The book “Happy Money: The Science of Smarter Spending” was a quick read that confirmed much of my intuition and opened my eyes to a few new ideas. Two professors (U of British Columbia / Harvard) wrote this book based on their research and others looking at how people spend their money equates to happiness. It is a great way to look at wealth, and the old saying, money can’t buy happiness, is in someways proven correct and other ways found false. The Founding Fathers of the USA put “In the pursuit of happiness” in the Declaration of Independence and before reading this book, I never really formerly thought that it was a guiding principle in my life, but in many ways it is. To be happy should be the utmost goal of a person. Fortunately for society, what is good for the individual is usually good for the society and doing good and not harming others, leads to happiness.
The authors give five rules to maximize one’s enjoyment of spending money that goes against common sense a bit.
1) Buy Experiences
- The biggest investment for most people is there home. The big house in the suburbs doesn’t bring big happiness. There is no evidence that these large homes one sees, actually makes your life better. I certainly found this out when we bought a large house. I found us cleaning and taking care of it instead of devoting more time to my children and each other. The author’s argue that instead of investing in things like expensive cars, boats, and homes, more pleasure is gained through buying experiences that make us feel more connected to others. The research shows that satisfaction with experiential purchases tends to increase with passage of time (stories) while satisfaction with things tends to decrease over time.
- One of the largest material purchases perople ever make is their home, yet home purchases usually fail to make people any happier.
- It is easier for people to seek out experiences, from picnics in the park to nights on the town, when the local environment provides appropriate settings. Governments usually provide support for museums, national parks, and culutural institutions.
2) Make it A Treat
- You enjoy things more in small doses, and overabundance undermines our enjoyment of things. The two salient examples are if you drive an expensive car daily, the thrill wears off, so it is better to treat yourself to a luxury rental and really enjoy and look forward to the experience, and save money on an average car for daily use. The other example is not to “binge watch” television series on line and instead, watch with a gap in between each episode. Thinking about the next episode, discussing with friends, etc. heightens your enjoyment.
- Banning carbonated soda drinks for a large part of the day will restore children’s enjoyment of the drinks, best regarded as treats.
3) Buy Time
- We too often sacrifice free time just to save a little money. Time is valuable and for example, you can spend an extra $100 for the direct flight from LAX to JFK instead of spending four hours in the airport in Dallas. Is 4 hours worth $100 to you?
- People are in a good mood when exercising, reading, or having sex, but are not in a good mood when commuting, shopping, or doing housework.
- Research shows 30% of work emails are useless. The average Intel knowledge worker receives 50-100 emails per day (I get this many) and they have instituted an email free Tuesday. This is a sizable workload on a daily basis that takes away from our primary work.
- As time becomes worth more money (this is true now as compared to 20-30 years ago and as one moves up the corporate ladder) people report feeling more pressed for time, even though they have the same amount of time as before.
- Taking the time to help others makes people feel more effective and these feelings of competence lead volunteers to feel less overburdened by the multitude of tasks in their everyday lives.
- Go outside and exercise – there is added value in exercising outside!
- Premium cable and flat-screen TVs eat up your time! When you buy a really nice TV, you are committing on average 1/6 of the next year watching it.
- Take less money on a job if it means more time for family.
- When faced with a decision between multiple products while shopping, ask yourself whether the differences in features will alter how you spend your time. If the answer is no, go cheap.
- We bought time by moving closer to the school. In the US, 89% of trips are by car compared to 52% in Netherlands. Riding a bike and walking make people feel good!
4. Pay Now, Consume Later
- Consuming later provides time for positive expectations to develop, delaying consumption also increases our ability to smooth over the cracks, so you won’t remember how much an experience cost, if you do it much later from when you paid for it.
- What we owe is a bigger predictor of our happiness than what we make. The relationship between income and happiness is weak with Americans, and the key is debt.
5. Invest in Others
- The effect of a single spending category (prosocial spending) was as large as the effect of total income in predicting happiness.
- “I feel that my work makes a positive difference in other people’s lives.”
- Investing in others brings a host of benefits to the giver, affecting not only happiness, but also health and wealth. Giving away money makes us feel like we have more to spare, just like giving up your time to volunteer.
- When asking for donations, be specific on how their donation will help.
Another predictor of happiness in a country is the income gap between high and low income earners. In the US, the richest 20% of Americans own 85% of all wealth while the poorest 40% earn approximately 0% of the wealth.
I highly recommend reading this entire book.