Money Can Buy Happiness – Only if You Know Where to Shop!

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Money Can Buy Happiness – Only if You Know Where to Shop! 1

Part 1: Is it all about the Benjamins?

Three sociologistsfrom the University of British Columbia asked 315 Americans to rank their happiness on a 100-point scale and predict how happy they would be if they made ten different incomes, ranging from $5,000 up to $1,000,000 a year .

They found a few interesting things related to money and happiness:

  • Those who reported earning $25,000 a year predicted that their happiness would double if they made $55,000
  • The actual difference in happiness of the group making $55,000 a year and the group earning $25,000 a year is just 7% (suggesting the above prediction wrong)
  • Once the median income in the U.S. (about $60,000) is reached, the happiness gained on additional income is minute (i.e. law of diminishing return kicks in)

This shows that an upgrade from poor ($25,000 a year) to average ($55,000 a year) certainly makes people happy but after that, going from wealthy to wealthier does not make people any happier.

Mo’ money, mo’ happiness?

study done by economist Angus Deaton and psychologist Daniel Kahneman (Nobel Prize winner for Economics)showed that people’s happiness increases along with their income up to about $75,000 a year. Increases in income beyond this level makes them feel more successful – but not happier. The lower a person’s annual income falls below that benchmark, the unhappier he or she feels.

Money Can Buy Happiness – Only if You Know Where to Shop! 2

The researchers found that lower income did not cause sadness itself but the magnitude of the problems are so big that it interferes with their enjoyment. For example, that among divorced people, about 51% who made less than $1,000 a month reported feeling sad or stressed, while only 24% of those earning more than $3,000 a month reported similar feelings. Among people with asthma, 41% of low earners reported feeling unhappy, compared with about 22% of the wealthier group.

More money might not make us as happy as we’d expect because:

  • We end up wanting even more
  • Even if we earn a lot, we end up comparing ourselves to others who make even more
  • More importantly, we get used to having money that more of it doesn’t add value to our life

Well, It’s Complicated: The Snapchat Story

Take the case of Evan Spiegel, the 23-year-old CEO of Snapchat, the app that went from a safe place for teens to share nude selfies to a global blockbuster in the last few years.

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Many reports claimed that Spiegal was arrogant and crazy when he turned down a $3 billion acquisition offer from Facebook.

But here’s the thing. Spiegel comes from a very wealthy family. Quoting from Gawker:

When young Evan learned to drive, he was given the use of a new 2006 Cadillac Escalade. The school did not allow him to park it on campus. But fortunately for Evan, Southern California Edison had a property next door. His father called in a favor with his long-time client, and Evan got to park in the gated Edison lot.

The family enjoys a $2 million house in Pacific Palisades, undertaking a $1 million remodel in 2000. They have five luxury cars, including three Lexuses and a restored 1966 Mustang, and memberships in the Riviera Club, the California Club, the Jonathan Club and the La Jolla Beach & Tennis Club. They took regular trips to Europe, the Bahamas and Maui, staying in Four Seasons resorts. Young Evan enjoyed Jet Skiing and wakeboarding.

On one occasion, he and his father went snowboarding by helicopter in Canada, court records show. Evan and his two younger sisters attended Crossroads, a private prep school in Santa Monica, and were assisted by tutors, some of whom charged up to $250 an hour.

So the fact is, when he turned down Facebook’s $3 billion offer, Spiegel was not saying “no” to being richer. He was already rich twice over.

Hence, once you reach a certain level of ‘rich’, more money will not be as attractive to you. More money would not guarantee you more happiness.

Part 2: But, can we hack this?

The problem is that most people aren’t spending their money on things that actually translate into happiness.

People are making empty investments into products and services that have short-term impact on their emotions rather than long-term impact on their lives and happiness.

Here, I purpose 3 methods to optimise your money (regardless of how much you have) to reach the maximum happiness.

