Have you heard that higher income doesn’t necessarily mean increased happiness? Studies show that on average people earning more than $75,000 (in 2010) don’t report increasing happiness with increasing income levels. The main explanation for this phenomenon is that once our basic needs are met, we aren’t very good at spending our money in ways that make us much happier. Psychologists have taken an interest in this topic and lucky for us, their research gives us insights on how we can spend our discretionary income in ways that are more likely to increase our happiness. Dr. Elizabeth Dunn shared some of these insights with us at the 2018 XYPN Live Conference. Here are her top 5:
1) Buy experiences. People report more intense feelings of happiness after purchasing an experience than after purchasing material items. In fact, the memory of how great an experience was increases over time. This effect contrasts with what we see with the purchase of material items, which bring smaller, more frequent jolts of happiness that tend to decrease over time. Connecting with others to create unique and memorable experiences is one of the keys to happiness.
2) Make it a treat. Novelty brings happiness, so you might want to reconsider purchases that used to be a treat but are now bought out of habit. Like eating out.
3) Buy time. Are you aware of your U-index? It measures the proportion of your day that you spend doing dreaded tasks. Essentially, the higher your U-index, the lower your happiness. So, outsource those dreaded tasks and see your happiness soar. Use the extra time to connect with the people you love. If you’ve been looking for a good reason to hire a housekeeper –here it is!
4) Pay now, consume later. This goes against everything credit card companies would have you believe, but research shows that we enjoy things more if we consume them after we experience the pain of paying for them. Another benefit of this tactic is the added happiness that the anticipation of enjoying that item or experience will bring. Get ready for a blog post on how budgeting can make you happier!
5) Invest in others. One of the fundamental aspects of being human is that it brings us joy to help others. Giving to others feeds into this part of the human experience and is one of the best ways you can spend your money in a way that will bring you happiness. Choose beneficiaries that you connect with, and that you feel you can have an impact on. Another perk of giving to others? It’s good for your heart! Lab experiments revealed that being charitable had the same effect on blood pressure as exercise!
This body of research demonstrates that maximizing your money is not what’s important. Your spending decisions and attitudes towards money have a much more powerful impact on your well-being. That’s what holistic financial planning is all about!