We’re rapidly approaching that time of year when we’re encouraged to eat, drink and be merry, spend money on things without thinking about it, and then roll into January with a debt hangover because ’tis the season!’ Right?
There’s a better way.
Dr. Elisabeth Dunn, a professor of psychology at the University of British Columbia, presented findings from research she conducted and documented in her book, Happy Money: The Science of Smarter Spending , at a conference for fee-only financial planning firms I attended last week. Her research challenged us to think differently about how we approach spending. Rather than focus only on cutting back (which is the typical advice you’d expect, and about as much fun as dieting during the holidays) we should focus on spending in ways that actually make us happier, and reduce our spending on areas that don’t .
Her research led her to five principals that allowed people to maximize their happiness:
Spend money on memorable experiences instead of material things. When we buy an expensive car, piece of jewelry, or other big ticket item, the novelty of the item eventually wears off, we take it for granted, and the happiness it brought us fades away. We’re also less likely to discuss it with others because it feels like bragging. In contrast, experiences connect us with other people because they provide us with stories that can be shared, they’re unique to us, memorable, and we can relive them over and over in our mind.
- Why not plan an experience to share with a friend or family member vs. buying a gift this year?
- Consider a visit to the Cincinnati Children’s’ Museum or Cincinnati Zoo with your kids or grandchildren instead of another toy.
- My husband and I recently had a wonderful dinner at Orchids to celebrate our 35th wedding anniversary, and he didn’t have to buy jewelry!
Make it a treat.
If you buy something every day, over time it no longer feels special, and it doesn’t provide you with the same enjoyment. People who have overabundance of anything start to take those things for granted, and it no longer taps into the pleasure receptors of our brain.
- Is there something you started to buy for pleasure, like a daily Starbuck’s latte, that you no longer really appreciate? Consider giving it up for a few weeks and then splurge. You may be surprised at how much more you enjoy it.
Instead of buying things that have been shown to provide diminishing returns, we should use our money to buy time. Using our money to delegate tasks that consume our time allows us to focus more on things we enjoy, and the happiness lasts longer.
- When our kids were very young, they complained we spent our weekends together cleaning and doing laundry instead of playing together. We worked out a plan to have cleaning help every 2 weeks, and work as a team to do other cleaning, so we could all have free time together. Priceless!
- The research showed buying a bigger house doesn’t provide happiness, but buying a shorter commute absolutely does. In fact, having a commute of an hour or more was found to have the same negative effect of not having a job at all!
Pay now, consume later.
This area of research illustrated what an impact paying with credit has on our concept of cost. In tests, subjects were willing to pay nearly 3 times as much for a product or service when they were paying by credit versus paying by cash. Cash forces us to acknowledge what we’re actually spending, and it feels more painful. Credit cards have also trained us to consume now, pay later. But research shows that paying for a trip or other experience up-front, and then doing it later, actually improves the experience. Planning and committing to a future activity now allows you time to anticipate it. It also feels ‘free’ when the time comes to enjoy it. Paying now also restrains our spending, and leaves us with less of a debt hangover when the holidays are over.
- The financial management software, YNAB, helps people get ahead of their bills by one month, so they never have to go into debt to cover their day-to-day living expenses. It creates a financial buffer and taps into this happiness factor.
Invest in others. – For most people, giving to others makes us feel better than buying things for ourselves. The impact is greater when the person or cause is important to you, and you can see its impact. Giving to a local food pantry, where you can see your gift in action, provides greater happiness than a contribution to a national organization where your donation is merged with others. It also explains why fundraising for a specific cause, like hurricane relief vs. a general giving campaign, is more successful for non-profits.
- Impact 100 is a women’s charitable organization that allows you to get to know charities, vote on where you want your funds to go, and make a significant impact on those non-profits by pooling your contributions with others. I’ve been a member of the Cincinnati chapter for years and would highly recommend it to other women who want this type of happiness boost.
Keep these principals in mind as you approach the holiday season. Try to be more conscious of your spending choices, and see for yourself how it improves your happiness.