Optimise your money (or spending) to maximum happiness

 

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1. Always choose life experiences over material goods

Money Can Buy Happiness – Only if You Know Where to Shop! 5

Material goods depreciate.

  • Your new peep toe pumps in a skin matching shade will eventually be old.
  • Your new iPhone 5S will eventually become obsolete and replaced by iPhone 6 or 7 (or Google Glass).
  • Your new bright coral ‘Too Hot To Handle’ Marc Jacobs Hobo will eventually be out of fashion.
  • Your new BMW M4 Convertible will look inferior when you drive by a BMW M6 Convertible.

Experiences appreciate.

  • You’ll remember the friends that you spent your birthdays with but not the thousands of gifts that you received throughout your life.
  • You’ll remember the time that you won the best dressed at a party but not the thousands of other similar parties that you have been to.
  • Your travel experiences, the first time you drove through mountains, your first sunset at the beach, your first eclipse, the first time you looked through a telescope are all great experiences. You can always go back to them with nothing but your imagination. You’re free to take it all with you when you go.

Unlike material goods, which grow less exciting over time and then obsolete, experiences tend to become fonder with time. People mentally revisit their experiences more than things they’ve bought.

The enemy of happiness is adaptation. Unfortunately we get used to things and they give us less pleasure; after a while we start taking them for granted. It’s sad but true.

Experiences are unique. Experiences keep providing pleasure long after the event itself. Hence, we adapt to it slowly.

It’s socially more acceptable to discuss our experiences with others than your possessions. People who bang on about their possessions are considered much less likeable than those who talk about their crazy holiday adventures.

Do this!
Create a list of 10 life experiences to have in a given time period (e.g. in a year, end of 2015, 2016, etc). Print it and hang it somewhere you’ll often pass by (e.g. your dress mirror). Plan for it and complete it.

2. Pro-social spending, spend your money on others
Pro-social spending, money donated to charity or used to buy gifts for others leads to a bigger effect on happiness compared to personal spending.

Much like eating or sex, generosity seems to generate positive feelings in almost everyone, regardless of cultural context. Although spending money on others differ in both form and frequency in poor versus rich countries, the emotional consequences are consistently positive.

But why?
Why is it that spending our money on others makes us happier?

Micheal Norton, a popular TED speaker (see above), with two other psychologists approached strangers on the street and gave them different sums of money ($5 or $20). They told them to spend it by the end of the day. Half were told to spend the money on themselves, while the other half were told to spend it on others.

Later that evening, those who spent the money on themselves bought things like coffee (Starbucks mainly) and food, while those who gave money to others reported spending it on things like gifts for their siblings or donations to the homeless.

The result?

Those who spent their money on others reported feeling much happier at the end of the day than those who spent their money on themselves.

There was no difference in happiness between those who spent $5 or $20, suggesting that it is not how much money you spend, but how you spend it, that boosts the spirits.

They concluded that giving to others makes us feel good about ourselves. It helps promote a view of ourselves as responsible and giving people, which in turn makes us feel happy (i.e. the positive feedback loop of giving).

Currently, the ratio is about 1 to 10 when it comes to how much we spend on others compared to ourselves. I believe we can do way better than that.

 

There are a few ways for you to start today:

1. Donate water (Worldwide)

Why water? Every $1 invested in improved water supply and sanitation can yield from $4 to $12 for the local economy, depending on the type of project. Even in regions prone to natural disasters, water infrastructure has proven to be a smart investment, sometimes reducing flood damage or disease rates among survivors. Clean water transforms lives, communities and generations — and at a surprisingly low cost. Just $20 can provide clean water for one person.’ – taken from Charity Water’s website. Find out more: Donate

2. Buy a child education (Worldwide)

Pencils of Promise (PoP) is an exceptional organisation that has built 206 schools worldwide with 22K+ students served by their schools and impacted 200,000 lives through many of their programmes. It’s amazing that PoP breaks ground on a new school every 90 hours.

