By: Joey Casolaro, CFP®
Everyone has heard the saying, “Money can’t buy happiness, but I’d rather cry in my Lamborghini.” Although I agree with the second part, money can buy happiness if spent correctly. I recently read a book called Happy Money which dives into the science of happier spending. In the book, the authors Elizabeth Dunn (a professor of Psychology at the University of British Columbia) and Michael Norton (a professor at the Harvard Business School) go over the following five fundamental principles to get the most happiness from your spending.
Buy Experiences
Make It a Treat
Buy Time
Pay Now, Consume Later
Invest in Others
In this article, I will cover the first two principles and discuss the other 3 in the following article.
Buy Experiences
Many believe buying materialistic items like nice clothes, fancy cars, and big houses will make them happy. Although this may be true initially, this feeling will usually wear off quickly, and you will find you are not any happier than before the purchase.
Experiential purchases, on the other hand, have been proven to improve happiness and well-being over the long term. Experiences allow us to share and define who we are while connecting us with family and friends. It also leaves you with great memories and stories to tell, which you will remember forever. For example, my brother, I, and some friends go on a yearly backpacking trip in the mountains. The journey is usually towards the end of the year, which gives us something to look forward to for the whole year. After the trip, our overall happiness increased due to our friendships becoming much more profound and the memories we made.
When you think about it, it makes sense that your happiness is increased when you spend time with friends and family doing the things you love. In the world’s most comprehensive study of happiness done by researchers at Harvard, they found close relationships to be the most significant factor for keeping people happy throughout their lives. Robert Waldiner, the director of the study, explains his findings in the video below.
Robert Waldinger: What makes a good life? Lessons from the longest study on happiness | TED
Make it a Treat
Have you ever noticed that when you have something all the time, you begin to enjoy and appreciate it less? Research has shown that consuming or experiencing the things you love less frequently can increase the happiness you experience from them. One personal experience I have seen this be true is going to the beach. Growing up near Fort Lauderdale, Florida, it was always warm and sunny, making it a great time to go to the beach. However, I would only go 1-2 times a year even though I only lived about 25 minutes away. Now living in New Jersey, I find myself going to the beach any chance I get in the summer, even though it’s much further away and the water is colder!
One quote in the book that sums this up well is, “If abundance is the enemy of appreciation, scarcity may be our best ally.”
Although I was close to the beach, having access to it all year made me less appreciative than now, where I can only go during the summer.
I challenge you to try an experiment on yourself. If you enjoy a Starbucks caramel latte every morning (or any other coffee), try only purchasing it one day out of the week and having a regular coffee the remaining days. You should find that your appreciation and happiness when consuming the latte are much higher than when you have it daily.
I firmly believe how you spend your money directly correlates to your overall happiness. Studies have been done, and they have found no significant differences between lottery winners and non-winners in terms of happiness. Knowing how to spend your money and how to manage your money require two different skill sets. In my next article, I will go over the last three principles mentioned above, which explain how you can increase your happiness from your spending.
Joey Casolaro is a CERTIFIED FINANCIAL PLANNER™ at HIGHLAND Financial Advisors, a Fee-Only fiduciary wealth advisory firm that offers comprehensive financial planning, retirement planning, and investment management. Joey graduated from the University of South Florida with a bachelor’s degree in personal finance and successfully passed the CFP national exam in 2021. Joey enjoys working out, spending time outdoors, and hanging out with family and friends in his free time.