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How to buy happiness
Legal Disclosure: Tony Robbins is the Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning.
“It’s the hap, happiest season of all,” the crooners sing. But is it? As much as we try to make loved ones our focus as holidays roll in and the year comes to an end, the subject of money always seems to be lingering in the background. Whether you’re keeping a running mental tab on what you’ve spent on the holiday festivities, you’re waiting to hear if you got that raise or bonus, or you’re determining your end of the year giving, chances are you’ve got your mind on your money and your money on your mind (as Snoop Dogg would say).
Is your money really serving you? Does it make you happier? Does money buy happiness? Are you using your finances to lead a more fulfilled life? If you answered no to any of these questions, take heart – there is hope. Because the science says money does bring you happiness – if you use it correctly.
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Hit your target
Money and happiness are related, but the correlation between the two is not as drastic as you may think. You don’t need to be a billionaire to buy happiness; in fact, for most people, a change in happiness is seen only up to $75,000, according to a highly publicized 2010 Princeton study. So what does this mean? According to the research, people reported having a greater “emotional well-being” based upon income up to $75,000, after which the level of happiness evened out.
Essentially, this study quantified what we instinctively had guessed – that money alleviates the stress of providing for our most basic needs. In other words, $75,000 of annual income buys peace of mind. This amount of money gives you a sense of financial freedom, so you’re more able to enjoy your life, instead of worrying about how you’ll provide for yourself. Meanwhile, low income intensifies the emotional strain of the trials of life like medical emergencies and divorce, causing compounded pain from financial insecurity.
In fact, one study concluded that higher income could actually reduce the incidence of serious mental illness. “We know from the results that changes in family income are important drivers of people’s emotional lives,” said David Clingingsmith, author of the paper and associate professor of economics at Case Western University.
What does this mean for you? Well, if you’ve already hit that $75,000 threshold and you’re not happy, it means you just need to learn how to spend effectively, or change your mindset. Keep reading! If you haven’t hit that target yet, first things first: you need to get to know your numbers. Implement a spending plan and take massive action to get your financial security in place. Just having an emergency fund that covers your basic needs for three to six months will alleviate the little voice of panic inside you (or your partner) that constantly questions what will happen if a crisis occurs.
However, the science says that no matter where you are at in your financial journey, spending your money in these ways will bring you a greater sense of fulfillment in life.
3 ways to spend money that will actually make you happier
1. Spend it on others – and witness the impact
As it turns out, science has upheld the maxim, “it’s better to give.” A Harvard study conducted across over 100 countries found that whether rich or poor, people who give to charity are happier. Perceived happiness increases even more when we can see the impact our gift has on someone.
Remember that moment when you gave someone a gift that you just couldn’t wait for them to open? As they opened your present, you searched their face for the delight that you knew you put there by giving them a gift you knew they would love. Giving a gift that changes someone’s life, or even one that just makes them feel known and loved, meets our deep need for love and connection, improving the quality of our own lives while improving another’s.
2. Spend it on experiences
Looking for insight into how to buy happiness? For starters, buying things won’t make you any happier after a certain point. Make memories, not purchases. Spending money on experiences makes us happier than spending money on material things for a few reasons.
For one, spending our money on experiences creates a connection with the people we shared that experience with – and those memories form a bigger part of our sense of identity than the things we buy. In fact, we remember experiences as better than they actually were. Alternatively, we adapt to the material purchases quickly.
Already convinced, but need ideas? Here is a list of 7 “experience gifts” we put together for the holiday season.
A paper from Cornell University psychology professor Thomas Gilovich showed that we also get more pleasure out of anticipating experiences than anticipating the acquisition of material things. There is a reason that those brilliant credit card commercials tell a story of purchases made to create a ‘priceless’ memory. It is the experiences that stir up your emotions; it is the experiences that they are selling.
Consider this: The two days you spend waiting for your Amazon Prime package to arrive doesn’t build the same kind of anticipation as planning and dreaming about a vacation to Belize does. You take the time off work, brush up on your Spanish, read travel blogs and more, all the while thinking about how epic this trip is going to be. And once it’s over, you’ll tell the story of zip-lining through the rainforest to anyone who will listen for the rest of your life. But your new crockpot that was coming in the mail? While it may serve useful, you start to accept it as part of your life and no longer feel any excitement about it once it’s arrived.
Best of all, we don’t compare experiences quite the same way we compare our material possessions to other people’s. Teddy Roosevelt may have said it best when he postulated, “Comparison is the thief of joy.” But thankfully, keeping up with the Jones’ doesn’t translate to experiences the same way it does to things. Sure, the Instagram pics of your college roommate’s family trip to Hawaii may give you travel envy, but it doesn’t diminish the joy you experienced camping in Yosemite with your spouse.
Although it may be easier to prioritize buying material goods, thinking they’ll offer better value for money in the long run, psychologists tell us that the opposite is true.
3. Buy back your time
Studies also show that we are happier if we buy back our time. Wait, isn’t time the one thing money can’t buy us? As it turns out, no. Time is one of the most important things money can buy, precisely because it is such a valuable resource.
As the author of Happy Money: The Science of Happier Spending, Professor Elizabeth Dunn, suggests: “Don’t buy a slightly fancier car so that you have heated seats during your two-hour commute. Buy a place close to work, so that you can use that final hour of daylight to kick a ball around in the park with your kids.” A University of Zurich study agreed, citing that you would need a 40% raise to offset the added misery of a one-hour commute.
But it’s not just time sitting in traffic you can buy back. What would you be willing to give up to gain back the time you spend cleaning your house? Pack your lunch a couple of days a week and you may find that house cleaner is suddenly within budget, freeing up those precious hours. When you have more time available to you, you become able to participate in events and activities that make you feel more fulfilled.
This is especially difficult for those of us from hard-working families who were brought up to do things ourselves. Sure, we can change our own oil, but is it the best use of our time? Will it bring you joy? If so, have at it. If not, reconsider what your time is worth, then outsource these tasks and spend accordingly.
Tell the right story
Finally, your happiness is ultimately determined by the story you tell yourself. What is the story you consistently tell regarding your finances? Is it empowering you or limiting you? Is your story making you happy? As Tony Robbins says, “Change your story, change your life.”
On your journey to financial freedom, be sure to cultivate gratitude. One of the main reasons that collecting more things doesn’t make us happy in the long run is because we adapt quickly to it. Sonja Lyubomirsky, psychology professor at UC Riverside, says,” If you have a rise in income it gives you a boost, but then your aspirations rise too…You’ve stepped on the hedonic treadmill. Trying to prevent that or slow it down is really a challenge.”
Consciously fostering gratitude is key to maintaining joy.
Wherever you are in your financial journey, may you find joy this holiday season.
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