Books abound on how to make more money and manage it to maximize your return on investment (ROI).
Rising professors and researchers, Elizabeth Dunn and Michael Norton, present a new approach to money; focusing on how to increase your happiness from the money you spend. They champion five principles, based on international research, to help you achieve that goal, in their new book, “Happy Money: The Science of Smarter Spending.”
They found that worldwide, surprisingly, income has little influence on whether people smile, laugh, and experience daily enjoyment. Dunn and Norton also describe how businesses and organizations that apply the principles can benefit their employees, stakeholders, community; and ultimately profits.
Following are the Happy Money principles:
Buy Experiences. Experiences bring people together, promoting social connection; and provide memorable stories you’ll enjoy retelling for years to come. They’re also linked to your identity, or who you want to become; and provide unique opportunities, eluding easy comparison with other available options.
Individuals who prioritize experiential purchases are seen as open-minded, intelligent, and outgoing. Compare major and mundane purchases and you’ll find people are more apt to experience buyer’s remorse from material goods. The length of an experience has little impact on the pleasure people remember deriving from it.
Make It a Treat. “Knowing that something won’t last forever can make us appreciate it more,” say Dunn and Norton. “Recognizing that an end is near holds a key to happiness, helping us turn readily available comforts back to treats.”
London is the most popular international travel destination whose landmarks include Buckingham Palace and Big Ben. Native Londoners report seeing more landmarks in other cities, than viewed in their hometown. When a pleasurable activity is readily available, we may never experience it, thereby missing out on a relatively inexpensive source of happiness.
Companies often practice making certain items available for limited time frames, making them feel like treats. Think Disney’s limited re-release dates for its classic movies; and McDonald’s McRib sandwich, added on fall menus to create nostalgia for summer barbecues.
Buy Time. “Time and money are frequently interchangeable.” Thinking about time instead of money often inspires people to engage in activities that promote well being, like socializing and volunteering. Time and money promote different mindsets. Focusing on time tends to hone in on the sense of self. Money thoughts promote a cold, rational manner.
Most people would benefit from time changes in:
- Commuting. The U.S. Census Bureau says Americans spend more than two weeks a year commuting. Taking a job with an hour-long commute each way equates to the unhappiness of not having a job at all.
- Television. Americans spend an average of two months a year watching TV.
- Socializing. People experience the most positive moods daily when spending time with friends and family, especially children.
Pay Now, Consume Later. “Due to the power of now, people overvalue the present, making it difficult to appreciate the potential benefits of delay.”
Credit cards anesthetize against the immediate pain of paying and promote a kind of detachment that makes even savvy individuals more apt to part with their money. Researchers asked subjects to estimate their monthly credit card bill. Everyone underestimated the amount by at least 30 percent.
When consumption is viewed in the future, it’s easier to see the more abstract advantage of experiences, whereas focusing on the immediate future promotes feasibility. The authors describe people who prepay for things, including monthly mail order cosmetics subscriptions. Experiencing their arrival without paying then feels like “Christmas every month.”
Invest in Others. “New research shows that spending even small amounts of money on others can make a difference for own happiness,” say Dunn and Norton.
To maximize your giving experience, practice these three tips:
- Make It a Choice. Feeling cornered by family, friends, and coworkers to give to charity, or purchase fundraising items can diminish the joy of giving. The best charitable appeals encourage people to give without making them feel they have to comply.
- Make a Connection. People experience more happiness from spending money on strong ties (i.e. immediate family and close friends), than weak ties (friend of a friend).
- Make an Impact. People who report donating money to charity feel wealthier than those who don’t. When donors witness the impact of their contributions, they’re more likely to give.
Dunn and Norton suggest you consider the five principles collectively instead of individually; and find ways to apply as many principles as possible into a single purchase.
The authors “zoom out” beyond individual, business, and organizational purchasing; and discuss governmental spending. They cite governmental trends to measure and promote the well being of its citizens.
The best way governments can facilitate citizens’ ability to spend their money in happier ways is to ensure that all citizens have some disposable income initially.
Dunn and Norton underscore the growing divide in the U.S. regarding the wealthy and the poor; and say countries with large disparities between the rich and poor have higher divorce rates, longer commutes, and weaker social safety nets.
Read “Happy Money” and develop a kaleidoscopic view of the power of cash beyond numbers and investments.