Category Archives: Spending

Experiences Are a Better Way to Buy Happiness

Imagine yourself in Costa Rica, floating in a pristine, blue-green pool of water and looking up at a lush rain forest canopy. You watch in amazement as, little by little, a three-toed sloth makes his way through the thick forest with the precision and grace of a Tai Chi master.

You’ve been working hard on your financial fitness. It’s time to make finance fun and treat yourself. What do you gravitate toward? Is it something you do, or is it something you own? If you’re out shopping for a reward of some kind for yourself, you can maximize your happiness dollars with an experience. Whether high-priced or economy-sized, it’s a better buy on happiness to purchase an experience than to purchase an object.

Experiences vs. Objects

How do you buy an experience? Think of taking a class on a topic that interests you, sharing a beverage or a movie with a friend or taking a trip someplace new just for fun. Material buys, on the other hand, are objects we keep in our possession, such as a gadget, a new outfit or dining room furniture. An Italian sports car would be a material purchase that can also double as an experience, but it’s still defined as something we keep in our possession.

When it comes to money and happiness, you happiness-shoppers out there might remember my blog about what small pleasures can buy. As I mentioned in the blog, research by Elizabeth W. Dunn, Daniel T. Gilbert and Timothy D. Wilson revealed eight principles for getting the most happiness from our spending. These are outlined in the Journal of Consumer Psychology article “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right”. Making experiential rather than material purchases is one of the happiness-maximizing principles.

Where the Happiness Comes From

Why do we derive more happiness from what we experience than from objects we possess? First, our minds adapt very rapidly to our environment. The new furniture eventually looks the same and the shoes are the ones we bought a few months ago, so we stop noticing. In contrast, experiences are different each time. Novelty gets our attention, and our “happy meter” is reset by whatever is new. Every trip to the park with my three-year- old daughter is certainly unique, even if we went every day.

A second reason experiences are more happiness-producing is that they’re ephemeral, passing quickly out of our possession. Memories remain, so we can revisit them as often as we want. We’re not very likely to reminisce about tangible purchases, but we often mentally re-experience events over and over.

Finally, experiences bring more happiness than objects because we define ourselves more by our experiences than our possessions. This is perhaps the most important reason. Places we go and things we do are more inherent parts of our identity than what we stockpile. I think of this as our life wealth. It’s the abundance of experiences we accumulate that is truly wealth gathering.

Memory Bank or Storage Room

There’s nothing wrong with buying material objects. We all need them. If they’re in the form of a reward, we can certainly derive happiness from them. However, next time you’re ready to treat yourself by using your money for something special, think about acquiring an experience instead of an object. Likely you'll enjoy it longer and have something to revisit in your memory bank rather than your storage room!

Simple Living: Putting Your Money Where Your Values Are

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One of my mantras is “You can have anything you want. You just can’t have everything.” Some people want everything now—and that’s where financial problems come in! In reality, a determined focus on what’s really important to you can get you almost anything, as long as you’re able to let go of extraneous items and activities in the process.

Financial fitness often starts with a shift in mindset. We begin thinking of money not as an end in itself, but as a tool that helps us get or do what we want. Some of us are bogged down in Surviving rather than Thriving. This is because we haven’t determined what we value, cut away the fat and made some focused, values-based decisions.

Voluntary Simplicity

In his book Voluntary Simplicity, Duane Elgin talks about stripping away as many of life’s complications and distractions as possible to focus on what’s truly important, meaningful and
satisfying. The book’s subtitle, “Toward a Way of Life That is Outwardly Simple, Inwardly Rich,” emphasizes choices based on what’s valuable to you.

True wealth is an inner sense of abundance, not outward displays of bling-bling. However, Elgin’s concept is not about excessive frugality or poverty. He’s talking about choices. We need to choose what’s most important to us and focus on it, regardless of what it is. The term “voluntary simplicity” says it well.

