Who Says Money Can't Buy Happiness?

As a financial advisor, most of my career has been focused on strategies to help individuals save, invest and protect their money. The point of accumulating wealth is primarily to assist clients’ in reaching their aspirations, hopes and dreams. With so much time centered on growing wealth, little was dedicated to the other side of the equation – spending it. However, what is the point of working so hard to have “enough” if we don't use it to spend in ways that make us happy? A few years ago, I came across the book Happy Money: The Science of Smarter Spending. The authors are two behavioral science professors who suggest there may be opportunities to derive greater happiness by changing the ways we spend our money. More money doesn't always lead to more happiness. However, how you choose to spend can have an impact. They outline five key principals which can result in money actually buying happiness.

Each principal is backed by tons of fascinating and cutting-edge research. Some findings are surprising and counter-intuitive but they usually include a spark of recognition as well.

1. Buy Experiences, Not Stuff

Research shows that the joy of material goods fades as we become acclimated to them and we start to notice other bigger and better things. However, memories of an experience get better over time and continue to be remembered fondly long thereafter. Also, we more often define ourselves by our experiences. Since they are directly linked to our sense of self they are well worth the money we spend on them. Additionally, experiential spending can bring us together with other people, fostering social connection. Apparently, the biggest bang for our buck comes from experiences that offer unique opportunities or social connections with other people.

2. Buy Time

People who spend more of their income on leisure activities report a higher life satisfaction. If there is something we dread doing, we should outsource it and use the time to do something else we enjoy. Our time on earth is finite so it is worth spending money so we can use what time we have in a more satisfying manner.

3. Make It a Treat

Abundance is the enemy of appreciation. Overabundance can desensitize us to life's pleasures. The more we have of something, the less we enjoy it. We should ration and keep things we enjoy special, not something that is part of every day. It's important to be grateful for all the things we have, even the little ones. An effective strategy for making spending more enjoyable is to vary what we purchase, giving ourselves the opportunity to experience things as a new treat.

4. Pay Now, Consume Later

Paying up front and waiting to enjoy something can make it even more enjoyable. Waiting creates anticipation and uncertainty that can intensify the emotional experience. This is why we look forward to Friday, a work day but one where we're anticipating the weekend more than Sunday, the weekend but where we're anticipating the work day to follow.

5. Invest in Others

This is perhaps one of the most important points in the book. We get more satisfaction spending money on other people or causes than we do when we spend money on ourselves. When we make the choice to donate in a way that helps us connect to others and where we can see that it makes a clear impact, the donation increases our happiness and well-being. The more we feel connected to the subject of the giving and the more we feel our giving has an impact, the greater the happiness we derive.

As an advisor I recognize the fact that sometimes spending decisions that maximize happiness will not look optimal from the perspective of just maximizing wealth. However, given the choice between being happier or richer, I think most of us would choose to be happier.