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Can Money Buy Happiness?
Many of us ask and wonder about this question. In a new book, Happy Money: The Science of Smarter Spending, authors Elizabeth Dunn and Michael Norton argue that money can buy happiness, but one needs to understand which spending decisions will deliver more happiness. While book stores are filled with books helping us with strategies about how to earn more, accumulate more, or invest for more money, there are very few strategies on how to spend our money for greater happiness. The authors detail five principles for smarter spending that I will summarize in this post.
First, the authors suggest that buying experiences deliver more happiness than buying material things. At a certain level we all probably understand this yet most of us focus on buying a nicer house and autos for our family. In fact, these are the two biggest expenditures for the average American household and account for 50% of the average families expenses. The research shows that trips, concerts, and special meals provide a lot more happiness than an upgrade to one's auto.
Second principle: make it a treat. Engaging in a bit of self-denial can actually be a good thing. In one example, the authors suggest that instead that favorite latte every day, that you consider a regular cup of coffee, but then treat yourself to the latte on Fridays. That way you will have all week to look forward to that special cup. And maybe save a few dollars and calories.
Third principle is to buy time. Is there a chore that you just dread? When growing up I remember pushing the lawn mower in 90 degree heat and promising myself as an adult that this was one chore I would not continue doing. Shoveling snow on the other hand is something that I never minded. Hence, we have a lawn maintenance company that cuts the grass and a couple of snow shovels that I am happy to use in the winter. The authors suggest that when we focus more on our time than our money we become scientists of happiness and make better spending decisions.
Fourth principle is to pay now and consume later. With instant downloads of music and software, overnight delivery of just about anything we might want, and delayed payment of purchases with credit cards, we routinely do the opposite of this principle. The authors argue that the greatest joy of most of our vacations is in the anticipation stage of our vacations. By prepaying for purchases we allow ourselves more time to enjoy the anticipation. We also do not have the worry of how to pay for the purchase afterwards!
Fifth principle is to invest in others. The authors use Bill Gates and Warren Buffett as examples. Both men have publicly announced that they plan to give most of their wealth away. The authors also go into detail about buying someone a cup of coffee (and then sharing the coffee together) and how to wisely give money to charity so you feel a real connection with the good you are doing. One of my favorite examples is DonorsChoose.org which allows teachers to post classroom project requests and donors to choose which projects to fund. We have done this twice over the past few years and must say that of all the charitable donations we have made, the two projects we funded were by far the most satisfying charitable donations we have made.
As a financial planner, one of the most important parts of the financial planning process is helping our clients achieve their goals. I hope through this post you are inspired to think about the goals that will bring you greater happiness. This book certainly has helped me to clarify a few things in my life- especially related to the fifth principle, Invest in Others.