Tag Archives: Money and happiness

Buying Happiness With Discretionary Spending

Giving away money makes people happy. Spending money on others makes people happier than spending money on themselves. Spending money on experiences makes people happier than spending money on things.

Does that mean it’s okay to max out your credit card to take all 37 members of your extended family on a cruise for Christmas?

Not exactly.

Yes, research shows that some kinds of spending are linked to happiness. Andrew Blackman cites some of that research in an excellent article, “Can Money Buy Happiness?“, published online November 10 in The Wall Street Journal.

Before you pull out the plastic and start shopping, though, there’s one important point to keep in mind: Any spending to create happiness must come from your discretionary money. This is money we have available to spend for our lifestyle, after we’ve paid all our fixed expenses like rent, loan payments, utilities, retirement contributions, building emergency reserves, insurance premiums, etc.

Discretionary spending can include luxuries or extras like eating out, vacations, gifts, entertainment, and gadgets of all types. But it also can include items that may be necessities or fixed expenses like housing, vehicles, clothing, and food. For example, owning a car is a necessity for most South Dakotans. However, a 10-year-old Toyota Avalon with 90,000 miles on the odometer, well maintained, can transport you just as effectively as a new model. The older model costs around $10,000; the new one costs around $35,000. The $25,000 difference is discretionary spending.

If you want more discretionary money for happiness spending, like giving or experiences, you might choose to spend more frugally on necessities. The other option, borrowing for happiness spending, generally doesn’t work. Research finds that borrowing and debt creates unhappiness that pretty much cancels out the happiness created by the spending.

Elizabeth Dunn, associate professor of psychology at the University of British Columbia and co-author of the book Happy Money, puts it this way in The Wall Street Journal article: “Savings are good for happiness; debt is bad for happiness. But debt is more potently bad than savings are good.”

In a series of studies, Prof. Dunn found that the spending producing the highest amount of happiness was spending on others. She found it wasn’t the dollar amount given but the perceived impact of the gift that mattered. Seeing your money make an impact in someone’s life will produce happiness, even though the gift is very small.

The impact experiences have on our lives may be the reason we gain more happiness from experiences than from material things. Even though we tend to see tangible things as offering more value, the memories and learning we gain from experiences actually provide more happiness.

Creating experiences can involve the purchase of some stuff. Buying baseball equipment with the intention of playing with your children is one example. Buying a camper or a boat for shared family experiences is another. Of course, buying stuff to be used in creating experiences only creates happiness if you use it. We don’t gain much happiness from sports equipment gathering dust in the basement or a camper abandoned in the back yard.

After reading this research on the value of spending on giving and experiences, I came up with what might be the ultimate happiness spending scenario: Giving the gift of an experience that includes both the recipient and the giver. While I haven’t found any research validating that hypothesis, I am guessing this may be the perfect happiness two-for-one.

Maybe, if you can afford it out of discretionary money, taking the family on that cruise isn’t such a bad idea after all.

Investing Money In Happiness

It turns out money can buy happiness, after all—sometimes.

Having a good income and the security of money invested for the future don’t insure happiness, of course. They do, however, give us a foundation that can make it easier to find happiness. Part of the secret to using money to foster happiness is knowing what to spend it on.

First, spending money to lift your mood—the whole “retail therapy” idea—does not lead to happiness. It provides only a momentary sense of pleasure, which often in the long run fosters unhappiness.

There are ways to spend money that do create happiness. Here, based in part on several posts about money and happiness by Dr. Jeremy Dean on his site Psyblog, are a few of them:

1. Experiences. Research says you will find greater happiness spending your money on experiences rather than on stuff. Experiences live in our memories much longer and give us more emotional enjoyment than things, which can quickly lose their importance. In fact, just the anticipation of planning an experience often creates happiness. And if you want to take the happiness level up a notch, take a friend along with you.

2. Exercise. The number-one strategy people can use to feel better, increase energy levels, and reduce tension is exercise. Exercising can mean spending money on a gym membership, a personal trainer, and equipment. However, exercising can also be inexpensive. Walking, for example, requires little more than a pair of good walking shoes and—at least here in South Dakota—a warm winter coat.

3. Stuff that will provide you experiences. Buying things that create or are necessary for experiences count as happiness spending. Music is an experience that research says is a mood enhancer; even sad music can bring pleasure. Spending money on music might mean buying concert tickets, but it could also mean buying recordings, an iPod, smartphone, speakers, and similar equipment.

4. Stuff that supports doing what you’re good at. What are you good at and really enjoy? PsyBlog says spending money for things you excel at typically creates happiness. A set of golf clubs and a budget for green fees could be a great purchase if you’re good at golf—or even if you aren’t so good at the game but you enjoy it for the exercise and time with friends. The same goes for buying things to support hobbies, such as art supplies, garden plants, or quilting fabrics. Maybe you enjoy helping others, so charitable giving or spending money on volunteer opportunities would increase your happiness. I love researching almost anything, so spending money on research data can be a mood lifter for me.

5. Coaching/Therapy. Few things are more valuable for long-term happiness than hiring a good coach or therapist. Research shows talk therapy to be as effective as or better than antidepressants. In my co-authored book, Conscious Finance, I describe how spending $80,000 on therapy was the best investment I ever made in my own happiness and well-being.

6. Meditation. The biggest happiness bang for your buck might come from meditation. It isn’t free, but it’s very inexpensive. You will need to attend a class or buy an instructional video or book. I recommend Open Heart, Open Mind by Thomas Keating, but there are many others.

While we know that money by itself isn’t a source of happiness, we also know that having enough money to comfortably meet our basic needs does make us happier. In addition, we can consciously choose to spend in ways that buy happiness. Such investments may not provide financial returns, but they can provide significant happiness returns.