The holidays bring an opportunity to examine many inherent aspects of our lives and assess the quality of our existence. It can be a profound and rather daunting ritual as we prepare for New Year’s resolutions and year-end evaluations. One question that comes to mind is how connected is our happiness to our financial circumstances? Can money buy happiness?
It turns out that how you spend your money is more important than how much you have. “Happy Money: The Science of Happier Spending”, by Elizabeth Dunn and Michael Norton outlines some core principles for spending that shows how to “buy” more happiness in your life. These authors and professors suggest that there are spending strategies and habits that can contribute to your overall happiness. Here is a breakdown:
• Buy experiences
Our human instinct is to acquire possessions and material goods for our comfort and convenience. People tend to believe that the purchase of a tangible item that lasts will bring more value than an experience that is fleeting. However, studies show that experiences might be worth more than you think. Experiences tend to bring a greater sense of connection to others and provide life-long memories that increase in value over time. You will always remember a wonderful birthday dinner at a special restaurant, a fishing trip to Costa Rica, or a family trip to Disney World, and talk about it for years to come.
• Make “luxuries” a treat
The truth is that everything is more enjoyable when consumed on a limited basis and that you CAN have too much of a good thing. The pitfalls of overindulgence are a good thing to remember during the holidays! This concept is also behind many corporate marketing strategies of limiting certain items to occasional offerings, making them more desirable.
• Buy some time
Make time for the things and people you love the most. Slowing down and not rushing allows you the ability to savor small pleasures. Taking that new job with longer hours or living in a bigger house that might require a longer commute may cause stress that makes you unhappy. A university of Zurich study estimated that you would need to earn 40% more to counteract a one-hour daily commute increase! Researchers at Princeton have determined that there is a certain income level of comfortable satisfaction, defined as around $75,000 in the U.S. They concluded that the “beneficial effects of money tapered off entirely after the $75,000 mark.”
• Break the Consumerism pattern
The authors suggest that saving up for something that you really want will increase the value you place on it and your happiness with it. Some studies also show that debt has a detrimental effect on happiness and that married couples in more debt had more marital conflict. As author Professor Elizabeth Dunn notes, “Savings are good for happiness” and incurring short-term debt has a negative impact. Have the money saved before you do something, not after.
• Don’t take things for granted
How many times have you watched a child have tremendous anticipation for and then excitement upon receiving a coveted gift? And then watched as the novelty and thrill of the new object quickly wears off? We tend to adapt to our purchases, so taking time to be grateful for what we have is shown to boost happiness. Studies show that employees tend to do a better job when they feel appreciated by their bosses, too.
• Spend on Others
Many studies have shown that people who spend money on others, or who practice “pro-social” spending behavior are generally happier. One study even suggested that people would be less resentful about paying taxes if they had more choice about how it was spent and felt more like it was a charitable contribution. A 2014 U.S Trust Study showed that 98.4% of high net-worth households make charitable donations and that 75% of these individuals volunteer their time. But what counts is not the dollar amount, but the perceived impact of the donation that increases your overall happiness. Studies show that people are happier when donating to charity, in time or in money, and in poor and rich countries alike.
As this year closes, take some time to give to others, spend time with those you love, show gratitude and don’t overspend. That is a financial plan that will make you happy!