Personal finance blogs constantly talk about the importance of making more income, saving and investing what we’ve made. Those topics are staples of personal finance writing.
One thing that isn’t talked about as often, however, is how we spend our money and the impact it will have. How can we use the money that we’ve earned in a way so as to maximize our happiness? Are we better off buying nice things like a big house or a luxury car, or would we be better served by spending our money experiences and on other people?
Buying Things Vs. Investing In Experiences & People
We all have things that we want to buy in our everyday lives. Lately I’ve wanted to get some nice podcasting equipment for use on a couple of projects. I’ve been putting the purchase off, however, because I know that the equipment that I currently have should work just fine for what I need. The equipment I want is quite expensive.
I’ve also been saving for some time for our next vacation, a trip to New Orleans that we hope to take this fall. I know it should be fun, as similar past trips still bring up good memories and feelings for me today.
When I look back at the purchases I’ve made, the ones that have consistently have made me the most happy are the ones that involve experiences, being with other people and giving to others that I know. The material possessions that I buy will often give me a spike of happiness when I first get them, but the feeling quickly fades as the next item I want comes into view.
The question is this: How can we spend our money so as to maximize our happiness?
Happier & Smarter Spending
In their book, “Happy Money: The Science of Smarter Spending“, Elizabeth Dunn and Michael Norton talk about how people almost always overestimate the impact of money on their happiness. While money does have an impact on happiness, the effect is rather small, and tapers off once you make about $75,000 in the United States.
While people overestimate the amount of happiness they will get through having more money, they also overestimate the value that they’ll get through having material things.
A study from San Francisco State University found that people generally know life experiences will make them happier, but they still choose to spend their money on material items because they think they’ll give them better value. When they were asked after a purchase, however, their opinions changed. They believed that the life experiences would give more value AND would make them happier.
Guy Kawasaki talked about Dunn and Norton’s book, and gives their five core principles of smarter spending, principles that will help you to be happier in the long run.
5 Core Principles Of Smarter Spending That Can Lead To Greater Happiness
1. Buy Experiences. When you buy material things, they can make you happy, but often it fades quickly and sometimes even leads to buyer’s remorse. Experiential spending, however, often brings much more happiness. Whether it’s a $10,000 Mediterranean cruise, or just enjoying a nice meal eating out – experiences tend to stick with us longer and give us a longer lasting feeling of happiness.
2. Make It a Treat. If the experiences you crave are a part of your everyday life, they become less special. So in order to maximize happiness, make those special experiences less common – something you treat yourself to every once in a while. Enjoy a cafe mocha and scone in the morning? Don’t do it every day, but maybe once every couple of weeks – and you’ll get more enjoyment out of it. When wonderful things are more available, we appreciate them less.
3. Buy Time. Having money should allow you to outsource things that you don’t enjoy doing, that take time away from things that you WOULD like to do. Using your money to buy yourself time will make you happier.
4. Pay Now, Consume Later. We live in a consumption society where people are encouraged to buy everything now on credit, and pay for it later. Instead of living with that buy now pay later mentality that so many have, instead save up and pay cash for things first. When you delay gratification a nice side effect is that you’ll be able to have the pleasure of anticipation, anticipating how much you’ll enjoy that purchase – whatever it is. Not only that, but often you’ll end up not buying something because the thrill of that item has left you by the time you’ve saved up for it. So in the end you’ll spend less – and be happier because you have less debt.
5. Invest in Others. Studies have shown that spending money on other people will bring more happiness than spending money on yourself, no matter where you live or how much you earn. Being giving to others can make you a more selfless, happy and well adjusted person. Personally I also believe that we’re created in God’s image, and that we’re happiest when we’re serving and giving to others.
Focusing On Material Things Can Undermine Your Well Being
Focusing on material things and giving them a high importance can actually lead to people having problems. In his 2002 book “The High Price of Materialism“, professor Tim Kasser explains how people who have a central focus on financial success and material things in their lives are more likely to be distressed, have problems adjusting to life and have low well being.
Although we cannot be sure from these results whether materialistic values cause unhappiness, or whether other factors are at work, the results do suggest a rather startling conclusion: the American dream has a dark side, and the pursuit of wealth and possessions might actually be undermining our well-being,
Focusing on the material things can lead to a sense of jealousy, of having to keep up with the Joneses, and always needing more. It’s an exhausting way to live.
Instead, why not have an attitude of gratitude for the things we do have, and for the people in our lives? An attitude of gratitude and contentment can be an effective cure for a life full of consumerism and materialism.
Spend some money on some experiences with the ones you love!
