5 Smart Spending Strategies to “Buy” Happiness

Marcia Fiamengo paid $200,000 to spend six minutes in sub-orbital spaceflight aboard Richard Branson’s Virgin Galactic. An anonymous donor also paid for the layaway orders for 50 people at a K-Mart, and then handed out $50 bills while leaving the store. While some might consider such spending extravagant or wasteful, it produced lasting happiness for the individuals.

In Fiamengo’s case, she chose to spend the insurance money from her husband’s death to honor their retirement dream of being astronauts. The death of her husband served as a catalyst and reminder to take advantage of amazing experiences and not put them off until a better time. On a much smaller scale, the anonymous widow who generously gave away money at K-Mart was doing so to make people happy and to honor the memory of her recently deceased husband.

How does the average person buy happiness?

In Happy Money: The Science of Smarter Spending, Elizabeth Dunn and Michael Norton argue that money can buy happiness. The trick is that people need to make a focused effort on spending differently. The U-index, a measurement of the proportion of time individuals spend in an “unpleasant”, “undesirable” or “unhappy” state, has been largely unchanged over five decades. Therefore, rising incomes since the 1960’s alone have not enabled Americans to use their wealth to make them happier. However, if people could divert their spending away from material possessions and put it towards buying experiences and philanthropy, that figure could change.

Big houses and expensive cars don’t make people happier.

In order to increase happiness, Dunn and Norton offer a more structured decision-making process with five specific recommendations as to what types of spending will produce higher levels of happiness such as the kind Fiamengo and the anonymous widow experienced.

1. Buy experiences rather than material items. This makes people happier and provides an inoculation against buyer’s remorse associated with purchasing items such as homes, automobiles, electronics, and clothes.

2. Focus on buying time with your money. Using money to outsource undesirable tasks frees time to pursue passions and activities that promote wellbeing.

3. Invest in others at whatever level you can. Even if you cannot pledge a vast fortune like billionaires do, you can get greater happiness and fulfillment from spending money on others. Spending even a few dollars on someone else can trigger a boost in happiness. In one study, researchers found that people who spent as little as $5 on someone else over the course of a day were happier than people who spent the $5 on themselves.

4. Alter your consumption patterns. “If abundance is the enemy of appreciation, scarcity may be our best ally,” according to Dunn and Norton. Purchases become a treat and have a restored luster if we consciously reduce amounts and frequencies of specific purchases, from lattes and chocolates to wardrobes.

5. Pay now and consume later. Reversing the “consume now and pay later” mantra promoted by credit card companies buys more happiness. “Delaying consumption allows spenders to reap the pleasures of anticipation” without the struggle of having to pay debts at a later date. People are less likely to overspend when paying up front for purchases. This leads to lower debt, and less stress.

So, while planning how to invest your money is important, so are your plans on how to spend your money. Through the active planning of both your investment and spending decisions you can live a happier life.

Adapted from: Money Can Buy Happiness, by Justin Kermond, October 1, 2013, Adviser Perspectives.

Post from: Insights