While the phrase “money doesn’t make you happy” is a generally accepted and popular adage, research shows that how you spend it just might. In a 2011 article in the Journal of Consumer Psychology, researchers Elizabeth Dunn, Daniel Gilbert and Timothy Wilson argued that “if money doesn’t make you happy, then you probably aren’t spending it right.” In this article (and its follow-up book, “Happy Money” by Dunn and Michael Norton), the authors conducted a review of existing academic studies that resulted in eight evidence-based ways to maximize happiness from your hard-earned dollars. Consider these eight key takeaways as you evaluate your goals and financial plan:
- Choose experiences over things. The joy of the experience lasts longer.
- Helping others makes a difference. Social spending supports stronger social relationships, which affects happiness.
- Purchase several small things instead of the big-ticket item. We adapt to the large ones too quickly; smaller more frequent purchases or experiences are often unique each time and delay adaptation. For example, we adapt quickly to the new dining room table, but less quickly to the bi-weekly dinner out with friends.
- Buy the extended warranty only when necessary. Warranties/return policies may be unnecessary for happiness (and can potentially undermine it).
- Buy things that last. In other words, buy now and consume later. This creates more anticipation and promotes the selection of items that produce longer term benefits.
- Be mindful of what the purchase will do to your life. New items may require a significant amount of your time and attention to maintain.
- Purchase what you might enjoy. Over-comparing can hurt happiness and result in buying things we don’t need.
- Family and friends can influence your enjoyment. Learn from others before spending, especially on big ticket items. Ask and observe how things and experiences have affected others’ lives for the better or worse.
“Helping others makes a difference. Social spending supports stronger social relationships, which affects happiness.”
With the above in mind, consider if you are allocating your hard-earned dollars in a way that maximizes your wellbeing.
Are you spending money on things that matter to you and align with your values? For example, if health is important to you, are you eating healthy and exercising regularly?
Does it make sense to spend most of your time working when you value your family more than your employer or career? Would you rather spend more time with your family enjoying activities you all love (travel, sports, music, arts, etc.)?
Once you have reviewed your “Wheel of Life,” pause and consider how you spend money to achieve balance in different areas of your life. For example, if being philanthropic or making a difference is one of your values, are you volunteering or helping others as much as you would like? Are you spending your precious time doing the things that bring you joy and happiness in life?
While more money may not make you happy, a thoughtful spending plan that reflects your values may increase your happiness and live a more fulfilled and purposeful life.