★ Rockstar Book Review: “Happy Money”
This is part of our Rockstar Book Review series.
Be sure to check out all previous books we’ve covered!
“Happy Money” Turns Modern Beliefs About Spending on its Head
Money. We all need to make it and spend it to get what we need to survive. Beyond survival though, we have incredible discretion in where we choose to spend it.
For many of us, a great deal of the money we spend goes to wants. But what if we’re wanting the wrong things when it comes to what will make us happier, both in the moment and over the longer term? The reality is that the majority of us in the Western world are spending money in all the wrong places and at the wrong times. At least, that’s what authors Dunn and Norton demonstrate in this book with the help of some convincing research.
According to the authors, there are five key principles when it comes to how we should be spending our money. We can maximize our return on investment by:
- Buying experiences
- Making a point of treating ourselves
- Buying time
- Paying ahead of consumption
- Investing in others
#1. Buying Experiences
To make this principle short and sweet, we buy way too much stuff and it’s costing us in more ways than one. It turns out that housing and transportation represent 50% of our overall after tax income, yet they are the spending categories least correlated with overall happiness! What is highly correlated? Experiences, for one. Experiences are about much more than the experience itself. Buying experiences includes:
- The feelings of anticipation associated with the experience
- Sharing the experience with others in a way that helps us connect
- The memories associated with the experience long after the experience is over, which is by far the greatest payoff
Now that’s bang for your buck! Compare that to the purchase of material goods, where the greatest impact to our happiness is at the time of the purchase, which quickly dissipates.
We are happy with things, until we find out there are better things available… (pg. 17)
Oh, and experiences don’t have to be particularly pleasurable either. Completing hard, trying tasks can be extremely satisfying over the long run. Just ask anyone who’s completed a marathon or something equally hard. I dare you to say their eyes don’t light up when you asked them about the experience.
#2. Treating Ourselves
Yes, there’s nothing wrong with treating ourselves. Take that “Latte Factor” lovers! Creating small-scale special moments on a regular basis really can make a difference in our overall demeanor and outlook on life, especially when we can share them with others.
What’s important to remember is that whatever we treat ourselves to should feel like a treat. The moment it no longer feels special, it loses its effect on our overall happiness. We can and should treat ourselves, as long as we remember to savor the moments and maybe go without once in a while to rekindle the special feeling it gives us when we choose to indulge.
At the same time that money increases our happiness by giving us access to all kinds of wonderful things, knowing we have access to wonderful things undermines our happiness by reducing our tendency to appreciate life’s small joys. (pg. 31)
#3. Buying Time
“Mo money, mo problems” is true when it comes to happiness. The more money we make, the more we view downtime as a waste of earning potential. Also, the more we make, the more money we tend to spend on time-saving solutions and services which, apparently, can make us even less patient, which in turn means we want to buy even more time-saving solutions. The happiest people, it turns out, don’t optimize their earning potential. Instead, they optimize how they use their time by making sure they have as much of it as possible to do what they value the most.
Greater material affluence may fail to yield more happiness in part because of the diminished time affluence it often brings. (pg. 57)
A note for those of us who feel we never have enough time. According to the authors, one of the greatest time-saving happiness boosters we can give ourselves is to cut our commute time by moving closer to work or finding work that’s closer to home. Apparently, reducing or eliminating your commute and/or changing from passive to active commuting can be equivalent to a significant (30%) increase in income when it comes to overall life satisfaction.
#4. Paying Ahead
Credit cards might be convenient, but they can send us the wrong message. By buying now and paying later, we miss out on the wonderful feeling of experiencing an event or a product that’s already been paid for, for two reasons:
- First, by paying for a product or service ahead of time, we benefit from the anticipation associated with it (aka delayed gratification).
- Second, by paying for it ahead of time, we don’t experience the regret or dread associated with having to foot the bill afterwards, long after we’ve benefited from the initial purchase.
Having debt, it turns out, has a greater impact on our happiness than does having a lower income.
#5. Investing in Others
This last category was a real eye opener for me. Of course, we all know that giving makes us feel all warm and fuzzy inside, but its positive impact on our life outlook is astounding! Dunn and Norton tell us that when we give money and do so by making:
- it a choice,
- a connection, and/or
- an impact.
It can have as much of a positive effect on a household’s happiness as would doubling its income! The key is that we need to feel invested in the action of giving. We need to feel a strong connection and that we’re making a real difference in this world. And we have to be giving of our own free will (being guilted into giving will cancel out the positive effects).
If you’re not yet convinced by the above, the authors also share that, not only will it make you feel great, it’s likely to make you physically healthier (thanks to the calming effects of giving) and feel wealthier!
BONUS #6. Saving Money
I trust this will be shockingly obvious to fellow money nerds, but saving money also makes us happier. Why? As we explored in the “Scarcity” book review, money acts as a buffer, as a type of cushion that helps us weather the bumps that life inevitably brings our way from time to time. And that peace of mind makes a big difference in how we feel in day-to-day life.
Elizabeth Dunn and Michael Norton offer compelling evidence that chasing the traditional elements of the American Dream is not the key to happiness. It turns out that more and bigger is not necessarily better, unless more means more time spent doing and focusing on what we value most.
Books on topics and research related to this book:
- Happiness: “Essentialism” by Greg McKeown, “More Than Money” by Mark Albion, “The Five Secrets You Must Discover Before You Die” by John Izzo, and “Enough” by Patrick Rhone
- Stuff and Spending: “Everything That Remains” by The Minimalists (Joshua Fields Millburn and Ryan Nicodemus), “Simplify” by Joshua Becker, “Your Money or Your Life” by Vicki Robin and Joe Dominguez, “Spent” by Avis Cardella, “Enough” by John C. Bogle, and “Scarcity” by Sendhil Mullainathan and Eldar Shafir
- Experiences: “The Last Lecture” by Randy Pausch and “The Happiness of Pursuit” by Chris Guillebeau
- Giving: “The Go-Giver” by Bob Burg
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