★ 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: The Science of Happier Spending" by Elizabeth Dunn and Michael Norton

Who it’s for: Anyone who wants more happiness bang for their buck. Money can buy happiness, at least when we spend it the right way.

Readability: HIGH. At just over 150 pages, this is a very light read, despite its findings being backed by a significant amount of research. It's also an entertaining read filled with examples to help the reader better understand and retain the information it contains. What I liked about it: I loved, loved, loved this book. The content focuses not so much on making more money but on spending what we do make more wisely. What's wise? Maximizing how much happiness we get out of every dollar. The book gets straight to the point, providing compelling evidence for us to alter how we spend both our money and our time to make the most of both of these valuable and finite resources. And what is the ultimate scorecard on how wisely we spend our money and time if not how content it makes us, both now and in the future? This book is a collaboration between Elizabeth Dunn, an associate professor of psychology at the University of British Columbia and Michael Norton, an associate professor of marketing at the Harvard Business School. This resulted in both a U.S. and Canadian edition of the book. (The Canadian version is the one pictured, though the Amazon links default to the US edition and sports a red cover and quarter coin.) What I didn’t like about it: The only thing I can think of is that I would have loved to keep reading! It was such a fun book to lose myself in. I wonder if they will come up with a second book that builds on some of the themes presented in this one. That said, the true measure of a great non-fiction book is one on any topic that is so well researched and well written as to leave us wanting more.

Where to find it:

Amazon @ $6.69 || Free @ the library

“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:

  1. Buying experiences
  2. Making a point of treating ourselves
  3. Buying time
  4. Paying ahead of consumption
  5. 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.

Bottom Line

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.

Where you can find the book: Amazon @ $6.69 Where you can find the author: Elizabeth W. Dunn & Michael I. Norton

Note: You can also see each of these authors in action by watching their respective online presentations. Here's Dunn's "Happiness and Money" and Norton's TED Talk titled "How to Buy Happiness". Books on topics and research related to this book:

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