Now, you can fundraise for them with the goal of $25,000 for your special day (birthday, anniversary, etc.) and they’ll dedicate a school to you or a loved one. The best part? The trip where you’ll travel with them to the field to see your impact.

Click here to find out more: Donate – Pencils of Promise (Disclaimer: The founder of Pencils of Promise is a personal friend. He didn’t pay me to write this, but I believe in the cause.)

3. Build a house for the underprivileged Malaysian communities (Malaysia)
EPIC Homes is a home grown (Malaysian) for-purpose organisation that aims to build relationships between the urban and rural divide through the activity of building homes for underprivileged Malaysian communities, currently focusing on the indigenous people of Peninsular Malaysia, the Orang Asli.

Since 2010, they have built 17 homes mostly in Selangor and Perak, connecting Orang Asli families with over 300 people from around the world. They have built alongside Malaysians and have also had builders from Hong Kong, Australia, Germany, Japan, Holland, New Zealand, India, Sweden, Korea, Turkey, UK, Singapore, Philippines, Indonesia, Taiwan, South Africa, USA, Iraq and Venezuela.

Join them and donate your time and money to build a house for underprivileged Malaysian communities.

Find out how here: https://www.epichome.org

What if donating money is not your cup of tea?

Now, there are ways to contribute to others without actually donating to a charity.

1. Spend money to strengthen your relationship with your family or friends
Choose to go to your college reunion although it’s a huge hassle. Pay for a plane ticket to visit your sister’s new baby. Throw a party to celebrate your friend’s promotion. Be the reason for someone’s smile today.

2. Learn a skill that will please the people closest to you and make you better
E.g. playing guitar so that you can play at your parents’ 50th anniversary or learning your wife’s mother language to surprise her.

3. Spend money and time to look better for your spouse/significant other
If spending money on a new iPod, a more convenient gym, or a new pair of yoga pants will make it easier to get yourself off the couch, that’s a good happiness investment. If a new suit will make you look better at work and make you sexier (think Barney from How I Met Your Mother), then get one. It will make you feel more confident and make you more attractive.

4. Spend some money to end a conflict in your life with your loved ones
If your dirty garage is creating a conflict between you and your girlfriend, maybe you can spend some money and hire a teenager to get it cleaned.Remember: Money CAN buy happiness – You simply need to give it away or use it on others.

3. Buy many small pleasures, rather than a few big ones.

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Do you think you will be happier with two cookies now? Or one cookie now and another tomorrow?

Do you get the same amount of happiness from the first scoop of your favourite Häagen-Dazs ice cream compared to your second or third scoop?

Do you get more pleasure from a continuous 10-minute massage or two 5-minute massages with a minute break in between?

Twice the size but not twice as nice (pun intended)
Nelson and Meyvis from University of California showed that people predicted it would be the continuous massage, but they were wrong. People enjoyed the massage with the break more because the break stopped them from becoming used to the massage and wanting it more.

Similarly, if you already have a lot of “stuff,” getting more doesn’t bring the same new-purchase satisfaction.

The weirdest of the findings is that although people preferred to avoid commercial interruptions, these interruptions actually made programs more enjoyable, regardless of the quality of the commercial and the nature of the interruption.

It’s the same reason why building your own hot rod piece by piece brings more enjoyment than buying it whole in one go.

Mini-vacations to multiple places are proven to be way more useful to prevent a burnout compared to a full one-month vacation.

Whatttt? Why?
Let me illustrate the reason behind this with 6 cookies.

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Case 1: Let’s say you chose to be greedy and eat all 6 cookies in one go.

The first cookie gives us a jolt of ecstasy. The second, a more mild buzz. The third, a pleasant sensation. The fourth, a tingle. The fifth, nothing. The sixth, stomach pain. After that, every single cookie will give you less and less pleasure.

