illustrate these principles.
Thinking about, saving for, and finally buying that BMW you always wanted will bring you happiness.
Unfortunately, that happiness will fade and fade fast.
If you want to be happier, buy a more economical car and book that family vacation to Europe instead.
When you look back on your European vacation you shared with your family, you'll remember it even more fondly as the years go by. Remember, experiences trump possessions when it comes to happiness.
Make It A Treat
Having a latte or two a day had become my norm. And when anything becomes the norm, happiness tends to fade. That's why you should make it a treat instead. I'm back to regular coffee as my norm and lattes are once again a treat. And yes, I'm happier for it.
You can still get your BMW, but like my lattes, you'll be happier if you make it a treat.
Get the convertible, take it out only on nice summer days with your spouse or friends all of a sudden it becomes both an experience and a treat.
(Maybe get a used one and spend the money you save on another experience. Just my two cents...)
If cleaning your house isn't a zen-like experience for you and you can afford it, go ahead and hire a cleaning person. We did and now every other Friday, we arrive home to a freshly cleaned house.
Could we do it ourselves? Absolutely.
Is the money we spend on it worth the extra time we buy each weekend to spend with our daughter? No doubt about it.
Your time is and will always be a finite resource.
Spending money to buy back some of your time increases happiness.
Pay Now, Consume Later
We're headed to Traverse City for the first time this summer. It's been on my list for awhile and we can't wait to check it out. Oh, and we already paid for it.
Was it painful to commit money so far in advance of the trip? Of course. But now it's done.
We've separated the pain of paying for the trip from our looking forward to and our actual enjoyment of the trip.
Now when I look at photos online of the place we're staying or check out restaurants & parks we'd like to visit, we're able to do so from a place of pure enjoyment, not the lingering thought of money and paying for it.
Our Traverse City trip also happens to be an experience, one that we've made a treat, and that's also bought us time together as a family thus checking off all of those happiness boxes.
Invest in Others
Here's Liz and Mike explaining this one:
“...the amount of money individuals devoted to themselves was unrelated to their overall happiness. What did predict happiness? The amount of money they gave away. The more they invested in others, the happier they were.”
In their research, this concept remained true even when controlling for different income levels. It turns out that the amount you spend on others was as big a factor as income was in predicting your happiness. Pretty powerful stuff that applies to both of your finite resources – how you spend your time and money.
I've merely scratched the surface here on takeaways from this book, so again, I encourage you to give it a read for yourself.
The good news is that money can indeed buy happiness, but only when you spend it the right way. And as Liz and Mike teach us in Happy Money, we're inclined to spend it the wrong way. So take these principles to heart and start looking for ways to apply them in your own life.
You'll be happier for it.