I often talk to clients about how they should invest their money, but it’s less common for me to talk to them about how they spend it. If you think about it, though, that’s just as important.
Why do we spend money, anyway? To improve our lives. So it’s a perfectly valid question to ask: Are we spending money in ways that will make us happiest?
Happy Money: The Science of Smarter Spending by Elizabeth Dunn and Michael Norton offers direction on how to spend money in ways that will increase our enjoyment of life. Here are the authors’ “core principles of smarter spending,” fleshed out with some additional thoughts of our own.
- Buy experiences rather than things. Our culture places great value on material possessions. But many of the wealthiest people I know realize that the value of money is not in what it lets you accumulate, but in what it lets you do. Research shows that purchasing an experience often enables more pleasure, dollar for dollar, than purchasing a product. The memory of that experience, whether a vacation or a great concert, can also have a longer shelf life than a tangible product.
- Make it a treat. One of the things that lessens our enjoyment of spending is spending on the same predictable or easily accessible things over and over again. Sometimes it happens reflexively; we may become conditioned to new jewelry every Valentine’s Day, a new car every two years, or we may habitually take advantage of the next big sale. Limiting access to acquisitions can make us more appreciative – and make the acquisitions seem that much more special.
- Buy time. One thing missing in many people’s lives is free time to do the things they love. Be willing to pay for services that free up your time. For instance, sometimes I have clients who want to do their own taxes. I sometimes suggest they take a different approach, knowing it will only be a source of anxiety for them, anxiety that could be outsourced to an expert – a CPA – who can likely do a better job anyway.
- Pay now, consume later. Think of this as the opposite of buying on credit. Paying for something ahead of time, whether an all-inclusive cruise or season tickets to the opera, gives you time to anticipate the pleasure it’s going to bring. And when the time comes to enjoy the experience, you’re able to focus 100% on the actual activity, instead of your wallet.
- Invest in others. Research indicates that it not only is better to give than to receive, but that it makes us feel better as well. Remember this the next time you choose between spending money on yourself or, optionally, on a friend, family member, or a cause that means a lot to you.
At PARTNERSINWEALTH, we simplify the lives of financially successful families through a PERSONALCFO approach. Having a PERSONALCFO gives you a comprehensive view of your family’s financial life, with the goal of facilitating better decision-making, accelerating the growth of net worth, and freeing up your time to focus on your work, passions and dreams. For more information on what having a PERSONALCFO can do for you, please contact Jim Waters, CFP®, at PARTNERSINWEALTH, 713.964.4028 or email@example.com.