Can spending money with different priorities actually make you more or less happy? Clichés notwithstanding, it seems that it actually can. Social scientists Liz Dunn Michael Norton make a compelling, scientific case for the spending choices we make driving us to or away from greater happiness and satisfaction.
This is of course predicated on the idea that spending for basic needs such as food, clothing, shelter, and transportation is well supported by your income or wealth. If you’re hungry, the only thing that’s going to bring greater happiness in the short term is spending on food! We can argue about whether or not that new pair of shoes is a luxury or a necessity, but that’s really a different topic.
The authors have identified five separate but intertwined areas where spending choices, even small ones, can be altered with noticeable different results in your overall satisfaction:
Buy Experiences
Memorable experiences when compared with material goods win hands down in terms of your long-term satisfaction. Purchases of high end cars, large mansions (particularly those that involve long commutes) have a high happiness impact in the short run, but then quickly become the new normal and do not yield ongoing pleasure. The experiences you can purchase will have the greatest long term impact if they involve
- Social connection with other people
- A memorable story
- Tight linkage to your present or desired future identity
- Unique opportunity, unlike anything else
Make it a treat
Almost any sensation, whether positive or negative, will tend to wear off as you become used to it. If you eat high end chocolate every day, your perceived enjoyment will steadily decrease over time. The antidote to this is cultivate a sense of gratefulness for what you do have, but in our consumer driven, heavily marketed society, the continuing message is that whatever you have, you can have something better. One way to cultivate gratefulness is to make something that’s enjoyable to you a seasonal rather than a constant thing. Even though you can get almost any food year round, you can eat seasonally, as an example. The main idea in this category is to avoid consuming out of habit and to intentionally vary your experiences.
Buy Time
The time value of money is a concept that is quite familiar to most. A sum of money left in an interest bearing account for a period of time will grow in size. However, the money value of time is less obvious, and is frequently ignored at your peril. The basic concept is that you have a fixed amount of time in a given day, and the value of it goes progressively higher as it becomes a more scarce resource. I have written extensively about extensive delegation in the workplace, and the main purpose of this is to “but” more time for you to do your higher value work. This applies to your personal life in exactly the same way. The authors suggest an interesting concept: time affluence. The goal of this condition is that you will have perceived extra time to take advantage of life’s enjoyments and opportunities. The somewhat counter-intuitive result of one time study is that US adults have approximately 4 more hours per week of discretionary time than did our counterparts about 50 years ago. One other consistent finding is that donating time, such as with volunteer work, makes people feel time affluent and less stressed.
Delayed consumption
This is the opposite of the credit card, where you consume now and pay later. Prepayment (especially of treats!) allows you to anticipate the benefits and savor the moments more thoroughly. This is most effective when there are many attending details to the purchase (such as travel to a new country), anticipation gives greater pleasure rather than anxiety, and the relative length of the even is of short duration.
Invest in others
This topic has been extensively researched, with remarkably consistent results: people feel best about their spending when it involves benefits to others. The authors call this prosocial spending, and it is primarily gifts to others and charitable donations. The proportion of income to prosocial spending is debatable, and is culturally driven to some degree. The modern twist on charitable donations is that you can now donate to very specific causes , so you can know the direct benefit to others from your generosity. An example is Spread The Net, where your donation of $10 buys a mosquito net for an individual, preventing the spread of malaria. Another example is the donation of $250 for the purchase of a hand powered water pump through kickstart (not kickstarter!) to allow an impoverished farming family to grow higher value crops. Their slogan: “You give us $250, we’ll get a family out of poverty-forever!”
Try it out yourself
The authors suggest a simple exercise to help you get started down this path: you can obtain a simple template to determine what categories your after tax dollars go to, such as entertainment, clothing, groceries, dining, leisure, and prosocial spending. This is a fine exercise to at least know what you have been doing in the past. In addition, you can ask, which of these resources do I want to re-allocate using the happiness quotients above? Would donating $10 to buy a mosquito net to prevent malaria make me happier than a couple of lattes?