Research shows that how you spend money does impact how happy you feel
While it may be true that simply having piles of cash is far from a guarantee of happiness, research shows that how you spend money does impact how happy you feel. A multi-national study published in Communications Psychology examined the connection between spending and happiness across a range of cultural and economic settings around the world. Participants were given a one-time windfall of $10,000 to spend any way they liked. They were then asked to rate how happy each expenditure made them, with follow-up evaluations conducted six months later to see if anything changed in their overall feelings of well-being. Based on the study’s results, here are seven key ways to consider spending your money that pay off in terms of happiness.
1. Experiences make memories, and memories create lasting happiness
It’s long been known that spending on vacations, concerts, extended travel, visiting friends and family, sporting events and even dining out tend to make people happier than material purchases. Not only do you enjoy yourself in the moment, you also walk away from the experience with a multitude of memories that last a lifetime. Experiential spending stimulates more happiness than buying goods because the perceived value of material items weakens over time1. That fancy new stove? It’s fantastic at first, but after a while it’s just another dirty appliance to clean.
Key Takeaway: Think about what kinds of experiences would create lasting happiness for you. Once you have something specific in mind, it’s easier to prioritize saving for your goal versus splurging on material purchases throughout the year.
2. Giving gifts makes the giver happy, too
Is there anything more rewarding than watching someone you love unwrap a long-awaited present? The smiles and squeals are worth every dollar. Turns out, this is true at just about any amount, even $5. Paying for a friend’s lunch or a coworker’s coffee makes the recipient feel good and ups your happiness quotient as well. In part, that’s because gifts can help strengthen relationships. One study showed that men in long-term relationships are significantly more likely to say their relationship will continue and even move to marriage once they learn that their girlfriends have selected a desirable gift for them2.
Key Takeaway: Spending money on others, called prosocial spending, is shown to make people happier than spending on themselves.
3. Spending with an element of connection pays off
Paying for a shared experience or funding quality time over a meal with someone special offers a double dividend. For example, buying concert tickets for you and your spouse makes you happy in two ways: the experience creates lasting memories, and it’s a gift for someone else. Those elements combined add a third layer of happiness resulting from the deeper connection formed with your loved one. In one small experiment, researchers gave $5 or $20 to passing strangers. Those who spent the money on a shared experience (paying for their coffee and someone else’s, then drinking coffee together), reported higher happiness levels than those who spent the money on themselves or gave the money to someone else without spending time together2.
Key Takeaway: Add an extra layer of happiness by combining connection with gifting experiences.
4. Making a measurable impact maximizes happiness
Charitable giving has long been associated with higher levels of happiness. A Gallup survey of more than 600 Americans showed that the amount of money individuals spent on themselves was unrelated to overall happiness. What did predict contentedness? The amount of money they gave away2. The more they invested in others, the happier they were. But the caveat is the element of choice. Being pressured into giving can dampen the happiness effect, while having a specific impact increased it. For example, one organization focuses narrowly on sending malaria nets to sub-Saharan Africa, which can protect up to five children for five years. When you give to this organization, you can clearly see exactly how your money will make a difference. For donors, this means a bigger happiness boost than what’s reported when giving to an organization with broader goals, like “improve people’s overall health.”
Key Takeaway: Want to maximize your giving-related happiness? Donate to causes where you know exactly what good your money will do.
5. If spending aligns with your values, it’s a worthy investment
There is no right or wrong way to spend money, but there are choices that help you achieve your goals and those that could take you off track. And research shows that buying that lines up with our values, expectations and goals makes us happiest. So if you have a passion for supporting independent artists or small businesses, spend at art fairs and local shops to up your happiness quotient. If convenience is your love language, food delivery or a house cleaner contribute more to your happiness than a new vacuum or kitchen appliance. Either way, the key is to evaluate often to make sure your long-term goals and your current whims don’t conflict.
Key Takeaway: Reflect on what sparks joy for you and plan your spending accordingly.
6. Knowledge is power (and happiness)
New skills or academic credentials are an investment in your future, and spending on all types of education tends to make people happier. Uncovering new insights, knowledge and abilities is a reward in its own right, so it makes sense that your investment in learning could increase your satisfaction. On top of that, degrees and certifications are often rewarded with higher pay and richer employment opportunities.
Key Takeaway: When you spend money to improve yourself through education, you often get paid back in higher happiness and increased earning potential.
7. Freeing up time makes space for doing more of what you love
In wealthier countries, spending on services that saved time often popped to the top of the happiness list. Think hiring a house cleaner, subscribing to a meal prep service or getting a nanny or some other regular childcare. This category might also include hiring drivers, travel agents and even personal shoppers. The happiness payoff comes from outsourcing time-intensive tasks to free up schedules to spend time on pleasurable activities.
Key Takeaway: The research validates the old maxim that time is money, but only if your bills are paid and you’re in a good place financially.
