4 ways spending money increases happiness

We like to shop. We buy a wide variety of things including cars, electronics, clothes, knick-knacks, and more. In fact, shopping has become a quintessential part of what it means to be an American. Unfortunately, the increase in shopping results in severe negative consequences. In the process of creating, manufacturing, and selling goods, a number of natural resources are depleted, workers health and well-being is often compromised, and many of these goods eventually end up in landfills. Despite the negative consequences, people still shop… a lot. This begs the question:

Why do people shop so much?

As implied by the saying “retail therapy,” there is a popular belief that shopping makes us feel good. It is easy to imagine that buying a new car would increase excitement, buying a new outfit would increase happiness, or buying a cool toy would lead to joy. But does shopping actually increase happiness? Well, it depends on what we buy.

According to my good friend and colleague at The University of Georgia, Professor Matt Goren, we can spend money strategically on expenses that actually improve our quality of life while spending less on things that don’t provide so much “bang for their buck.”

We know that meeting minimum needs is essential for happiness. This goes for needs—such as rent and food—as well as needs such as emergency expenses. When the car breaks down or you have to get a tooth pulled, suddenly there is an unexpected - and often very costly - expense. If you have adequately saved, you can avoid this stressful event, and the negative emotions associated with it. But many people pay a high mortgage to live in a nice house, or pay a hefty car payment to drive a nice car. We think these things are essential for a high quality of life, but we quickly get accustomed to the lifestyle and stop getting a happiness boost from it. Once the allure of the big house or nice car wears off, these things do not actually make us any happier day to day than we would have been without them. In fact, if buying the big house results in a longer commute to work, we will likely end up less happy despite the increased spending.

The same can be said for other fixed expenses, such as TV and pizza delivery. Once we habituate to certain perks, they stop making us happier - yet the expense remains. We are truly paying for nothing, as far as our happiness is concerned. And, with the increased strain on our budget, we may actually be worse off.

By spending money on the right things, we can increase our happiness.

Below, we discuss the four ways to spend money to increase happiness.

1. Reduce spending on needs

Start keeping your eyes open for savings opportunities. Here are some other tips to get you started.

Sign up for a credit card that gives you 3 percent back on groceries or gas and suddenly these fixed expenses are reduced by 3 percent.
Team up with some friends and join a family plan for your phone, and suddenly your phone payments plummet upwards of 50%.
Switch to an online savings account like Ally and suddenly you get 1 percent interest that can be put towards other things.

2. Be strategic about saving for emergencies

Understand what insurance coverage you have through work, and fill gaps with your own policies.
Open a savings account and set up automatic monthly contributions until you have about four to six months’ worth of living expenses saved for emergencies.
When you have an unexpected and unpleasant expense, try to pay for it up front. Every time you have a payment on something that you’d rather not be paying for, you get bummed out.

3. Try these tricks to get the most out of your spending

Pay for something up front that you will receive over time. For example, you could buy a season pass to an amusement park or ski resort. Every time you go, you get to enjoy it but you don’t have to pay again—almost as if it's free.
Spend money on experiences, such as vacations or the occasional fancy date.
Spend money on others by planning a fun birthday party or surprise gift.
Spend money on meaningful things, like a donation to your favorite charity or school. Gifts to friends, family, and charity are particularly good at making us feel happier.

4. Spend more money on what matters

Spend more money on experiences. They'll make your happier, feel more connected, and wont end up in a landfill.
Buy for others. Donate money, buy gifts for loved ones, or food for the homeless to increase your happiness.
Focus on meaning. If a particular product, book, or item gives your life meaning, then buy all means it is a worthwhile purchase.

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