6 Ways Money Can Buy Happiness

by Tammy Strobel on September 22, 2010

Have you ever wondered if money can buy happiness?

Studies show that people with a lot of money are more satisfied. However, when reporting happiness levels they aren’t significantly happier than people with less. So you can buy happiness, but only if you’re spending your money right.

Recently, I’ve been reading a lot of literature on money, happiness, and affective forecasting and it turns out there are a number of ways you can spend money to maximize your happiness.

Let’s review a few of the key principles:

1. Buy experiences rather than things.

Researchers argue that you’re more likely to get the most amount of happiness from every dollar you spend if you buy experiences rather than things. It’s not that material things are inherently bad, but the best thing about experiences is that you can reflect on them and revisit those experiences again and again. Whereas materials things are something we adapt too.

For example, if you spend days or weeks picking out the perfect bamboo flooring you’ll only get a temporary happiness boost. Eventually that boost wears off because as humans we adapt to new things in our lives.

Whereas, experiences give us the opportunity to get into “flow.” And people are happiest when they are in the “flow.” For example, if you’ve ever found yourself doing activity x and it seems like time magically disappears that means you are experiencing “flow.”

2. Help others.

Humans are one of the most social animals on the planet and having strong relationships is the number one predictor of happiness.

For instance, many people can increase their happiness by engaging “pro-social spending;” meaning we get more happiness by giving money to charity. However, many people don’t realize that donating money to a worthy cause will bring them more happiness. They are more apt to think that spending money on themselves will increase their happiness level. In essence people are making an “affective forecasting error;” meaning they wrongly predict what will make their future selves happy.

3. Rather than buying a few big pleasures, purchase many little pleasures.

It turns out that buying small pleasures will make you happier than a larger purchase. For example, going out to coffee with friends or having a beer with co-workers will happen more frequently than buying a two week trip to Hawaii. These are pleasures we can enjoy and savor everyday, rather than only once a year. Researchers also point out we’re less likely to adapt to these small pleasures.

It comes down to a basic economic idea, diminishing marginal utility.  Meaning there are diminishing returns in consumption. So the first unit of consumption of a good or service will result in more utility (or in this case happiness) than the second unit and so on. In If Money Doesn’t Make You Happy Then You Probably Aren’t Spending it Right, the authors refer to this concept as “the hedonic impact of pleasure.” For example, the first bite of a very large cookie will be much more pleasurable than the last bite.

As researchers point out, this is about enjoying the “small mundane joys of life.” And interestingly this capacity is reduced among very wealthy individuals; that constant access to any experience may undermine your happiness level. For example, one study showed that wealthy people are more likely to eat a piece of chocolate quickly and exhibit less pleasure while doing so.

4. Pay now, consume later.

The familiar mantra “consume now, pay later” is a bad idea and will bring you more stress and debt.

Pay for your stuff first. If you can’t afford item X don’t charge the expense on your credit card, wait until you can afford the purchase.

5. Think about what you’re not thinking about.

Chances are you’ve probably thought about purchasing a dream home. But in all the thinking, have you thought about what you’re not thinking about? Chances are your thinking is biased towards a euphemistic idea of your plans.

For example, you may have considered the benefits of home ownership, like the tax breaks a beautiful new porch, big backyard, and more. But most people (including myself) have a tendency to ignore the problems that come along with home ownership, like leaky faucets, cleaning the roof gutter or the expensive mortgage.

And like I’ve said before, happiness is in the small details of life. So if you buy a house that is old and in constant need of repair, it might not bring you a whole lot of happiness unless you enjoy spending most of your free time doing repairs.

6. Listen to the crowd.

We’ve all been told it’s important to think for yourself, but there is something to be said for listening to the crowd and learning vicariously. Friends, family members, and large groups can tell you a lot about their experiences and what brings them joy and happiness.

For example, when you go to iTunes to purchase a movie it’s a good idea to take a look at what the reviewers are saying. If you are considering watching movie x, and movie x got five starts, it’s highly likely you’ll enjoy the movie too.

Researchers point out, “the best way to predict how much we will enjoy an experience is to see how much someone else enjoyed it.”

Micro-action: Over the next month, try to integrate one of these steps into your daily routine. And don’t forget to share your experience in the comment section!

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And don’t forget to share this article with your tribe! Thanks. :)

1 Kimmoy September 22, 2010

This is an interesting list, three things that stood out for me. 1) I agree lots of little pleasure are nice, but a 2-week trip to Hawaii is an experience that I can reflect on time and time again so I think it’s worth it even if it’s just one big pleasure. 2) The last bite of my cookie always leaves me wanting more, for some reason it tastes the best to me lol. 3) I try not to look at movie reviews or even the many trailers/commercials of movies because I want to be surprised and not get into the hype of what others experienced.

