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TODAY, I SING THE praises of spending—on the little things in life.
We fiercely resist the suggestion that money doesn’t buy happiness. Commentators will often trot out the quote—which has been attributed to all kinds of folks—that, “I’ve been poor and I’ve been rich. Rich is better!”
I think that’s true. But it isn’t proportionally true. If you went from earning $100,000 a year to earning $200,000, or your portfolio grew from $500,000 to $1 million, would you be twice as happy?
Similarly, on a recent Friday, I found myself alone, with no desire to cook, so I simply heated up a $5.99 pizza from the supermarket. Yes, I admit it, it was a little sad, especially for a Friday night.
The following evening, I went out with three friends to one of my favorite restaurants and we spent more than $100 a head, or some 20 times more. The food was undoubtedly better and there were other perks, including the anticipation of a fun evening, the company and the brief reprieve from dishwashing. Still, I’d be hard pressed to claim that the entire experience was 20 times better than the prior night’s supermarket pizza.
What’s my point? There’s huge variation in the cost of goods and services—but the resulting boost to happiness varies far less. Buying a new Kindle eight-inch tablet computer might cost you $110, while purchasing a new car would set you back an average $38,000. To be sure, most folks need a car.
Still, if the goal is greater happiness, wouldn’t it make sense to spend, say, $11,000 less on the vehicle, which would give you savings equal to the cost of 100 Kindles? That way, you could buy perhaps one new Kindle, plus 99 other treats costing $110 or so.
That would almost certainly be a prescription for greater happiness. Why? Whatever you do with your money, the happiness you receive from the spending will wane, as the initial thrill quickly turns to ho-hum, thanks to so-called hedonic adaptation. The $38,000 car might generate greater excitement than the $110 Kindle, but you’ll get to indifference—and perhaps even disdain—soon enough.
One of the upsides of less expensive but more frequent purchases: You might be able to afford, say, a small thrill every week or two, rather than a somewhat larger thrill every three years. Moreover, by favoring smaller purchases, you limit the magnitude of your financial mistake if—as often happens—you misjudge what will make you happy.
I’m hardly the first person to suggest this strategy. For instance, it’s one of many mentioned in the brilliant paper by academics Elizabeth Dunn, Daniel Gilbert and Timothy Wilson. Like the idea of small pleasures? Here are eight additional thoughts on that strategy:
Obviously, there’s pleasure to be had from signaling. But I presume there’s greater pleasure to be had if we can each figure out what we truly enjoy. So what do you enjoy? Make a list—the longer, the better—and then focus on those items with more modest price tags.
Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Brain Candy, Think Like Eeyore and Getting Emotional.
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There’s lots of wisdom in this oldie but goodie. Glad it’s in the Second Look rotation.
I was just thinking of this very subject but in regards to a much larger expense. I’m planning on renting a home for a year or two in a new city, while I decide on whether or not to buy. When evaluating rents, one gets more features by paying more, but then you pay the premium going forward every month, i.e. is the extra $200/month worth it for a better location/garage/etc. Your article provides some good food for thought for making the decision.
It might be worth it to pay a bit more for a better location if that cuts down on your commute time to work or locations that you frequently visit. Not only will that save you some money on transportation costs, but more importantly it will save you time and energy. Of course, in some cities it’s not feasible to live close to work, but in that case you may want to consider relocating to another city.
Signaling is an unavoidable aspect of human nature. The danger is that is causes many people to spend beyond their means. If I opt for a Timex, I’m signaling that I’m frugal and/or don’t have any interest in an expensive watch (I have an Apple watch for functional reasons). Of the 15 houses on our street, only 5 of us don’t use lawn services and only three of us pay for recylable trash pick-up, which is optional here. I’m glad to signal that I enjoy yard work (most of the time) and that I support recycling. Last fall I splurged on the most expensive version of a Subaru Outback (my first new car in 30 years). The fact that I bought a Subaru instead of a comparably priced BMW probably signals more to others than the purchase price.
This is a great lesson for us all. The quest for a secure retirement should not be so extreme as to suck the joy from day-to-day life.
One thing I’ve never placed a budget on is books. Yes, there are a couple books I’ve put off buying because they were priced many times what a typical book sells for, but in general, if I want a book I buy it. Books not only enrich the present, but are often a source of lasting joy for me. I can see many things that might fit this role for people, from musical instruments and sheet music to play, to certain sports equipment for things you love to do.
Security is an important goal, but one has to decide what they value most before they know how best to direct their resources.