27 September 2023

A new look at how you spend money

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Jessica Stillman says it has often been held that buying experiences over material goods provides greater long-term wellbeing — but new research suggests it might not be that simple.

Can money buy happiness? Science has been puzzling over this question for decades and is still far from a complete, uncontroversial answer.

What is clear from a huge number of studies is that the relationship between income and happiness is complicated.

Both common sense and research tell us that when you’re struggling financially, making more money leads to big boosts in happiness.

The endless stress of poverty is, by all accounts, misery-inducing (and it messes with your functional intelligence).

However, if you’re comfortable — previous research suggested above a threshold of $75,000 a year in income — more money seems to help only some people with some measures of happiness.

All of which makes for fascinating science, but practically, where does that leave the average employee who wants to wring as much joy as possible out of every hard-earned dollar?

While the science of whether earning more will make you happier may be in flux, recent research does offer simple guidance on how best to spend the money you do have to maximise your wellbeing.

The most common answer to the question of how to spend your money for the most happiness is to focus on experiences rather than stuff.

The thinking goes that we tend to get used to upgrades to our possessions — a bigger TV, a fancier car — fairly quickly, which means the thrill wears off quickly, too.

Experiences like trips, classes, and activities with loved ones, however, leave us with memories that we can savour for the rest of our years.

Not only that, but planning experiences brings us joy even before they happen.

Researcher, Amit Kumar said the anticipatory period for experiential purchases tends to be more pleasant, less tinged with impatience, relative to future material purchases we’re planning on making.

“Those waiting for an experience tend to be in a better mood and better behaved than those waiting for a material good,” Dr Kumar said.

There’s nothing wrong with this line of thinking. Tons of evidence confirms that focusing on material wealth and possessions tends to leave people feeling empty and unsatisfied.

Experiences are the better bet compared with more stuff, but a new study adds an additional wrinkle to the most up-to-date scientific advice on spending your money to maximise happiness.

In the new study, recently published in the British Journal of Social Psychology, researchers asked 452 participants to describe a recent sizable purchase, excluding everyday expenses like bills.

They were also asked to rate how much the purchase added to their life satisfaction and happiness and how closely it aligned with both their extrinsic goals (those that have to do with other people’s expectations) and intrinsic goals (those we chase for our own reasons).

The researchers found that, the more a purchase reflected people’s intrinsic goals, the more they thought it improved their wellbeing.

In other words, the greatest wellbeing occurred when people spent money on something that was personally important to them.

Which isn’t to say the material goods versus experience factor was irrelevant.

Experiences brought more joy than stuff, but bringing yourself one step closer to what you really want in life mattered the most.

This finding has a very practical takeaway, according to one of the study authors, University of Cardiff psychologist, Olaya Moldes Andrs.

She recommends pausing to think about the reason for our purchase, and what use we will get out of it.

If we’re spending money on trying to impress people or project a certain image (in other words, extrinsic goals), the purchase may not actually be worth it.

So, next time you find yourself in the pleasant position of having some extra cash to spend, take a minute to reflect on your goals.

Figuring out what you want in life, and how you can deploy your money to get you closer to that goal, is the way to get the most happiness bang for your buck, according to the latest science.

* Jessica Stillman has always loved words and for the past seven years has been a leading Inc.com columnist. Before that she wrote for the CBS Money Watch program.

This article first appeared on the Inc.com website.

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