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How to Spend Money to Increase Happiness

Investing Insights

In a post-pandemic world, some people are gearing up to spend frivolously—at least that’s what a recent McKinsey study reported. Over 50% of US consumers are planning to spend extra money on splurge purchases this year. It seems that after a year of cancelled vacations, holiday get-togethers, and events, Americans who have an expendable income are ready to spend.

And while treating yourself from time to time certainly isn’t a bad thing, it might not provide the kind of euphoric, emotional release you’re looking for. In Elizabeth Dunn and Michael Norton’s book Happy Money: The Science of Happier Spending, they lay out a new way to think about money and spending. And don’t worry… it’s not all about saving money or spending less (although we do think saving and investing are important). It’s more a look into how we can alter our spending habits to increase our happiness. 

You might be asking, is that possible? Dunn and Norton think so. They assert that purchasing experiences,  rather than things, and investing in others, rather than yourself, can actually have an impact on your overall level of happiness. Let’s explore their five principles of happy money.

Buy Experiences

This first principle can be boiled down to this: people tend to be happier when they spend money on experiences—vacations, hikes, skydiving, etc.—than when they spend money on a thing—like jewelry, a luxury car, or a new patio set.

There are a couple of reasons behind this. Dunn and Norton assert that, in part, it’s because as we get used to something our happiness about it declines. The car you’ve been driving for ten years might not make you as excited as it once did. But we don’t typically get used to experiences like a beach vacation or cruise, so our happiness about them remains consistent. Another study indicated that experiences bring us more happiness because of the build up and anticipation that comes prior to an event, in addition to the fact that we’re more likely to talk about experiences than tangible items over the long-term. 

No matter the psychological reasoning behind it, experiences tend to bring us more joy. That’s not to say you shouldn’t buy items...but you might consider spending your expendable income on an experience you’ll remember fondly.

Make It a Treat

Dunn and Norton’s second principle is all about getting back to the joy that comes from indulging every once in a while. For example, Your Friday night dinners at a restaurant might not seem as special if they’re happening four or five nights a week. But why is that? In part, it’s due to a social psychology principle called the scarcity heuristic. Essentially, the scarcity heuristic is what happens when our brains place more value on something that’s rare. 

Dunn and Norton share a common example of this in their book: the Disney Vault. Prior to Disney+, Disney only released movies from their Vault every so often. This created a feeling of scarcity and people subconsciously added value to those movies when they were released. 

So how do we use this to our advantage? Try weekly coffees —instead of daily—from your favorite coffee shop. Splurge on a fun new item a few times a year rather than once a month. 

You’re still treating yourself, but you're tricking your brain into thinking it’s more exciting this way.

Buy Time

We know you can’t actually buy time, but you can buy products and services that give you more time to do what you love. That’s the reasoning behind the third principle. 

Those with expendable incomes have the resources to outsource tasks they don’t like...such as cleaning the house or mowing the lawn. This might be hiring a cleaning service, the teenager next door, or simply purchasing a Roomba to automate vacuuming. All this frees up time for hobbies, activities, and other things that might make you happier than sweeping the floor

This principle goes beyond paying someone to complete tasks, though. In their book, Dunn and Norton say that “Taking a job that requires an hour-long commute each way has a negative effect on happiness similar in magnitude to not having a job at all.” Having time to do the things we want to do—or perhaps more importantly, not spending ample time doing what we don’t want to do—has a huge impact on our happiness.

The book advises readers to ask themselves “how will this purchase change the way I use my time” to better promote purchasing things that give you time… and joy.

Pay Now, Consume Later

We’re living in a time that allows most people instant gratification for their desires. Want the new book, album, or video game that just came out? You can purchase it on Amazon, iTunes, or PlayStation store instantly. And while most of us like having things available with just the click of a button, it’s not doing much for our happiness.

Dunn and Norton cite a study wherein participants were asked to either immediately eat or wait to consume two things: chocolate or prune juice. Those participants who had to wait to eat the chocolate reported that it tasted better than those who ate it immediately. Why? Because the buildup made it taste better. However, the study notes that this only applies to something you like...so the prune juice tasted like prune juice either way.

All that’s to say...paying for something now and enjoying it later can lead to increased levels of happiness and excitement because we’re waiting for it. So paying for a vacation months before you go can actually make you enjoy it more.

Invest in Others

Finally, the fifth principle is to invest in others. While we might like to buy things for ourselves, we’re often actually happier when we invest in others. While it’s easy to point to billionaires like Warren Buffet who are well-known for being philanthropists, the science remains sound no matter how much money is at stake.

Dunn and Norton tested this by randomly asking college students to spend money. Some were asked to spend it on themselves and some were asked to spend it on others. At all monetary levels, students who bought things for others reported higher levels of happiness.

Buy your friends and family members gifts. Invest in causes you care about. These behaviors are likely to increase your joy.

Invest and Spend Smartly with Delta Wealth Advisors

To tie it all together, Dunn and Norton recommend asking yourself this: “Is this happy money? Am I spending this money in the way that will give me the biggest happiness bang for my buck.” We hope you’ll use this advice as a starting point to spend your money on ways that will increase your overall happiness.

Delta Wealth Advisors believes that “personal finance” is more “personal” than it is “finance”. Our team works with our clients to maximize the impact and purpose of their funds to live a full life. Our experienced team of tax and financial planning experts can help you plan for the financial future you want. Contact us today for sound, objective financial planning advice to help you grow your net worth, prepare for retirement, and everything in between.