Happiness is How You Spend It

father and son playing together

Oh money – our forever friend and foe. It seems to bring us happiness and grief in equal measure. We work hard to make it, to keep it, and to cultivate it, but to what end? Does money make your life “good”?

There’s no universal answer to that, of course, but we do know two general truths: we need money to feel safe and people with more money often report being happier. The trick, however, is not simply having money, but knowing what to do with it.

Money itself doesn’t do much of anything for you. A dollar in your pocket is just a piece of paper. Its value is its potential – what you do with it makes all the difference.

In a study titled If Money Doesn't Make You Happy, Then You Probably Aren't Spending It Right, a group of Harvard researchers set out to understand the optimal way to convert money into happiness. If it’s assumed that money has the potential to make us happy, then why aren’t people with more money automatically happier? From the study:

Wealthy people don't just have better toys; they have better nutrition and better medical care, more free time and more meaningful labor—more of just about every ingredient in the recipe for a happy life. And yet, they aren't that much happier than those who have less. If money can buy happiness, then why doesn't it?

The answer, as the title suggests, is that how you spend your money makes all the difference where happiness is concerned. So how should you spend your money? The researchers from Harvard created eight principles, based on the evidence they had accumulated. Are these principles true for you? Would you be happier if you spent your money according to these guidelines?

Invest more in experiences rather than possessions

By and large, most people tend to define themselves not by what they own, but by what they have done, where they have gone, what they have seen and experienced.

Experiences have two advantages over material possessions. First, new experiences tend to envelop all of our focus – our minds are attentive to where we are and what we’re doing. Studies have shown that we’re happiest when we’re focused on what we’re doing; wandering minds are unhappy minds. Second, experiences stick with us. Our minds go back to pleasant experiences regularly.

Possessions, on the other hand, fade as we adapt to them – we get used to their presence and quickly begin taking them for granted.

Spend money on others rather than yourself

Humans are social creatures. Strengthening social bonds through gift giving makes us feel good because it serves to tighten and reinforce those bonds. And giving to charity makes us feel better about ourselves and our connection to different social groups.

If you already make a habit of giving then you very likely already know how positively that feels.

Many small pleasures can outweigh fewer large ones

This is a slightly harder concept to get behind, but it essentially boils down to the rate of return on your happiness investment. Buying your dream house may be one of the single happiest investments you can make, but the cost is also extremely high. Taking your family to the park on a sunny Sunday won't get you quite the same happiness, but the cost is significantly less (almost free!).

Small pleasures very often give you a better rate of return when it comes to happiness. That isn’t to say that you shouldn’t invest in larger purchases; just that you shouldn’t disregard the value of small pleasures.

Avoid extended warranties and other forms of overpriced insurance

Here’s another slightly unexpected principle. Optional insurance like an extended warranty is an emotional purchase. You purchase them out of fear – but rarely out of fear of catastrophe, and most often out of fear of future regret. You’re afraid that you’ll regret not getting the warranty. But the warranty doesn’t make you happier or more secure because you’re already more capable of dealing with the unexpected than you perceive yourself to be.

Long story short: extended warranties cost you money and don’t make you any happier. So you’re better off avoiding them.

Buy now, enjoy later

Anticipating an experience is sometimes better than the experience itself. So it makes sense that you can maximize the happiness of a purchase by simply waiting. That way you get the happiness of the experience and the happiness of anticipating the experience. Double happiness!

Think about what you’re not thinking about

We tend to idealize. It happens a lot. The problem there is that certain purchases don’t end up providing the happiness we envision because we fail to consider the little details and circumstances surrounding that purchase.

The more accurately you understand what you’re buying, the less you’ll find yourself unpleasantly surprised and the more you’ll end up enjoying your purchase.

Be careful with comparison shopping

Comparison shopping is good, especially if your primary concern is finding the best deal. The problem is that the best deal might not always make you the happiest. When comparison shopping it’s important that you remain focused on the qualities and attributes that are most significant to you. If one car is cheaper with a more powerful engine and better speakers, that might sound appealing, until you remember that the two things you really needed – space and fuel economy – are totally lacking. Don’t get caught up in meaningless comparisons – stick to what matters.

If it works for everyone else it’ll probably work for you

Finally, when it comes to happiness, we’re all different, but not that different. You’re more likely to enjoy a highly rated restaurant or movie than a poorly rated one. Pay attention to what other people have to say. After all, you’ve only got so much money to spend on your happiness – sometimes it pays to play the odds.

Your happiness is unique. Regardless of whether or not all of these principles apply to you, it’s important to spend some time thinking about your relationship with money. More money might make you happier, but if you don’t understand how to be happy, then it doesn’t really matter how much money you have.

Article updated September 2020

Tagged in Advice for families, Psychology and money, Smart shopping

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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