5 Ways Money Buy Happiness (FSO # 3)
Does money buy happiness? Like everything else … it depends. Money doesn’t always buy luck, but when used properly it can give you a better chance of finding it
Today’s classic will be re-released from The doctor philosopher You can see the original Hise.
Does money buy happiness? Like everything else … it depends.
We’ve all had this feeling at some point. We see something that catches our attention and then we decide we just have to have it! Time is spent researching the purchase and dreams are made about what it will be like to own it. In a moment of haste, we grab the item that is holding our eye. It is shortly after that moment that the feeling hits you … consumer regret.
Money is a tool. It is meant to help create a purposeful life full of meaning and contentment. However, people have a long and storied history of using money in ways that do not increase our long-term satisfaction or happiness.
Given our sad history, today’s post is based on research done at the University of Virginia. Here are 5 ways money can increase your happiness. This is the third contribution in the Behavioral Finance series.
1. Experience about things
This is one of the most cited findings on personal finance blogs. We love teaching readers that experiences are better than material goods.
The reason for this is because studies say you are much more likely to be happy if you are busy with your current activity. Interestingly, this activity doesn’t have to be a vacation, just something that doesn’t allow your mind to wander.
This is why time flies when you’re watching a movie, reading (or writing) a book, or having a romantic moment. In order to find the truth behind the phrase that “experiences are happiness,” we must, in essence, be immersed in our experiences.
When we are completely fascinated by what we are doing, our minds don’t wander – and we often find satisfaction.
In addition, material things (furniture, home renovations, jewelry or new toys) are easy to get used to after the big purchase. It doesn’t take long before this Persian rug is just what we put our feet on when we walk across the floor.
Experiences, on the other hand, are often satisfying when we are experiencing them and when we think back on them. This is especially true when we have these experiences with people we love. If we want our money to buy happiness, we must prefer experience with material goods.
2. Spend money on others
Whether money is given to charity or to buy something for someone else, it is common knowledge that spending money on others leads to better happiness.
Obviously, this isn’t the only reason to donate to charity, but it is certainly one worth considering. This is especially true given that many people avoid giving money to charitable causes (e.g., tithing for their church) because they believe that spending the money on themselves will bring greater happiness. Ironically, that’s just not true.
Money spent on others leads to more long-term happiness. And this is one good reason why we must balance giving with a desire to throw away every dollar we can for our financial independence.
If you are financially independent and have no one to spend all of your time with, what is it about? Saving all of your money can go too far.
For those who don’t give money to others, it may be time to face the music. And if you do, you may also find that money can not only buy happiness for others, but it also helps you find happiness!
3. Buy smaller and more often
If we rarely buy expensive items, we get used to them very quickly. There is a word for this in psychology called “adaptation”. However, you don’t have to study this to know that it is real.
Walk around your house and take stock of the items inside. Do you see that dining table? Or the lamp stand? What about the bed? Or that Persian rug that we mentioned earlier?
All of these things may have brought us great levels of happiness when we first bought them, but if we look at them now, they are unlikely to keep that happiness going. The reason for this is that we “adapt” to them. It moves our happiness setpoint.
This is the same reason it is difficult to fly in first class and then get back to the trainer. The more we have experienced something expensive and lavish, the less likely it is that we will enjoy a less expensive item or experience. This also happens with our car purchases – and I’m the figurehead of it with my Chevy SS.
Interestingly, all of this can be avoided if we choose to spend more money on smaller purchases. This prevents us from adapting to anything.
For example, unlike this dining table that doesn’t change, it is unlikely to have wine with your spouse in the evening. Chances are you’ll be discussing something new that happened at work or a recent success or failure. Oh, and did you hear that Shannon is marrying Robert?
The moral of the story? Buy the bottle of wine and the evening conversation. Not the new dining table.
4. Don’t buy insurance
Fear sells, but money spent on fear does not buy happiness.
Are you thinking about driving a car or owning a home without insurance? The idea of what might happen paralyzes in these situations.
You need to insure yourself against the disasters that are likely to financially ruin you or your family. Every doctor should have disability insurance (read the ten most important questions about disability insurance here). You should also take out term life insurance, home contents insurance and roof insurance.
Now that the big, scary items are covered, you should insure the rest yourself.
For example, when you buy a garden tool or a new phone, you should often forego insurance. The reason for this is that the companies entered the numbers to determine how much to charge for them to make up ahead of time. Additionally, anyone reading this website should save 3 to 6 months on living expenses as an emergency fund.
If you decide to stop buying long-term warranties and insurance on smaller new items, you will find that the money saved can go into a bucket and then replace the one item that actually broke (instead of insuring the other 49 items ) didn’t need it).
Then you don’t have to live in fear. Instead, you know the emergency fund is in place, and that keeps you safe and happy.
5. Delay the purchase
We live in a “consume now, pay later” culture of credit cards. From instantly shipped movies to new age groceries, we’ve arrived at a time where instant gratification is easier than ever.
But is that a good thing? The answer is no. And there are two predominant reasons why this is the case.
The first is obvious, which is that anything put on credit or anything you owe (including the student loans you should consider refinancing) will eventually have to be paid back.
Getting into debt has destroyed life. After going bankrupt as a kid, I can tell you the damage is very real. Learning to avoid debt enables you to be financially better and gives you time to think twice about buying if you cannot currently afford it.
The second – and less obvious reason why we should avoid instant gratification – is that consuming instantly actually decreases our happiness. This strange phenomenon occurs because it eliminates something that offers an innate amount of satisfaction, namely anticipation.
In fact, studies have shown that the anticipation of an event often brings more happiness than the experience itself. That is why we look forward to holidays, vacations and even the weekend. However, we often look back and find that it wasn’t as good as we imagined. When we combine this with the idea that the experience has to end, we have a rebound effect that goes back to reality.
Because of this, researchers say we should turn this paradigm on its head in order to create more happiness with our spending. They argue that we should adopt a “pay now, consume later” mentality for our spending.
In this way, delaying purchases helps us build a natural (and happiness-inducing) anticipation that is all too rare these days.
Take it home with you
I hope this post has helped you better understand how money and happiness are related. Money doesn’t always buy luck, but when used properly it can give you a better chance of finding it.
Hopefully we’ll spend your money on what actually creates happiness and stop chasing things that don’t. (The “we” was no accident – I have to focus on this stuff as much as you do!).
If you enjoyed this post, be sure to check out the other posts in the Behavioral Finance series!
I would love to hear from you. Let me know if your experience coincides with 5 Ways To Spend Money That Makes You Happier!