Other than that this list is a great resource :)

2 Tami September 22, 2010

I’m with Kimmoy…a trip to Hawaii will bring life long memories; several coffee trips with friends will blend in together and not leave a single impressive memory. Compromise: go to the Bahamas for just ONE week, and then you can still afford coffee with the friends!

3 Rob September 22, 2010

Obviously people are different, but as for Kimmoy’s differences..

1. I’ve done LOTS of big trips, and still do. But on a day-to-day basis having tea (or a beer) with friends is something I get more ongoing joy from. I love travel, but interacting with friends on a regular basis allows for a more constant level of pleasure. Says the person going to NZ for 5 weeks in January :)

2. I find (for example) that the first sip of beer/wine/tea/coffee tastes the best, and everything after that is me trying to recapture that feeling. I wonder if the desire for another cookie after the last bite of the 1st one isn’t just another aspect of trying to find that first, best taste?

3. I agree on movie reviews, especially if I’ll be watching a movie alone. I almost never agree with reviewers, who seem fixated on finding the bad in movies or liking the esoteric aspects that don’t matter to me at all….

4 Joe3 September 22, 2010

1. I like BIG trips….will I remember todays kayak trip, or the one last Saturday as much as the week I spent in Aruba in January……NOPE, but their is a lot of pleasure spending time with friends more often…..better yet I like to go on BIG trips with my friends !
2. Agreed….frequently I just eat half a cookie, or half a cup of iced coffee.
3. If I’m interested in viewing a movie, I don’t read the reviews. I’ve always followed my own path and will continue to do so.
Rob……..enjoy NZ, it’s on my bucket list. … . Says the guy who’s going to Atlantas next week ( It’s NOT on my bucket list and probably never will be, but it’s a free 5 day trip, so I’m going, LOL )

5 Rob September 22, 2010

Joe: Even Atlanta (I assume you mean Georgia, not Atlantis the lost city) can be fun. I have been there and was surprised to enjoy it.

I spent a month backpacking NZ in 1997 and a day layover in Auckland in November 2000, and have been wanting to go back ever since. This trip won’t be backpacking, but will be lots of fun. I’ll be trying for all the things I didn’t do on the other trips. And just for an experiment I’ll be doing the 5 weeks with one carryon-sized daypack worth of stuff. Actually, seeing what people call “carryon” these days I think I’ll just call mine a “small daypack”. I’ll just buy myself a small leatherman or the like when I get there…

6 Emily September 22, 2010

“one study showed that wealthy people are more likely to eat a piece of chocolate quickly and exhibit less pleasure while doing so.”
Reminds me of Charlie Bucket in Roald Dahl’s Charlie and the Chocolate Factory, slowly consuming his annual chocolate bar with such pleasure!
I don’t shop much these days, but when I do I’ve found that delaying planned/desired non-emergency purchases for as long as possible brings me much more pleasure. If I am still thinking about the item after a month or two, I know that it isn’t just a passing fancy, and the delayed gratification makes me savor its eventual acquisition.

7 Mike Tiojanco September 22, 2010

Great points Tammy,

I’ve started to think about these things around giving presents too – instead of giving people “stuff” for birthdays or the holidays – giving tickets to a concert, play, or a restaurant they’ve been wanting to try out.

8 Sherri October 2, 2010

That is a best thing for gifts… I started a few years ago and I always make sure gifts are small and consumable. Might be some fancy chocolate I know a friend loves but won’t buy for herself, or tickets or anything like that, something that will make a wonderful memory, too! Double whammy! Homemade jams and pickles, maybe a warm pair of handknitted socks. Maybe folks are just being nice, but everyone always seems to oooh and ahh over things like that. Even a tin of holiday cookies seems to be savored and a delight with so many people not having the time to make or create on their own. We have several good friends on our gift life and they adore Tim Horton cards so they can sneak away for a good cuppa joe on us! It is the simple pleasures that really are worth it and can brighten the day of a loved one, friend or even yourself!

9 M Ryan Taylor September 22, 2010

Dixie (my wife) and I are trying to clean out right now, declutter our lives and focus more on experience and social spending. Thanks for a great list.

10 E.L. September 22, 2010

Bravo Tammy-

Experiences are what create new memories and great stories. More so than a new flat panel TV will ever do. Our excursion through Ireland is still burned into my memory, but I can’t, for the life of me, remember what I last purchased.

Thanks for sharing!

Eric

11 heather September 22, 2010

I’ve been struggling a lot over the past couple of months with the idea that giving more money to good causes makes you happier.

