Last week, I wrote the 3 Ways to Avoid Downgrading Your Lifestyle After Retirement. We did this mainly through saving a big portion of our income when I was working. We put an artificial cap on our monthly expenditures and that made it easy to maintain the same lifestyle when I stopped making a 6 figure income. Our lifestyle was about the same when I retired from my full time job, but my quality of life improved immensely. I gained a lot of happiness by removing the part of life that I detested. I want to look at the other side of the coin today. Life is pretty good now, but can I buy more happiness with money? Would our quality of life improve with say, $500/month more expenditure?
Money and Happiness
Can money buy happiness? Of course, it can. We all know that having extra money is better than struggling to pay the bills. A study from Princeton University showed that the more money you make, the happier you are – up to a point. Once your household income exceeds $75,000, the effect levels off and more money doesn’t really increase your level of happiness. As you accumulate more wealth, it becomes more difficult to buy more happiness.
So how do you buy happiness with money? We can buy material things and that will make us happier, but that warm glow won’t last long. A new car would make me very happy for a few weeks, but I would adapt to it and my happiness would revert back to normal. This is the conundrum with buying more stuff. You feel good for only a short while and many people constantly buy more stuff to keep up the good feelings, which becomes an addictive cycle.
Experience trumps material goods
You probably have heard that spending money on experiences is better than buying material goods. Doesn’t that sound counter-intuitive? Material goods can last many years and it has to be a better value than spending money on fleeting experiences, right? That’s wrong according to Prof. Howell’s study from San Francisco State University. The study found that when people look back at their purchases, they realize that experiences actually provide longer lasting value.
What should I spend money on?
I’m generally happy these days and on a scale of 1 to 10, I’m at about 9. I don’t give full scores because I think it could always get better. 🙂
Our household income is more than $75,000 so we’re above the threshold set by the Princeton study. We have some extra money for discretionary spending and we are saving money for the rainy days. We have enough net worth to feel financially secure. Life is pretty good. We have reached the point of diminishing returns. Spending more money might not make us feel any happier.
From the internet, I gathered that there are in fact a few ways that spending money can bring happiness.
- Buy experiences – Okay, I believe that buying an experience is better than a new laptop, but what should I buy? Summer has been great and we’ve gone hiking, biking, swimming, camping, spelunking, and attended many fun outdoor events. We’re going to Costa Rica in September and I’m really looking forward to that. What other experiences can I spend money on that will make us happier? I can’t think of anything right now. In fact, we’re exhausted and we’re looking forward to slowing down in the fall.
- Give it away – Another way to “buy” happiness is to give money away. Hmm… Does that really work? Prof. Dunn at UBC handed students some cash and told them to spend on themselves or spend on others. Surprisingly, students who spent money on others were happier than those who treated themselves. I’ll have to think on this and figure out who I can spend money on and how. (RB40jr will raise his hand and say “me me me!”). Mrs. RB40 rarely just gives money, but she loves making cards and giving gifts.
- Buy time – This is what I did when I quit my old job. I gave up some money in exchange for the ability to dictate my own time. It was worth every penny. You couldn’t pay me enough to go back to that way of life. Buying time is a great way to spend money. If you have long commute, you probably should move closer to work. You can also outsource tasks you don’t like so you have more time to do the things you want. I could use a little more sleep, but I feel like I’m at a good balance with time at the moment. My kid and this blog take up most of my time. That’s okay because I enjoy spending time on both these things. I am getting a VA to help with Pinterest. That’s something I don’t enjoy, but I know it will help the blog.
- Get rid of debt – Lastly, saving more doesn’t make you much happier, but taking on more debt will make you less happy. If you have a lot of debt, life will improve if you pay it off. We have no consumer debt so we’re okay on that front. We have mortgages on our primary residence and rentals, though. We are working on them, but I don’t feel the pressing need to pay them off right away.
In conclusion, if you’re already happy, spending more money probably won’t increase your level of happiness much. If I have an extra $500/month to spend, I’d probably just invest it. I don’t see how spending it would improve our happiness. I could give some cash to my mom. Both of us would be happy with that.
On a scale of 1 to 10, how happy are you? If you have $500/month extra, how would you spend it to make life happier?
Princeton study – High income improves quality of life
WSJ article – Can money buy you happiness? Image credit – WSJ.
SFSU study – Experiences better than material goods
Elizabeth Dunn’s book – Happy Money: The Science of Smarter Spending.