Simple Strategy: Survive on Less to Thrive More

When talking about things like money management, budgets and saving, people often mention self-denial, discipline and eliminating this or that. The voluntary simplicity concept is more about embracing what you want out of life and letting other things fall away. Instead of engaging in a grueling battle to deny yourself, simply focus on what has long-term value for
you. Saving money flows naturally from that.

In a previous blog, Does Money Buy Happiness, I described the Survive versus Thrive concept. In brief, Survive money is what you spend on needs (or what you think you need!) and Thrive money is for what you value. Simplicity is a tool you use to shift the balance so less money goes to Surviving and more to Thriving. Money is a limited resource for most of us, and time is limited for all of us. The less we need to Survive, the more time and money (our valuable life energy) we can commit to Thriving.

Ways to Free Yourself to Thrive

To Thrive more, you can earn more money for the things you value, or spend less on the things you don’t. Both options potentially free up time and money for Thriving, and a combination of the two is powerful.

Earn More: We’d all like this! If you aim to earn more, it’s important that the bigger paycheck doesn’t require too many additional hours. Some high-paying jobs demand 60, 70 or 80 hours per week, leaving little life energy for Thriving at the end of each workday.

Focus on improving your life-energy exchange rate rather than just getting a bigger salary. The more you earn for each hour of your life energy, the fewer hours you need to work to meet your Survive needs.

Simplify: Redirecting spending is usually more in our control. Notice I said redirecting, not reducing. Simplifying is not about spending less. It’s about spending better. When we’re trading some thingamabob for an item or activity we really treasure, the choice is easy.

Focus on redirecting your spending to the things you value, not on tightening your belt. This sometimes means adding to savings to achieve a deferred goal.

Whether you’re increasing your income, redirecting spending or both, you shift the balance more towards what you want rather than what you have to do or acquire. You Survive on a lot less so you can Thrive a lot more.

Your Free Choice

The first step is to ask yourself, “What do I really value? Am I putting my money and my energy toward that, or are they going toward things I don’t believe in or aren’t important to me?” The next step is to shift the balance toward Thriving. Since you usually have more control over spending, identify ways you can live more simply and put less toward Surviving. That frees up more of your resources for what’s most meaningful to you and helps you get the most for your money.

Buying Happiness: It’s the Little Things

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The little things in life really count! When we were tiny, it didn’t take a huge financial outlay to amaze us and fill us with joy. Today, a favorite restaurant, a picnic in the park, a night bowling with the kids or even a goofy yo-yo can brighten the day. When we consider what used to make us happy when there was little—or no—spending money in the bank, it’s a good reminder of how small price tags can have big benefits.

Economic uncertainty is still a factor today, so what a better topic than small pleasures? It’s not just that small pleasures cost less. In many cases, they’re actually better when buying happiness!

A Right Way to Spend

In an excellent summary of positive psychology research, Elizabeth W. Dunn, Daniel T. Gilbert and Timothy D. Wilson addressed the elusive relationship between money and happiness. The resulting Journal of Consumer Psychology article “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right” came to my attention recently. It’s a good springboard for
talking about money and happiness.

As discussed in my earlier blog Does Money Buy Happiness, the relationship between money and happiness is complex. Decades of studies suggest that money can buy happiness, but only a little bit and only up to a point. So the correlation between money and happiness is modest. Many of us think we should get more happiness for our money. After all, wealth can buy lots of the ingredients of a happy life: better nutrition and health, more meaningful work, more freedom, and more time with family and friends. Since money leads to those things, why don’t wealth increases connect more strongly to happiness?

According to Dunn, Gilbert and Wilson, we miss our chance for buying happiness by making purchases we think will make us happy but don’t. The article covers eight principles for spending to maximize happiness. One is purchasing small pleasures.