My experience is that while it makes me feel more invested in the organization and cause, I’m more bitterly disappointed with the direction the organization takes, or how wisely I feel they’re spending donors’ money.

I used to be a member of several non-profits, but right now I’ve put a moratorium on giving money. (Of course right now, I don’t have much myself. :) )

Thoughts?

12 Tami September 22, 2010

That’s why I like to give them the gift of my time. Volunteer…that way you can make a direct impact and see the results. Giving money is great (if you have any–I don’t)…but you never really know whether it’s going to help someone, or line someone’s pocket. I used to work next door to a well known charity and would watch every morning as the directors would pull in to the parking lot in their Mercedes and Audis. I started to lose faith…but that’s just me…I’m suspicious by nature.

13 rob September 22, 2010

non-profits, like religions, are businesses that *may* ultimately do some good but exist in large part to pay the people who work for them.

If you have $1000 to give, you’re far better off using it for micro-loans in the developing world than throwing it into the endlessly deep “cure cancer” or “cure AIDS” pits. You make a direct difference in someone’s life with a micro-loan, and indirectly help a lot of others. And if you micro-loan you’ll ultimately get the money back and be able to loan it to someone else.

14 Kellene September 24, 2010

I fully agree with the micro loans. Via Kiva.org, I “loaned” $25 to a woman in Bolivia who needed the money to feed her dairy cows. She’s already paid back almost three dollars of that loan. The money that’s paid back can then be loaned to another “very small business” in a developing country that really needs the help. (I get to pick who I want to loan the money to.) It’s a wonderful organization.

15 Tammy September 23, 2010

@Heather: I agree with Tami’s point. If you don’t want to give money, give your time. Right now I’m not donating to a specific charity. However, I am donating to my nieces and nephews college fund. Maybe you could do something like that?

Also, Rob makes a really good point about giving micro-loans. :)

16 rob September 22, 2010

Good points….

I love the space of a house, but I’m pretty much over the ongoing maintenance issues. As a result of reading an assortment of minimalist blogs and books I’m rapidly divesting myself of a lot of my possessions and creating a lot of space in the house. I’m sure eventually I will sell it and buy/build something a lot smaller if the housing market re-explodes.

I love the periodic “big thing” – in my case travel – but the small joys are what make day-today life worthwhile. Coffee and conversation. Yesterday’s morning off and breakfast up in the mountains with a beautiful view, and a drive to see the aspens. An hour spent watching a movie. And, of course, the ongoing pleasure of planning for big things.

Debt sucks – ’nuff said. Don’t get in debt. Life is too short to pay other people for something you enjoyed a year ago. Plus, I’ve observed, there is immediate pleasure in buying something you want and knowing that there is no “can I afford this” question. There’s also pleasure in having saved your money so when that day comes when you have a chance opportunity (“my friend bailed on me … want to join me for a week of wine tasting”) you can afford it without thought.

Money is a tool, not a goal.

17 Rebecca September 22, 2010

I’ve found that donating to places like Kiva.org, where you are limited on the money you can donate, and you see where exactly it is going, helps a lot. Also, it is considered a “loan” (which helps, not enables people), even though you should just look at it as a donation, just in case the person doesn’t pay you back. Volunteering your time also gives you a sense of where money goes in an organization, where that money is being used, and how much it is appreciated, too. A good organization will always value your time volunteering, just as much as any money that is donated. Finding ways, where if you give a small amount of money it makes a large difference, seems to help me too.

18 Misty September 22, 2010

You know, when I was reading this (along with Kimmoy’s comment about the cookie), I was reminded of a study tip that helped me tremendously in college. That is, that you shouldn’t study the same thing for more than 20 minute at a time, because your brain tends to remember the first and the last 10 minutes and delete the rest. (I’m oversimplifying the theory, but that’s the gist.) When I went on to take a few psychology classes, what I learned seemed to support the theory. Apparently, they’ve done a lot of studies that show memory is largely reconstructive (that is, you don’t actually remember everything that you think you remember. You really only remember the key details that are different, and you fill in the blanks with information that makes sense based on your experiences so far). So basically, you can argue that the longer an experience lasts, the less of that experience you actually retain.

This is why I always buy Hershey’s kisses instead of chocolate bars, if I’m going to get candy (which isn’t often). I figure if I sit down and eat a chocolate bar, I probably forget 80% of that experience, whereas if I nibble on a Hershey’s kiss now and then, I get the same experience without the extra baggage (calories, money spent, etc.) :)

19 rob September 22, 2010

Misty:

Good points. I too recall reading that. That’s one reason I limit my vacations to a few weeks – otherwise I remember arriving at the airport and the rush to return, plus the fantastic dinner at XYZ restaurant.

