If money isn’t making you happy, you may not be spending it right. That was the conclusion of research published by the Society for Consumer Psychology, which found that money, when spent effectively, can make you happier.
One of the most important conclusions in their research is that money offers an opportunity for happiness. If you spend it the right way, you can end up happier. But if you don’t, you may not end up truly happy no matter how much you’ve got in the bank.
Science has proven that the relationship between money and happiness is clear: there’s a modestly positive correlation between happiness levels and income.
With a stable income, you can:
- Do what you want, when you want
- Pay bills on time
- Care for yourself and your loved ones
- Have enough left over to occasionally (or frequently) treat yourself to something nice
Wealthier individuals can stay healthier because they can afford reliable access to adequate medical care and invest in their health and nutrition. Money tends to ease many of the stressors brought on by financial instability, and having more of it frees us up to find more enjoyment in life.
How to Spend Your Way to Satisfaction
But it’s not just about how much money you’ve got. How you spend it can significantly impact your level of happiness. Research published by the Society for Consumer Psychology introduced eight fundamental principles to explain how money can buy happiness. These eight principles offer practical guidelines for spending your hard-earned dollars in a way that provides more satisfaction. I covered the first four principles in my last blog here, but to refresh:
- Buy experiences, not things
- Use your money to help others
- Buy more small things instead of a few big ones
- Say no to extended warranties
Now let’s cover the remaining four principles.
Pay now, consume later
The credit card industry is worth billions of dollars. New companies designed to help you pay off purchases in easy installments are popping up everywhere — Afterpay, Klarna, Affirm, to name a few. They exist to help you consume now and pay later. But this approach is the opposite of what the experts say to do. Consuming immediately without paying for it increases impulse spending and makes it easier to rack up debt with shortsighted purchases. But research shows another reason this approach makes people unhappy: it doesn’t involve the excitement of anticipation. Delayed gratification can make you happier with your purchase in the long run because you have more time to build up the excitement while you wait for it.
(Aside: Remember the famous Stanford Marshmallow Experiment from the 1970s where they tested kids’ patience in not eating marshmallows right away? Oh, the agony! Watch this video to make you smile. That study was the first of many to show a correlation between delayed gratitude and overall life satisfaction.)
In addition to the benefits of anticipation, delaying consumption of purchases can help make you happier in two other ways.
First, it may affect what you end up buying — and thus, you may spend more money than you otherwise would. If you buy something you know will be immediately available to you, you may indulge in a purchase that you wouldn’t otherwise buy if you knew you wouldn’t get it for two weeks.
Secondly, it may encourage you to think harder about your purchase before swiping your card. If you were standing in a store comparing two items and told yourself you’d come back in two days to buy one of them, you’d probably spend more time than usual comparing them to see which you really wanted. This process of reflection and anticipation makes us happier with our final purchase.
Those of you who are parents may be familiar with this. Have you ever been in a toy store with your child and they find a toy they ‘have to have’ but you don’t buy it. Instead, you tell them to wait a week, and if they still want it, we can come back. How often do they still really want that toy? If they do, they may enjoy it even more for having waited…but often, they may forget all about it. When my kids were teenagers, I would ask them what they ‘really wanted’ a month before their birthdays. Then I’d wait until a couple of days before their actual birthday and ask again what they wanted. I felt better knowing it was a genuine desire if they had the same answer. Course, I didn’t know the science behind it then, but voila!
Think about what you’re not thinking about
Say what? Ok, so maybe you’ve always wanted a vacation home in the mountains. You dream of winter ski trips with your family, summer hikes, and weekend getaways to relax and unwind in a home you can call your own. Those are the positive thoughts that will come to the front of your mind when weighing the decision about investing in a second home.
Now think about the cost of maintaining a second home — the unexpected repairs, the long-distance troubleshooting, the time and energy spent trying to fix issues from afar. Once you consider that, the idea of owning and maintaining a second home may not seem quite so appealing.
It’s a common phenomenon: when imagining something we think will make us happy, we tend to gloss over the unpleasant details. That can potentially bias our predictions about how much happiness we think a purchase will provide.
So, when thinking about how to spend your money, it’s important to consider how that purchase could affect how you spend your time. If you buy a fixer-upper, will you actually enjoy the time you spend fixing it? Even seemingly irrelevant details could end up overshadowing the enjoyment you thought you’d get from your purchase. If you expect a purchase to have a lasting positive impact on your happiness, try thinking about how it’ll affect a typical day in your life first.
Beware of comparison shopping
How do you choose between two similar items when you’re trying to decide between them? You likely focus on the attributes that set them apart, but that isn’t always the best method. To use an easy example, we’ll revisit the housing metaphor. Let’s say you’re in the market for a new home. When you visit new listings, you’re probably focusing on the physical aspects of the homes that distinguish them from each other: the number of bathrooms, the size of the backyard, whether or not it has a den you can convert into a home office.
But recent research suggests that comparison shopping like this may sometimes come at a cost — by focusing on characteristics that distinguish the available options, you may end up distracting yourself from the attributes of the home that will actually be important to your overall happiness. For instance, you may predict that you’ll be happier in the beautiful home that’s farther away from your job, but end up more content in the modest home with a five-minute commute.
Research shows that you should try to purchase things by measuring them against your standards for happiness, not by focusing only on apples-to-apples comparisons and trying to make the best choice.
Follow the herd instead of your head
Yelp. Google. Amazon. Practically every e-commerce site offers a review feature for customers to write and share their experiences with a good or service. Most consumers read reviews when making a purchase decision, even if a total stranger wrote the review. How many times have you read reviews before trying a new restaurant? Have you ever turned away from a store or restaurant because you read a bad review about it? Or chose not to see a movie you were looking forward to seeing because it had a terrible Rotten Tomatoes score?
One of the best ways to predict whether or not something will make us happy is to see what other people thought of their experience with it. Movies, restaurants, hotels, consumer goods — you name it, and someone’s reviewed it. Other people’s opinions are incredibly valuable pieces of data, and you should use them to inform your own opinions! If you’re trying to decide whether or not to spend your money on something, see what other people have to say about it first. It can help make you more confident in your own decision!
As always, though, take what you read on the internet with a grain of salt — and don’t let a stray bad review turn you away from something you think you’d enjoy.
Spend Your Way to Happiness
So there you have it. Yep, money can buy (many, if not most) of the things that can make us happy. But we don’t always buy the right things. If you’re more intentional with your purchases, you can stretch your dollar a lot further and end up happier at the same time. Because remember, no matter how much money you have, if you’re squandering it on things that don’t bring you joy, you really won’t make much of a positive impact in your own life.