The total pleasure from eating those six cookies? Ecstasy + pleasant jolt + mild buzz + tingle + nothing + stomach pain (In other words, diminishing marginal returns).

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Case 2: Now, say you wanted to be a good boy and a cookie every day till the 6th day. 

The result is quite straightforward here. You will have small doses of pleasure everyday and in totality you will have more pleasure than eating it all in one go (possibly, without the negative satisfaction i.e. stomach ache too).

Hence, you’ll get more happiness if you do frequent doses of lovely things rather than infrequent doses of lovelier things.

Do this!
Look at all the things that you would like to purchase or experience. Can you break it down to several different parts? Mini-vacations? TV series, watch one a day instead of a marathon?

Now, a combination of these three methods gives you a powerful recipe to use money in the most optimal way to reach happiness.

Don’t trade away your happiness now to earn money in hopes that if you make enough you’ll be able to buy it back later. You can’t. So, start spending your money now to lead a happy life.

Look forward to your thoughts and questions in the comments!

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References:

  1. Micheal Norton, Elizabeth Dunn and Lara Aknin Spending money on others promotes happiness.
  2. Norton, M., Dunn, E. and Aknin, L. (2008). Spending money on others promotes happiness,Page on berkeley.edu
  3. Happiness is Love — and $75,000, Happiness is Love — and $75,000
  4. Snapchat’s Evan Spiegel And The Antics Of A 23-Year-Old Novice,Snapchat’s Evan Spiegel And The Antics Of A 23-Year-Old Novice
  5. Snapchat’s Creator: Another Spoiled L.A. Brat, Snapchat’s Creator: Another Spoiled L.A. Brat
  6. Dunn, E., Gilbert, D. and Wilson, T. (2011). If money doesn’t make you happy then you probably aren’t spending it right, Page on harvard.edu
  7. When thousands of Americans were asked this question, 57% said experiences make them happier and 34% said things make them happier (Carter & Gilovich, 2010)
  8. Van Boven, L. & Gilovich, T. (2003). To Do or to Have? That Is the Question, PsycNET – DOI Landing page
  9. Nicolao et al. (2009). Happiness for Sale: Do Experiential Purchases Make Consumers Happier than Material Purchases?, An Error Occurred Setting Your User Cookie
  10. (Dunn et al., 2008) – I’m not sure what journal this refers to?
  11. Nelson, D. and Meyvis T. (2008). Interrupted Consumption: Disrupting Adaptation to Hedonic Experiences,Interrupted Consumption: Disrupting Adaptation to Hedonic Experiences
  12. Nelson, D., Meyvis, T. and Galak, J. (2009). Enhancing the Television-Viewing Experience through Commercial Interruptions, Enhancing the Television-Viewing Experience through Commercial Interruptions
  13. Nelson, D. and Meyvis, T. (2008). Interrupted Consumption: Disrupting Adaptation to Hedonic Experiences,Interrupted Consumption: Disrupting Adaptation to Hedonic Experiences
  14. A study conducted at Cornell University and reported in the January 2010 issue of Journal of Personality and Social Psychology (http://psycnet.apa.org/?&fa=main.doiLanding&doi=10.1037/0022-3514.85.6.1193)
  15. The secret of happiness by Harvard Business School professor Michael Norton and two colleagues from the University of British Columbia, Elizabeth Dunn and Lara Aknin. Their article, “Spending Money on Others Promotes Happiness,” appeared in the March 21, 2008 issue of Science.
  16. Page on psych.ubc.ca (Investing in Others: Prosocial Spending for (Pro)Social Change)
  17. Page on hbs.edu Prosocial Spending and Well-Being: Cross-Cultural Evidence for a Psychological Universal by Lara B. Aknin, Elizabeth W. Dunn, Christopher P. Barrington-Leigh, John Helliwell, Robert Biswas-Diener, Imelda Kemeza, Paul Nyende, Claire Ashton-James, and Michael I. Norton