How to Spend Money to Be Happy
Money can’t buy happiness. Or can it? We all have our own opinion on this, I am sure. But what does the research say?
Earning Money
When we look at our pay cheque, how does it make us feel? Well, the engagement research tells us that as long as we are being paid fairly for the job that we do, then it removes money as a source of grief. That is, once we are paid pretty much market rates for our skills and services, other things become really important to us, like the people we work with, culture, benefits – things like that. If you’re a manager, this is important to understand, because it says that throwing more money at employees isn’t always the most efficient way to solve a problem.
But we’d all be happy if we earned more money right? This is true to an extent, and that extent is…. drumroll please….. $80,000. That’s right, when we earn up to this figure, our happiness increases in a seemingly linear fashion, but increases over this amount don’t give us a proportional increase in happiness. In fact, once we supersede this magical number, we start to get more stress in an incremental fashion. This is, of course, dependent on a number of things including how much it costs you to live. But if you are on your way up the earnings scale and haven’t overcommitted to that flashy car and all-inclusive cable TV package, then $80,000 a year is a good place to land.
So, we need to feel like we are paid fairly, and we also need to earn about $80,000 to reach an optimal level of happiness. But once we have the cash in our hands, can we actually buy happiness? It seems you can, if you are disciplined enough to spend your money in these particular ways.
How to Spend Money to Be Happy
Mike Norton, author of Happy Money, proposes that there are four ways we can spend money to make us truly happy over the long term.
In a lot of ways this seems counterintuitive. If you buy an item, then you have that item for a long time, therefore it should make you happier, right? Not so fast. It seems that when we buy ‘things’ they make us happy for a very short time before we get used to it. Think about that great new iphone you bought recently. You were probalbly pretty excited about it, but now it’s just another appendage – half the time you probably forget it’s there.
On the other hand, when we buy experiences, the memories stay with us for a very long time. We look back on those things and it brings us joy – and it continues to bring us joy for as long as we recall it. That holiday? That scuba diving lesson? They are probably the things you are still reminiscing about years after the event.
One exception to this rule is if we buy things that remind us of certain events, or that we use often that give us the feeling of an event. If you bought an expensive vase on that trip to Venice, then that will keep reminding you of the great memories you have of the trip. Or if you buy a new mountain bike (that you actually use) it might fill you with the sense of adventure and provide you with experiences that you will recall for a long time.
Time is truly becoming our most precious asset. And studies have continually shown that people who value time over money are consistently happier. So anything you can do to free up your time is a worthwhile investment. Hire a cleaner so you don’t have to do it on the weekend, get the groceries delivered, get a virtual assistant. Or maybe you can somehow cut down your commuting time.
We should add that this works best if you then spend your free time doing something of value. If you instead spend it wandering around the house watching YouTube clips, you’ll probably be disappointed you spent the money.
Spending money on someone else is a great way to boost your happiness. In one study they gave people the options of spending either $5 or $20 and they could spend that money on either themselves or someone else. When asked which would make them happier, most people assumed (naturally) that spending $20 on yourself would be the highest correlation of happiness. Turns out, the exact opposite was true. If we measure peoples ‘happiness physiology’ (things like dopamine), we find that spending money on someone else outperforms spending money on ourselves in the happiness stakes. And the happiness response was pretty much the same whether the person spend $5 or $20.
Finally, this one is a strange finding. If we pay for things in advance, it seems we enjoy them more. Paying for a great meal a week or two before you have the meal gives us more joy than paying for our meal after we are finished. It seems that paying at the time we enjoy the experience adds a ‘tansactional’ quality. This detracts from the experience. When we pay ahead of time, it creates anticipation. I guess I’ll never complain about paying up front for those holiday activities.
So, there you have it. Four ways you can spend your money in an effort to increase happiness. Think twice next time you splurge on a new car or a piece of clothing. Chances are you could be happier.
** Tony Wilson is a Workplace Performance Expert focussed on helping leaders build the environment for high performance. His insights into performance science and it's application in the workplace will make you re-think the way that you approach leadership, culture change, high performance and productivity. Tony has an MBA and a BSc majoring in physiology and combines the two for a different perspective. He is also the author of Jack and the Team that Couldn't See and delivers workshops and keynote presentations around the globe.