How to Spend Money
Episode #5 of the course Financial wellbeing: How to worry less about money by Maureen McGuinness
Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants. – Benjamin Franklin
How you spend your money may be at least as important as how much money you earn. Research shows that once our basic needs have been met, any increases in income have little impact on our happiness. If this is true, then how can we use our money to increase happiness and wellbeing?
A wealth of research argues that we get more pleasure from spending our money on experiences rather than material goods. Part of this is down to hedonic adaptation–the observed tendency of humans to return to a relatively stable level of happiness despite major positive or negative events or life changes.
When we purchase a material item, we feel the immediate joy of owning something we wanted, but as we continue to own it, the feeling of joy quickly disappears. With an experience such as a vacation, we can relive the joy through our memories. This is why some of us buy souvenirs, as a way to take us back to our memories of visiting a place. Buying souvenirs isn’t necessary to access our memories. Seeing a souvenir may trigger our memory of a holiday, but we don’t need that trigger because our memories come from within.
Spend on others
A group of researchers asked a sample of 632 Americans (55% female) to rate their general happiness, to report their annual income, and to estimate how much they spent in a typical month on bills and expenses, gifts for themselves, gifts for others, and donations to charity. They found that spending more of your income on others predicted greater happiness both cross-sectionally (in a nationally representative study) and longitudinally (in a field study of windfall spending). They also found that participants who were randomly assigned to spend money on others experienced greater happiness than those assigned to spend money on themselves.
Can you remember the last time you spent money on someone else? How did it make you feel?
Focus on time
Time is not as readily exchangeable as money. When we work for someone else, we are exchanging our time and energy to earn money. People play the lottery to win a big sum of money. What do most lottery winners do first? Quit their job. They no longer need to exchange their time and energy for money, so they’d rather get their time back.
If spending more money won’t increase your wellbeing, then could you consider doing fewer hours at your job and focus on spending that extra time on increasing your wellbeing? Freeing up time gives you flexibility. Flexibility to exercise, cook healthy meals, get enough sleep, and spend more time with friends and family.
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