Small-Ticket Items and Happiness

Our brains are exceptionally good at adapting to our environment. That’s why the research suggests that more happiness results from buying many small pleasures rather than a few big
ones. We think a yacht, nice Brazilian hardwood floors, a sports car or a dream vacation will make us happy, but we adapt to them after the initial burst of happiness fades. They become same old, same old.

However, we adapt less quickly to things with the following characteristics, so the benefits are extended:

Novel or unusual
Surprising
Difficult to understand or explain
Uncertain
Frequent but varied

Interestingly, these are most easily attained as small pleasures.

Little by Little: Your Happy Meter

The psychological principle called “diminishing marginal utility” also favors small pleasures. The idea is that the first scoop of your favorite ice cream (for me, chocolate coconut!) brings more pleasure than the second or third scoops. Similarly, if you already have a lot of “stuff,” getting more doesn’t bring the same new-purchase satisfaction.

Because time between each pleasure seems to reset your happy meter, you’ll get more out of a single scoop of ice cream each week for a month than four scoops in a sitting. Small pleasures are also easier to divide up and spread across time. After all, it’s pretty tough to buy a car in pieces. Yet for the mechanically inclined like my uncle, building your own hot rod piece by piece can be enjoyable. You can’t spread a Hawaiian vacation out over several months—unless you live in the “Pineapple State”—but taking frequent mini-vacations or nearby getaways can be a happiness inducing way to spend your vacation budget.

Stop and Savor!

Gratitude also increases happiness. If you’ve made a big purchase, remind yourself to pause and enjoy it periodically. Don’t let that new floor become just like any other surface to walk on. Don’t take your new car for granted.

Remember, for excellent buys on happiness, savor that first bite of your favorite meal, the beverage with a friend and an evening out with a loved one. There is nothing wrong with the big pleasures, but for happiness sake don’t sacrifice the small pleasures to get them!

5 Best Buys for Happiness

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Have you ever bought something just because you were bored? Or gone to the mall for a bit of “shopping therapy” as a pick me up after a disappointing day? I know I have. We imagine if we buy just the right thing it will lift our spirits. Our intuition is not far from the truth, spending money on the right things can make us happier.

My recent post Does Money Buy Happiness talks about the difference between spending money for surviving versus thriving. When spent on with purpose, money helps power our happiness.

Here are a few fantastic buys to help maximize happiness:

Great Deal #1 Buying Experiences

Memorable activities can be recalled for decades after the new outfit or gizmos are forgotten.

Our brains are wired to remember the end of events and forget the middle. This is called the recency effect. “Stuff” usually ends in loss: an old worn-out item that’s discarded. In contrast, life experiences can begin with excitement and anticipation and end with satisfying memories.

Great Deal #2: Tools for Living

Not all stuff is “bad” from a happiness perspective. Whenever my grandfather gave us cash for our birthdays, he would advise us to spend it on something “tangible, useful, and long-lasting.” Essentially, he was suggesting what I call “tools for living” – items that you take pleasure in using every day and for a long time. For instance, I enjoy cooking and really appreciate a quality chef’s knife. $100 seems like a lot for a knife…and it is…but I take pleasure in using it every day to prepare meals for my family and friends, and it will likely last for decades. Even my very frugal grandfather would approve of this “investment.”

Great Deal #3: Leaving Your Fingerprints

There’s something magical about making something yourself. When you put time or effort into a possession, you tend to value it more02. Ever notice how much better your homegrown vegetables taste than the ones from the market? The more you work for something, either through physical effort or saving over a period of time, the greater your pride of ownership.

Some call this the “IKEA effect” in honor of the Swedish company that made assemble-it-yourself furniture all the rage. I’m not sure that’s the right label, because I’ve enjoyed building furniture from scratch over the years. But, the truth is that people do value IKEA furniture more than similar pre-assembled furniture because they “built it themselves.”

Great Deal #4: Doing Things for Others

As I mentioned in my blog about money and happiness, intrinsic goals set you up to be happy! You can boost your happiness levels by using money for things like charities, college accounts for the kids, and helping family or friends. Research based on group experiments suggests that spending even a small amount of money on someone else noticeably increases happiness – even a few dollars!