3 Reasons Why Experiences Are Superior (Before, During & After)
There are several reasons why I believe spending your money on experiences is superior. The reasons are in relation to things that happen before, during and after the experience.
1.Before – Anticipation of an experience: Often when we’re going to have an experience, like a trip, we will anticipate that experience for days or weeks beforehand. While we will sometimes anticipate the purchase of an material item, it isn’t typically as exciting as the anticipation for an experience.
2. During – Experiences are typically done with other people: For most of us, people are one of the most important things in our lives. Spending time with the people we love, having experiences with them, and giving of ourselves to help other people are all things that can give us happiness.
Buying material things is typically a solitary activity – experienced only by ourselves, while enjoying an experience is often done with others we know and love. For that reason alone I think enjoying an experience is often a better choice. It helps to foster interaction and relationship with others.
3. After – Experiences affect our lives in a more profound way: When we’ve had an experience with someone else, whether it is through a trip, a night out or through helping them out in some way, the memories and relationships we create remain with us for a lifetime. Often the things we buy are only exciting or a part of our lives for a short time.
Experiences Or Things?
For me I believe spending money on experiences, and investing in people and relationships is clearly the way to go.
It comes down to, this: Are we more likely to find happiness in our money and possessions, or through people, experiences and being giving? I think the answer is clear.
Experiences. We learned the hard way about trying to fill your life with stuff and are now paying the consequences for it. I’m so glad to have turned this corner and now realize less is more and relationships are more important than things.
Peter Anderson says
I think it’s one of those things that people often need to learn the hard way. It’s hard, because instinctually we often believe in our minds that we’ll get a better value when we buy a “thing”, something that has a dollar value associated with it. But as mentioned above many people who believed a thing would trump an experience for value – changed their minds after buying that “thing”. We get much more value from an experience than we might believe.
John @ Wise Dollar says
I’d much rather spend on experiences and other people any day. When I look at it, I have more than enough stuff and it just eventually breaks down and loses significance over time – save for maybe a very small amount of things. The experience, however, I can take with me and keep as long as my memory will allow. I also love to spend on others my life. If I know it’s going to bring them joy then it does for me as well.
Peter Anderson says
Your point of stuff losing significance over time was driven home for me when we moved last August. When we moved we had a whole garage full of stuff that we either sold, donated or just threw in the dumpster. A lot of that stuff held quite a bit of significance for us at one time or another, but over time it just got old, tired or less used. The experiences we’ve had over the years, however, are still fresh in our memories and cherished.
Travis @debtchronicles says
Yeah, I’m completely in the ‘experiences’ camp as well….although sometimes you have to buy material things to get those experiences. Two examples that happen to be two of my most favorite hobbies in life:
1.) Running – Love running, specifically, training for and running in races – currently training for my 4th marathon. Not only does it keep me in good physical shape, but the act of training makes me practice my prioritization and motivation skills (you HAVE to run consistently to be successful), as well as my ability to run headlong into a total physical and mental breakdown (You KNOW it will happen on those 14,16, or 18 mile runs) and find a way to crush your doubts and insecurities and keep going anyway. BUT, to realize this dream, I need to buy running gear (shoes, shorts, compression shorts, shirts, socks) as well as signup for the races (which aren’t all that cheap these days).
2.) grilling and smoking meat : I love cooking, experimenting with new meats and techniques, and then inviting my friends over to try them. It’s created more joy and memories than I can ever tell a person about in a day, but to do it I need to buy a smoker, a grill, and all the tools I need to do it right.
so, in the end it’s the experience I’m getting, but having all the right tools means buying material possessions too. :)
Peter Anderson says
Great point Travis! Sometimes buying things is part and parcel in helping you to enjoy an experience of some kind. In some respects, you’re still paying more for the experience, than for the item it seems. You’re not just buying the running gear to enjoy the gear – but to enjoy the experience of running. Or you’re not buying a new smoker just to enjoy the smoker, but the experience of smoking your own meats, sharing them with family and friends, etc.
really good article.
one of the key points of this article is, Buy Experience and Invest in people.
The problem in North American mentality of buy now, pay later that I have felt after coming to Canada is that there are lots of choices (products) available.
1 product has 100 different variations, when you look into so many product it creates a desire to have it and you do not have enough money to own everything + these are pretty expensive.
and banks are distributing credit-cards like freebies it’s a slippery slope.
Peter Anderson says
Thanks for boiling it down to one statement, “buy experience and invest in people”. That really does say it all.
For me, I would much rather spend money on experiences. Material things either break or get outdated, and they just don’t give me the same happiness as a fun vacation.