As you probably know, we love behavior finance around here. So when Robyn Post from Women, Money & Success emailed us about contributing a guest post on the subject of money and happiness, we were all ears. Today, she’s bringing you five spending rules that can boost your happiness level — and your bank account. Read on.
Think about how much cash you throw away each year on items you rarely—if ever—use. And how many things you buy that actually make you happier. The answers are probably “a lot” and “not many.” That’s because most of us are terrible at spending money, says Sonja Lyubomirsky, professor of psychology at the University of California, Riverside and author of The Myths of Happiness: What Should Make You Happy, but Doesn’t, What Shouldn’t Make You Happy, but Does. We overspend, we choose poorly, and we adapt quickly. Which leads to a lighter wallet, a lot of unnecessary junk, and a decreased sense of well-being.
According to Lyubomirsky, money can buy happiness. But it’s not the money itself; it’s how you spend it. At the same time, spending strategically can boost your bottom line.
Here’s how to make every dollar count:
Spend on personal growth. Expanding your knowledge base and mastering skills not only boosts your confidence and overall sense of well-being, but can raise your human capital (your economic value in the workforce). Human capital is one of the most important elements of your investment portfolio since it has the greatest impact on lifetime income. As billionaire Warren Buffet put it: “The best investment you can make is an investment in yourself.”
Spend on doing, not having. “We’re the sum of our experiences, not our possessions,” says Lyubomirsky. The problem is, we get a brain-high when we buy “things,” leading us to believe they’ll make us happy. But the feeling is short-lived. Soon we seek another fix, which can lead to overspending and a lot of waste (we only use about 20 to 30% of what we own). Instead, spend on experiences and connecting with others, say researchers Elizabeth Dunn and Michael Norton, authors of Happy Money: The Science of Smarter Spending. This creates bonds and memories that make us happier (and healthier) over the long-term. Bottom line: Opt for time well-spent.
Spend on what you value, not on what everyone else values. That can be difficult to do in our keep-up-with-the-Joneses culture, but chasing material things has consequences: It can lead to debt and depression, according to research. Stay focused on the things that get you closer to your heart-and-soul goals, and scrimp on everything else. This way, you get more of what you do want in your life, instead of a lot of what you don’t want.
Spend on financial freedom. It may be a matter of semantics, but calling it financial freedom instead of retirement shifts it to something you want now rather than something that feels far off in the future. (Granted, it can be harder to put money away for something that doesn’t feel as urgent). So think about how great financial freedom and security would feel sooner rather than later, and throw those Benjamins your way.
Spend on philanthropy. Contributing to the world in some way makes us happier than spending on ourselves. That’s because giving activates centers in the brain associated with receiving rewards. Even kids feel happier giving than receiving. To increase the feel-good factor, donate more frequently, giving smaller amounts monthly or weekly instead of lump sums.
Strategic spending takes a little extra forethought. But it will no doubt bring you more joy and fulfillment, and a healthier financial statement.
About Robyn: Robyn Post is a journalist, author, and founder of the online magazine Women, Money & Success. Her focus is on leveraging research and tools from psychology and neuroscience to help people live richer lives. Robyn has written for Parade, Philadelphia, Men’s Health, Details, Cosmopolitan and other regional and national magazines. She’s co-author of the New York Times bestseller Brothers in Battle, Best of Friends: Two WWII Paratroopers From the Original Band of Brothers Tell Their Story.