Great Deal #5: Expanding Your Freedom

How much free time can you buy yourself? Studies by psychologists Edward Deci and Richard Ryan demonstrate that having options about how you spend your time can increase your happiness.

Financial fitness means money saved, which is freedom in the bank. You can start doing things you enjoy now without waiting for some point later in life.

Here are some sweet deals on freedom:

Plan a partial retirement and change jobs to do what you really love
Take the vacation of your dreams instead of sitting at home, strapped for cash
Take a mini-retirement or sabbatical
Change to part-time work or stay home with the kids instead of working

Real Value

People who want to get the most from their life energy look for proven value. If you’ve made some great buys on happiness already, leave a comment and tell us!

Financial Fitness: Finding the Right Financial Advice

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Most of us will probably need some financial advice from time to time, but how do we know if we’re getting good advice? Clearly we want something that covers all the bases while being
affordable and practical. Most important, it must be a lasting solution, not a quick fix.

Exercise Your Money Muscles

Let’s look at our metaphor of physical fitness. You don’t go to the doctor or your personal trainer every day. You’ve got daily habits to maintain that don’t require the caliber or expertise—or the expense—of daily checkups. These are long-term habits for a lifetime, and no one can exercise for you!

Similarly, you won’t talk to your financial advisor every day, and advisors don’t dictate your penny-by- penny expenditures and savings for you. So obviously getting financial advice that leads to real financial fitness requires effort. Never fear: We can keep this relatively pain-free with a simple three-fold plan.

Three-Fold Financial Fitness Strategy

Here’s a straightforward, realistic strategy for going from financial “flab” to financial fitness:

#1: Learn What to Do

You can easily find information on diet and exercise. It’s the same with finances. Education is your first step, and there are a number of resources available. Financial literacy gives you basic knowledge and techniques for good money management.

Some of us have bigger learning curves than others. Here are some of my favorites for different levels of learning:

For the basics, Dave Ramsey’s Financial Peace University: This 13-week course covers the most critical areas, including debt elimination, insurance and investment basics. Ramsey’s style doesn’t appeal to everyone, but he does a good job of entertaining while he is educating.

For clever tips, Get Rich Slowly: This is one of the most popular personal finance blogs out there. I often learn something new or benefit from looking at things from a fresh angle.

For sound investment info, the Bogleheads forum and wiki: These cover the basics of do-it-yourself index investing. The main page is a bit overwhelming, so click Getting Started at
the top for a gentler introduction, then drill down from there.

#2: Start Doing It

Learning what to do is easy. The difficult part is doing it! There are plenty of resources to educate us but not much to help us consistently maintain good habits. We’re human, and we need regular reminders. Just like you’d join a dieting club or take an aerobics class, you need a financial fitness program to make the right money moves consistently.

A financial fitness program involves getting others’ support for maintaining good financial practices on an ongoing basis. It’s hard to find a financial fitness program that’s comprehensive and designed to meet human needs around finance. That’s the primary reason I started Moneymentals. Right now, the Moneymentals community is unique in the marketplace. If you choose to join, you’ll build your personal plan during a Moneymentals webinar facilitated live by me personally. Learn more about how it works, and tryit out! You’ll be part of something fun and new.

#3: Get a Coach

Ahh, here’s where the financial advice comes in! Sometimes you need the individualized attention and expertise of a doctor. Likewise, you can go to your financial advisor for periodic checkups. Now that you know the ropes, you won’t need hours of costly financial advice, just a little when you have questions. Often that advice will involve not what to do, but how. You wouldn’t trust a snake-oil salesman with your health, so be cautious when choosing a financial advisor. For most people, fee-only advisors who work on an hourly basis are best. First, they lack commission biases. hey also maintain a fiduciary standard, so they put client interests first. Because they’re hourly, you can decide how much assistance you want and what kind. Need help finding the right advisor? . An good source for fee-only advisors is www.NAPFA.org. Not all NAPFA member advisors will work on an hourly basis, but many will.

