Can money buy happiness? Maybe! When it comes to money management, there’s typically a lot of focus on asset allocation, proper diversification, and ways to protect and grow money. Ultimately, however, isn't the goal of money to help improve your life?
Let’s ask again: Can money actually buy happiness? Recent behavioral research highlights how smart spending choices may be able to bump up the happiness quotient in your life. The trick, it turns out, is usually about how and what you spend your money on.
Here are four avenues for spending that could lift the happiness needle in your life, inspired from ideas in Elizabeth Dunn and Michael Norton's book Happy Money: The Science of Happier Spending.
1. Buy Experiences. Many people spend on material goods—think a new sweater, golf clubs, or a designer purse. But Dunn and Norton's book highlights research that shows satisfaction with experiential purchases increases over time, while satisfaction with material goods decreases over time. For example, spending money on an exotic vacation creates "an experience that makes a memorable story that you will enjoy retelling for years to come," says Neil Krishnaswamy, certified financial planner at Exencial Wealth Advisors. Choose "experiences that bring you together with other people, fostering a sense of social connection. This can be as simple as planning a group dinner outing," he adds.
2. Buy Time. Time may be the most valuable commodity of all. Research shows that using money to buy yourself more free time helps boost happiness levels. Perhaps you can spend money on a cleaning service to free up time. Or on a larger scale, can you buy a home closer to the office to cut down on your commute?
"Many people get better homes and higher-paying jobs by accepting longer commutes, [but] research shows that these people are less satisfied with their free time. If you can find a way to move closer to work or work more remotely, you could find a happiness boost that may only require a minimal net financial trade-off," says Krishnaswamy.
3. Pay Now, Consume Later. We live in a culture of immediacy—click and buy now, have it delivered to your door tomorrow. Remember the old idea of delayed gratification? It turns out the longer you have to wait for something, the more you might actually appreciate it. Think about a vacation that you book and pay for months in advance, or purchasing tickets for a concert. If you make your purchase well in advance of the actual experience, it’s an easy way to draw out the pleasure.
"The science has shown delaying consumption provides us with time to allow positive expectations to develop. It allows you to build a 'drool factor,' which increases the overall pleasure of the experience. So sometimes it can be better to pay now and consume later," says Krishnaswamy.
4. Invest in Others. Make a choice, make a connection, and make an impact. "When we give money because it’s our own choice, we tend to be happier than when the giving is obligatory," Krishnaswamy says. Also, "the more of a connection you can make with the person or group receiving the money, the more likely you are to feel the positive emotional benefits. Consider giving to family and friends when the gift can strengthen the relationship. Even with complete strangers, try giving through organizations that make it easier for donors to see how their gifts make an impact. A good example is DonorsChoose.org."
Everyone has different hopes, fears, and values that help drive the ways we accumulate, invest, spend, and give our money. "Some view money as a means to gain power. Others see it as freedom. Many see it as a security blanket. Of course, it can also be a combination of the three. But in the end, why we want more money usually stems from the underlying belief that it will make us happier," concludes Krishnaswamy.
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