One thing I’ve learned over the years of travel is to plan the trip and break it up. I was three weeks in Scandinavia last year and broke it up into 4 distinct phases, visiting one set of friends, doing something new, visiting another set of friends, and then traveling to visit yet another friend. I recall details from all 4 phases, although I’ll admit it takes effort to recall more than the high points.

20 Tammy September 23, 2010

@Misty – Loved your comment! Especially the part about Hershey kisses. :) Also, do you have any book / article recommendations relating to psychology and memory? Very interesting stuff. :)

21 Misty September 23, 2010

I can’t seem to find my references that deal specifically with this issue, but I have a ton of books on the brain and memory that I could recommend.

To start with, anything by Oliver Sacks is a good choice. He wrote “The Man Who Mistook His Wife for a Hat” and “Musicophilia” that I can think of off the top of my head. There was a movie made based on a portion of his work, called “Awakenings” (also a book he wrote), which I also highly recommend, though be ready to have a good cry! He has such a unique presentation that it’s always interesting to read. It feels a little like hanging out with your favorite college professor, if that makes any sense at all. :) There are reading lists at the end of each book that could probably keep you busy for a while, too.

This is even further unrelated to the topic at hand, but I found it very interesting. It’s a scientific study that was published by the APA in 1999, about the relationship between being skilled at a task and the ability to evaluate how skilled you are in comparison to your peers.
http://gagne.homedns.org/~tgagne/contrib/unskilled.html

22 Mark Powers September 22, 2010

Way to go, Tammy . . . the post I wish I had written

There is so much more value in buying “experiences rather than things.” And I just recently listened to a SUCCESS Magazine CD focused on and helping others. Each of the interviews touched on, as you mentioned, how that can bring happiness and other benefits into the life of the giver (whether they are offering their money, their time, etc.).

Giving = Receiving

Thanks for the killer post!

23 Tammy September 23, 2010

Thanks Mark! I was great having coffee with you yesterday! Keep up the rockin’ work. :)

24 Trey Hall September 22, 2010

What a great and catchy title! This inspires most of us to rethink our values in a big way. In my view, how one spends money is a window into their priorities, dreams, and goals….that which defines who we are. I would caution using money to help others be done using great wisdom but also great sacrifice. As I seek to adopt a lifestyle of minimalism with a family, I cannot help but notice how many minimalists differ little philosophically from those they disavow. Great post Tammy….

25 Tammy September 23, 2010

Thanks Trey. Have you checked out Joshua’s blog yet? http://www.becomingminimalist.com/

26 Lena Wetherbee September 22, 2010

Amen to #5 (the home-ownership bit)! I was positively obsessed with owning a home my whole life…until I actually bought one (of the fixer-upper variety). Six years later my love affair with home-ownership is officially over. When I think of all the time, money, and arguments with my husband that I have wasted on this place, not to mention all the crap you start buying as soon as you own a house – it really makes me think we all need to wake up from the American Dream! I’ve been developing Lena’s Laws of Modern Home Economics, and #2 is: Do Not Buy a Fixer-Upper House if You Can Possibly Avoid It (you can read my full home-ownership rant here: http://www.garbaj.com/?p=231)

27 Kristen Sloan September 22, 2010

I love the first on your list : Buying experiences rather than things. This is a great reminder for me as I continue to save for future experiences. In the long run, we won’t remember the new LCD tv we saved to buy. We will remember the trip to Europe or a weekend getaway with some friends. Thanks for the post!

28 Mollie September 22, 2010

I have to say that all these tips are great but I don’t agree with the one about home ownership. We own our home and it is one of the things I really enjoy and it brings me great pleasure. Also, I worked as a large property management company that managed 300 plus properties. Renting is awful for a lot of people. It’s like throwing your money away. I would never do it here. Even crummy houses & small apartments are $1000 monthly rent. It just seems like a waste to me.

29 Tammy September 23, 2010

@Mollie – I don’t think traditional home ownership is inherently bad; I know a lot of folks really enjoy their homes and I think that’s great. But they are insanely expensive and take up a lot of time. Personally, I would rather put my time and money toward other endeavors.

You might enjoy this article: A Renter’s Manifesto – http://www.mint.com/blog/goals/rent-vs-buy/ – The author makes a lot of really good points.

Regardless of your purchase, I think it’s extremely important to consider factors you’re not thinking about. One way to do that is to make a pro/con list.

Thanks for reading!

