Jonathan Clements | September 5, 2020
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:
- Ponder your purchases for a few weeks or months before pulling the trigger. You may discover that the best part of each purchase is the anticipation.
- Go for variety. I’m not saying you shouldn’t repeat a small purchase that had previously made you happy. But try not to do it too often. Don’t always stay at the same country inn. Don’t buy a Starbucks specialty coffee every day. Don’t always go to the same restaurant. If you make it a habit, it won’t seem special. If you do it occasionally, it’ll feel like a treat.
- Buy time. It’s our ultimate limited resource. Pay others to do chores you dislike, such as cleaning the house or mowing the lawn, so you have more time for activities you enjoy.
- Don’t finance your spending with debt and, if possible, pay ahead of time. You’re more likely to enjoy a purchase if you aren’t worrying about how you’ll foot the bill. For instance, when you book a hotel room, you might prepay, which will often also get you a small discount. It’s also why I like it when family members give me gift cards to local restaurants. I can then focus on the food, without thinking about the cost.
- Involve people. We’re frequently reminded that experiences tend to deliver greater happiness than possessions. Why do experiences win out? A key reason is that others are typically involved. The experience of going to a museum or a concert is a whole lot more fun if you have company.
- Give to others. We get a surprising amount of happiness from making gifts and giving to charity. Want to make that gift extra special for the recipient? Make the gift when it’s not expected. Your spouse will be happy to get flowers on Valentine’s Day. But if you really want to see her smile, buy her a dozen roses today.
- Another reason to favor smaller purchases: They typically involve little ongoing maintenance and they often aren’t worth repairing. That isn’t true for major purchases like cars and homes. Yes, some folks enjoy rotating the tires and fixing the leaky faucet. But most of us don’t—which is why cars and homes are frequent sources of unhappiness.
- Avoid signaling. We often spend money not because it’s something we really want, but because we want to make a statement to the world about what sort of person we are. For instance, folks will buy luxury goods as a way to signal their financial success. Indeed, almost everything we say and do can be interpreted as signaling to others how we want to be perceived. A Rolex watch makes one statement. A Timex says something very different.
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.
HERE ARE THE SIX other articles published by HumbleDollar this week:
- Kristine Hayes is approaching retirement age—and trying to figure out the best strategy for generating retirement income. Her biggest stumbling block: the overwhelming number of financial choices.
- “In many cases, debt is merely convenient—not necessary—and it comes with costs that go far beyond the low, easy monthly payments,” writes Isaac Cathey, who details five key drawbacks.
- Got to generate cash from your portfolio? To figure out what to sell, you need to know not just your income tax rate, but also the rate on your capital gains. Rick Connor explains.
- “Playing to someone else’s scoreboard is easy,” argues Anika Hedstrom. “The harder thing—playing our own game—begins when we turn our energy toward what we’re capable of and how we can improve ourselves.”
- Want to be more productive—without being more stressed? Adam Grossman highlights 10 great strategies.
- Refinancing. Portfolio design. The 4% rule. Minimizing regret. Insurance products for retirees. Check out HumbleDollar’s seven most popular articles in August.
Follow Jonathan on Twitter and on Facebook. His most recent articles include Brain Candy, Think Like Eeyore and Getting Emotional.
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