We’ve all heard the old expression: money can’t buy happiness, but that isn’t the truth.
You can rethink your spending for greater joy and happiness. The research shows that how we spend our money can have a real impact on our experience of happiness and it turns out, most Americans are doing it backwards, spending money on that which doesn’t give them greater joy.
Happy Money: The Science of Smarter Spending by Elizabeth Dunn and Michael Norton is based on real research into our spending patterns and our happiness. The authors show how we could spend money to make ourselves happier and be more fulfilled.
It all boils down to five simple principles:
- Buy Experiences
- Make it a Treat
- Buy Time
- Pay Now, Consume Later
- Invest in Others
The average American household, according to the 2010 U.S. Bureau of Labor Statistics earns a total of $62,000 before taxes and spends roughly $48,000 a year on:
- Housing = $16,500
- Transportation = $7,700
- Personal Insurance and pensions = $5,300
- Food at home = $3,600
- All other expenditures = $3,600
- Healthcare = $ 3,200
- Food away from home = $2,500
- Entertainment = $2,500
- Apparel and Services = $1,700
- Donations to charities and churches = $1,600
The authors’ research revealed that people aren’t any happier by having a bigger house or nicer car.
Yet you can see from the above statistics, these are the two largest expenses by far. Commuting actually makes people unhappier and spending money on petrol or gas doesn’t give anyone joy.
What makes people happier is buying experiences such as taking a family holiday or vacation and also donating money to charities to help others. It seems we have it all backwards in terms of spending to increase our happiness levels. My simple solution to this is to spend very little on transportation by buying excellent used cars and keeping them in good condition for years. It helps that I also don’t waste any time commuting and work from a home office. (Their book would be a good one to cite when asking your boss for the option to telecommute and work from home a few days a week).
If you think, like most people, that you are doing your family a favor by taking a better-paying job that requires a long commute, you are mistaken. Apparently, spouses and families report lower levels of happiness when their partner has a longer commute. Your family won’t thank you when you come home fuming with road rage after a horrendous commute.
More shocking facts.
The average American family spends 20% of their household income on driving expenses (even worse at 40% in low-income households) and works 500 hours a year to pay for their cars! Think that a nicer car will make that commute more enjoyable? Wrong again! It turns out you’d need over a third increase in income to compensate for even a 20-minute commute to offset the happiness cost. Wow! When it comes to cars, it appears less is more if you want to be happier. Less commuting and less expensive vehicles.
Make it a treat
Their research showed that doing something occasionally as a special treat makes you happier than doing the same thing on a regular basis. So my weekly date night dinner out with my hubby might actually make us happier if we did it once a month or waited for special occasions such as a birthday or anniversary to treat ourselves. This is all down to hedonistic adaptation. The first time you fly in business class, it feels like a real luxury, then it becomes the norm until going economy starts to feel like roughing it and you’ll be less happy having to rough it if your financial situation should reverse.
This is why you’ll be happier if you hold off as long as possible on upgrading your lifestyle. You’ll also appreciate that upgrade more by anticipating it longer.
I recall a client of mine saying how excited they were to buy their very first car, a Volkswagen Beetle, and now that they can easily afford a new Mercedes it doesn’t provide anywhere near the same level of joy. Yes, she likes it, but isn’t bouncing up and down like she did when she got her very first car. She also recalled how thrilled they were when they found a few extra coins under the sofa cushions and could upgrade from cheese pizza to one with pepperoni. That bonus pizza topping gave her more joy than going out to a Michelin restaurant does today where she goes regularly to entertain clients.
You can easily become accustomed to the good life and start taking it for granted.
The special soon becomes ordinary and losses its power to delight. This prompts us to look for even bigger and better things in an endless cycle of spending more and more for ever diminishing returns on happiness.
How do you prevent hedonistic adaptation from kicking in and ruining your joy? The trick is to delay permanent upgrades or better yet, never upgrade and reserve things for sporadic and occasional special treats so you never get used to them. The authors say, “knowing you can’t have access to something all of the time may help you appreciate it more when you do” and suggest that if you want to drive an expensive car, you’d be happier by joining a car sharing company like Zipcar or a Classic Car club where you don’t get to use the car all the time. The very fact that you have limited access makes you appreciate the times when you can drive the car. Once you own and drive an expensive car all the time, it loses its fun factor.
This principle applies to big treats like driving a Ferrari to little treats like having a latte out. If you have that latte every day and are unconsciously downing it for a blast of caffeine before work, you’ve lost the joy factor. Try switching back to ordinary coffee for daily use and then reserve that fancy coffee for a real treat when you can actually savor it. Not only will you save money, but you’ll be happier too!
I’ve long been a proponent of buying time to make yourself happier, especially by delegating those tasks you hate doing, whether that is cleaning the house or mowing the lawn so this one didn’t surprise me, but apparently most people make the mistake of sacrificing their precious time to save a little bit of money. Such as driving longer distances to save a few pennies on gas. This means an investment that eliminates a daily hassle (such as getting a Roomba to do the vacuuming for you so you have more time to play with the kids) is a good investment in your happiness. This has just given me an idea to get my husband an automatic lawn mower for his birthday! One less hassle.
The saddest fact is that although we say we’d like more time, wealthier people don’t spend their extra time on things that make them happier, but rather on things that are stressful such as shopping, working and commuting. “People who feel they have plenty of free time are more likely to exercise, do volunteer work, and participate in other activities that are linked to increased happiness.” This might be why retired people report greater happiness, they feel they have time to do all of these things and time to socialize more now that they don’t have to work. Another reason to consider FIRE sooner rather than later in life!
Dunn and Norton found another interesting thing.
“When people engage in volunteer work, even for as little as fifteen minutes, they feel that they have more free time in their lives.” By giving time away, they feel more time abundant than if they didn’t. Another good reason to volunteer, especially if you are feeling time-pressed.
I didn’t know that if you pay for something in advance, that will make you happier than paying for it after the fact. For example, if you book a vacation and pay for it in advance, you’ll enjoy that holiday more than if you put it on a credit card and came back to pay it off after the fact. Makes sense when you think about it.
What experiences make us the happiest?
Travel and trips to visit with friends and family rank high on the list, but this is really a question for you to consider. What makes you feel happy? How could you reallocate your household spending to maximize your joy? And don’t be afraid to tackle the “non-discretionary” expenses like housing and transportation as these two are really prime targets for increasing overall life happiness!