30 rob September 23, 2010

Home ownership is a mixed blessing. It is expensive – In addition to the maintenance and ongoing heating/cooling/etc. costs, there is the monthly $200 in “rent” I pay to the county, euphemistically called “property taxes”. I do love the ability to do what I want to my home (I installed a roof-full of PV three years ago and no longer pay electric bills) it’s also something to worry about when I travel. When I was an apartment dweller trip preparation consisted of emptying all the garbage cans, turning off the water to the washer and locking the door behind me. I could be gone for a week or 3 months and it didn’t matter. With a house you need to do all of that, plus (for longer trips) have somebody check in to make sure things are still OK. I’ll be gone for a month in winter this year and will have somebody stop by daily to makes sure the furnace hasn’t failed.

I noticed this cartoon the other day that expressed in three panes something I frequently ponder: http://comics.com/pearls_before_swine/2010-09-18/

31 Lena Wetherbee September 23, 2010

There are some real benefits to home ownership (building equity, community of place, and absolute control over your surroundings being among them). I just think we need to add up the true costs of owning a home when we are making the rent v. buy decision – and I’m talking about actual costs like home repairs & maintenance (which are nearly always underestimated) AND the costs in terms of TIME. Houses also tend to be bigger than apartments, which means more cleaning, and more spending $$ filling them up with stuff. So when you add in the costs of your time, the cost of repairs and maintenance, AND the incremental costs of buying way more stuff – I bet the rent v. buy calculation would come out a whole lot more even in many cases.

32 rob September 23, 2010

I think that the “building equity” and “community of place” aspects depend a huge amount on how thoughtful you were before you bought/built your home and where you did so.

Signing on for a huge mortgage is a recipe for disaster (as anyone who’s read the news has seen), which flows back into point #4. One advantage to renting a tiny apartment and living a minimalist life for a decade or so is that one can accumulate cash while looking for an affordable and “perfect” home. At the end of $300K or $400K (not unreasonable for a decade of saving) you can buy your home. Or decide to buy a small lot and build a small home without having to deal with a builder that only builds McMansions.

33 craig September 23, 2010

I do love the idea of buying experiences rather than things. I realized I was a minimalist in the mid-80’s when I was in my 30’s. Yes, I’m that old. People thought I was crazy, but, I traveled and experienced while they went to work and made payments. Believe me, when you get in your 50’s, you will appreciate all you have experienced as compared to friends who are worried about retiring and being able to do what they want so late in life. As for the home issue, I own a small (500 ft.2) studio in a very large high-rise that is downtown in a major city. The beauty of it is that it is still “mine” but it is small so I don’t feel like a “material hog”. Plus, it has great amenities. The other great thing is when I’m gone, I have a company that rents it out as an executive rental and I make money. The best of all worlds. Happy traveling.

34 David Cain September 23, 2010

Great post Tammy. I just discovered your blog and I’m a fan.

A few years ago, at a family get together as Christmas season was gearing up, my mother told us, “I don’t want any more things, only experiences.” I loved the idea right away and it’s stuck with me since. Now whenever I am buying anything, I consider what experiences it’s actually going to create in my life… and the best purchases are ones where there’s no junk left over after the experience :)

One other new purchasing habit that is working for me is to buy half as many things, and pay more for them. High quality everything, nothing cheap-o. For just about everything, a better make lasts far longer, and is a joy to use. I am continuing to whittle down my possessions toward having nothing I don’t use and nothing that is poorly made.

35 Heidi Ahrens September 24, 2010

We owed a home and paid for our car. Now we live on a campus that offers housing and we have no car payments, no rent, no mortgage, nothing to fix, no lawn or toilet to take care of and I have time to inspire others through my website http://outdoorbaby.net and take care of my two daughters. We have very little money but we buy lattes and go camping on long weekends. We go on week long trips where we only spend about 500 dollars. The experiences are all worth it but i have to say sometimes we would like a car that does not worry us, or a patio set so that we can eat outdoors.

36 Karyn Ellwood September 26, 2010

Great post and great comments! Just wanted to add that we decided when our son was four, that we were not going to buy things for birthday presents for our kids anymore but that we were going to buy experiences. That was almost 12 years ago and looking back on that decision, I think it was one of the best we ever made. Both our kids love to try to remember all the ‘gifts’ they received and which birthday went with which experience. And my husband and I have so much fun trying to come up with a new idea for each of them every year so that they will be truly surprised once again.

37 Connie September 26, 2010

Hi Tammy,
Your downsizing story was posted on one of the Hong Kong newspapers two weeks ago. I was really impressed and started reading your blog almost everyday (except weekend)…Unplug over the weekend.
I really love the idea of buying experiences rather than things; as I have loads of stuff that need to get rid of……my downsizing story will be a long way to go!

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