Last week, I received my High-Tech Antitrust settlement check in the mail and I deposited right away. (Woo Hoo!!) The arrival of the $7,000 windfall was particularly timely because we were running a bit low on cash. We paid some big bills recently and had only around $6,000 left in the bank. That’s not bad, but I like having a bit more liquidity. With the fortunate cash infusion, we’ll have enough in our bank account to cover nearly 3 months of expenses. That’s a more comfortable level for me.
Anyway, I asked what you would do with a $7,000 windfall? Here is a great comment from Financial Samurai.
I think I’d use it on a 3 week international trip. Turn the money into magical moments and memories, so it GROWS in value over time.
That’s a fantastic idea, but I’m not sure if I agree with the “spend on experience” philosophy.
Spend On Experience
Happiness researchers have shown that spending money on experiences gives you more happiness than spending money on material possessions. Things don’t make you happy or unhappy in the long term because we adapt to them. New things are great for a while and then lose their luster. It’s hard to impress humans for long, according to research…
On the other hand, we anticipate experiences much more than things. Last year we went to Costa Rica for a vacation and I was looking forward to it for a long time. I spent a lot of time figuring out how to get the cheapest tickets. (We signed up for a credit card and accumulated enough points for free tickets!) I did a lot of research on Costa Rica and planned our itinerary. We had a great time on the trip and we’d love to go back again someday.
Theoretically, we could have spent the money on a new entertainment system instead. I could replace our aging 480p TV with a big screen 1080p LED HDTV. We could get rid of our cheap Walmart TV stand and get a much nicer entertainment system. I could get a Blu-ray player to improve our movie viewing experience. I’d love to get my hands on an Xbox One as well. 🙂 The problem is that these things will get old as well. In a few years, I’d be lusting after the latest and greatest things in entertainment.
Studies found that when people look back at their purchases, they realize that experiences actually provide longer lasting value. We appreciate old experiences much more than old material possessions.
Experiences Fade Too
However, the Costa Rica trip was recent and I remember a lot of it. My memory is terrible and the recollection of this trip will fade in a few years. In 2009, we went to Japan and it was an awesome trip. I remember the food was great and we enjoyed the hot springs. We also appreciated the historical castles and temples. I don’t remember much else, though. It’s a good thing we took a lot of photographs. I’ve been to Europe, Australia, New Zealand, China, Thailand, Belize, Jamaica, and many other countries. They were all great, but the memory of those trips are getting pretty hazy.
Also, I don’t really think back on previous trips often. Is experience really a better buy if you don’t think about it much? I focus on the present and the future; I rarely look back. I don’t think magical moments and memories grow in value over time because I’m so forgetful. That’s just me, though. Mrs. RB40 has a much better memory than I do. She remembers things from her kindergarten days, that’s amazing! She had to remind me of our first trip to Hawaii and subsequent trips to Jamaica and Belize. Purchasing experiences is the right model for her.
Experience is great, but saving is a good option too
When you have extra money, you don’t have to choose between buying experiences or material things. Another choice is to save and invest that extra money instead. This conservative choice is especially appealing if your finances are a bit shaky in some areas, like our liquidity. For us, it’s better to shore up our cash account for now and take a trip later when we have more money to spare.
Oh, I think it’s better to spend money on experience than material things, too. Although, I forget a lot of cool experiences, they still make me who I am. If I didn’t take any trips or splurge on fun things once in a while, I’d be a different person today. Material things just don’t have that same effect.
Anyway, if you have a lot of debt or other pressing financial obligations, you probably should prioritize them over paying for memorable experiences. Of course, if you’ve already reached financial independent like Financial Samurai, then splurging on experience is the way to go.
Do you choose experience over material things when it comes to spending money?
P.S. Our trip to Mt. Hood on New Year was almost perfect. We had a lot of fun playing in the snow and didn’t have to spend a lot of money. $30 for 2 snow discs, $6 for parking, and about $10 for gas. That’s pretty cheap for an awesome family experience.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.