Wealthy Habits

Thinking you can get by with poor money habits and somehow catch up later is a proven formula for failure. The best time to start practicing wealthy habits is today and every day. So learn the basics and get started. A good financial fitness program will serve most of your needs, and you can see an hourly fee-only financial advisor when you need a pro.

Managing Your Money and Your Life: Spend Wisely

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Imagine buying that new laptop you saw advertised. At the register, the associate doesn’t ask for money. Instead, she sends you to the back of the building to work 35 hours to cover the cost of your purchase. Immediately you wonder, “Is it worth it?”

For every buy, we’re actually trading the hours of work it took to earn the money, plus a lot more besides. Money is simply a way to store the life energy we put into working so we can use those dollars later for what we want.

In their book Your Money or Your Life, Joe Dominguez and Vickie Robbins expand on the concept of “money = life energy.” This idea has had a number of voices over the years. When you’re looking for financial freedom, it helps to think about money and personal finance this way.

Life Energy and Time

If saving money lets us store life energy, what’s life energy? The U.S. Bureau of Labor Statistics’ American Time Use Survey tells us we spend about 13 hours per day on basic needs like sleeping, eating, personal care, household chores and getting around. This leaves just 11 hours per day—only about 4,000 hours per year—for pursuing meaningful goals and wealth building. Our precious 24 hours each day plus the vitality (or lack of vitality!) we use to live them can be called life energy.

So the process of earning money converts life energy—taken from those 4,000 hours per year—into currency. It takes more than we think to trade life energy for money. For instance, the typical professional likely spends 8 to 11 hours each weekday working, getting to and from work, preparing for work and recovering from it. That means about 70% to 80% of our useful life energy gets converted to money. The sanity of that trade is for another post…

Real Earnings

Since spending money is really spending life energy, our money management efforts should include getting maximum happiness out of every dollar. But a dollar earned isn’t really a dollar! Just for kicks, let’s look at your real hourly wage, because there are work-related costs we don’t always think about.

Take your weekly after-tax take-home pay, subtract work-related expenses (like special clothing, dry cleaning and commuting costs) and divide by the number of hours a day you’re working or doing job-related activities. Here’s an example:

$1500 weekly take home pay – $100 gas – $25 dry cleaning = $1,375
40 hours working + 3 hours preparing for work + 5 hours commuting + 3 hours recovering + 4 hours checking e-mail at home = 55 hours
$1375 / 55 hours = $25 per hour (real hourly wage)

Scary, huh? Obviously the money we earn comes only at the high cost of life energy, which has great value. That brings me to the question of whether time is money or if money is time. Saying, “Time is money,” implies that money is the more valuable of the two, so we shouldn’t waste time because we’re wasting money. The truth is the opposite: Money is time, which implies that time is most valuable. We don’t want to waste our earnings because that wastes time.

Our most valuable non-renewable resource is time. We won’t get more years, days or minutes, and none of us knows how much time we have left. Time is wasted if we don’t do what we want in life. Managing money means we store it and consume it later to achieve our goals, have meaningful experiences and perhaps pass a little along to others who are special to us.

Something New to Try

That really cool iPad® costs not $500, but 20 hours ($500 / $25) of life energy! Are we handcuffed resentfully to our jobs because of what we’re buying? Or is it worth it?

Try this: Before making your next purchase, consider how many hours of scarce life energy you’re exchanging for the item. Then ask yourself if you’ll get enough pleasure from it to justify all those working hours. No matter the answer, you’ll be making a conscious choice that contributes to your happiness—and the value of what you have will increase in your eyes!

Looking to spend your life energy only on what’s worth it? Check out our online Moneymentals class!