In the personal finance community, we often dismiss the notion that spending money can make one happy. However, positive psychology research shows that you can buy happiness. There are four 5 key principles to achieving this:

• Buy experiences
• Treat yourself
• Buy time
• Pay now, consume later
• Spend money on others

#1 Buy Experiences

Meta-research gives weight to the idea that buying experiences rather than material things can be indicative of greater happiness. This applies to both the anticipation and experience of the purchase. These experiences have a more enduring effect on happiness. According to further research they can also:

1. Enhance social relations
2. Form a bigger part of a person’s identity
3. Evoke fewer social comparisons than material purchases

Even on an anecdotal level, without the research, I find this hard to dispute. Think back to any given year and I’m sure you will be able to remember where you went on holiday for example? What you may struggle to remember is what material items you bought?

You may even remember the excitement of looking forward to an experience. By contrast, awaiting a material possession is more likely to be associated with impatience. This feeling is also something captured by positive psychology research.

Therefore if you want to buy happiness, avoid materialism and buy experiences. I like to fill my time with walks in the countryside or along the beach. I love to travel, even if this is just a short city break, like our recent trip to Seville. I will hopefully always have these happy memories.

#2 Treat Yourself

Treating yourself is important, but overindulging can actually result in less satisfaction. One of the most common aspects we can focus on here is eating out. There a number of interesting research findings around this and research suggests that we should buy small pleasures and fewer large ones.

I experienced this personally when I used to eat out at least twice a week, and I just stopped enjoying it as much. When I came to realise this, I cut my spending drastically as you can see from my tweet below, back in December 2017.

This is all due to something called habituation. The scientific definition of this is “a decrease in response to a stimulus after repeated presentations”. This is no different when it comes to how we spend our money. Therefore, be mindful of your habits when it comes to spending money.

I still like to eat out, but I’m usually quite selective of where, and it’s usually infrequent to the point where there isn’t really a pattern. This makes me appreciate the experience of eating out much more.

Quite impressed with the way I’ve cut down the ‘dining & going out’ category of my spending. Most importantly I’m no less happy from doing it! Will be interesting to review in a few months time, so I can account for seasonality. #TrimmingTheFat #PersonalFinance #Budgets pic.twitter.com/RZKY4JkzZW

— MoneySideUp (@Money_Side_Up) December 6, 2017

#3 Buy Time

This is one is probably very relatable to the financial independence retire early community. There’s some great research that highlights that buying time can promote happiness.

By contrast, greater time scarcity can result in negative health outcomes such as; increased anxiety, insomnia, obesity, failure to eat healthily or exercise regularly.

Research also shows that leading people to feel their time is ‘economically valuable’ induces them to feel they do not have enough of it. With this in mind, here are a few ways you can buy time.

Outsourcing

One way to buy time is to outsource household chores you dislike, for example hiring a cleaner. Or in my case, buy a Eufy Robo Vac.

This has definitely resulted in my increased well-being. This is a perfect direct example of where I’ve directly and materialistically managed to buy happiness.

This has had a positive long-term impact. The flat I live in is noticeably cleaner and there are no household ‘discussions’ around whose turn it is to vac.

In fact, according to Eufy, 62% have quarreled over chores, so imagine what impact that has on people’s happiness levels. There is simply no active participation required for one of the most disliked household chores. Bliss!

Reduced Working Hours

Many employers offer the chance for people to buy more holiday, this is something you might want to consider. Perhaps you might even want to raise the idea of unpaid leave or reducing your working hours.

In fact, research shows that if you offer people the choice of 2 weeks extra holiday or two weeks extra salary.Twice as many will take the holiday allowance (see, Utopia For Realists by Rutger Bregman). The author also cites a study where twice as many people would rather work less than win the lottery.

Financial Independence.

The final aspect I have eluded to is something that many readers will be aware of: the financial independence / retire early movement. Many people question how happy people who quit their 9-5 jobs can be?

If the above evidence around time scarcity is anything to go by, the answer is extremely happy. They have more time to eat well, exercise, sleep and focus on stimulating tasks as they please.

The bottom line is simple, with enough money, you can buy financial freedom. Financial freedom can be a massive precursor to happiness.

#4 Pay Now, Consumer Later

Elizabeth Dunn argues that it is better psychologically to buy now and consume later. The higher the separation the better. This is because spending money is painful and therefore detracts from the pleasure of consumption.

I would say this is potentially due to thepeak-end rule outlined by Daniel Kahneman. In this theory, he says that our memory of a past experience does not correspond to an average level of feelings but to an extreme point and the end of an episode.

For example, paying at the end of an expensive meal. This is all part of the reason why buy now pay later deals are not only bad financially speaking but from a psychological perspective too.

There are a few forms of buying now and consuming later that you can take advantage of:

• Treat yourself to gift cards and save them for a later date
• Buy experiences from experience websites such as buy a gift
• Plan a long-term holiday or getaway

#5 Spend Money On Others

Objectively spending money on other people creates happiness more than buying for oneself. This is more likely to be increased satisfaction when this fulfills core human needs of relatedness, competence, and autonomy.

The way I’m writing this may come across as selfish. In the sense that I’m saying ‘spend money on others to increase our own happiness.

However, what I’m actually highlighting is that we can use our fundamental human biology to further help others.

When I refer to fulfilling core human needs by being charitable, this means the following:

• Relatedness: you should feel close to the impact or the person. Work with a more niche charity or one where you meet the people. Make a connection.
• Competence:you want to see that what you are doing is making a difference. Make an impact.
• Autonomy: doing this in an ungoverned way, not out of duty or because it’s a specific charity day. Be pro-social, make a choice.

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Lessons Learned On How To Buy Happiness

I certainly learned a lot from researching this topic and writing this article. I hope you did too. As you will see from my recent posts, I’ve become quite interested in the psychology of spending. As opposed to just the psychology of saving.

This is because spending is inevitable and necessary in order to maintain a good happiness baseline. Therefore it’s critical that when we spend, we spend in the best way possible for our well-being.

Especially for those of us being frugal and trying to achieve financial independence, as there are limited windows for spending. Also because potentially we feel the pain of spending much more. This is because we are acutely aware the more we spend, the more time we lose in the workplace.

I would love to hear your thoughts on how you spend your money? Do you do any of the above already? Many say money cannot buy happiness, what do you think about this? Do you have any examples of where you have managed to buy happiness?