I had long held the idea that there were only three things one could do with money: spend it; save it; or gift it (i.e. give it away). And, as a Financial Advisor, I had lumped investing into the “save” category, thinking that saving and investing were essentially the same thing: putting money to work while we postponed consumption. But a later conversation with a friend lead me to a re-examination of the word “investing”. Our conversation was about how time, unlike money, cannot be saved or gifted, only spent. But we agreed that time well-spent was considered an investment of time, so couldn’t money well-spent be considered an investment too? Perhaps my definitions of saving, spending, and investing need to be re-examined.
In a similar fashion, a recent book by Elizabeth Dunn and Michael Norton, Happy Money: The Science of Happier Spending (Simon & Schuster) examines how various ways of spending money can lead to more happiness. The book cites five principles that can lead to lasting happiness:
1. Buy Experiences
2. Make it a Treat
3. Buy Time
4. Pay Now, Consume Later
5. Invest in Others
Spending money on memorable experiences, such as family vacations, reunions with friends, or a “date night” with a loved one instead of buying expensive toys is intrinsically more rewarding, because you are able to relate to those experiences on an emotional level for much longer than with objects. It comes as no real surprise to find out that “toys” (new cars, boats, bigger TVs, etc.) produce only a momentary happiness rather than an enduring one. In fact, studies show that maximum happiness occurs even before we acquire these new items. It is the thrill of getting them, not the actual objects themselves, that fires us up.
Make It A Treat:
Apparently you can have too much of a good thing. When overconsuming a certain good or service, we weaken the enjoyment factor of that item. If you have something every day, even if it's something you love, it becomes routine and blasé rather than fully enjoyable. For example, an occasional (read weekly or bi-weekly) café latte or cappuccino might be more enjoyable than a daily shot of your favorite java concoction. (Basically, the concept of diminishing/marginal returns).
We are encouraged to make life-decisions that allow one to have more free time. Suggestions include outsourcing unnecessary tasks (housekeeping, lawn care, etc.) or instituting "Takeout Tuesdays", where more family time can be created by avoiding the dinner preparation or having to deal with the dishes afterward. Also, the authors suggest thinking about our resources from a perspective of time, rather than money–refuting the “time is money” notion. There are studies that show that when we think of time or time resources, we are more optimistic and open to change.
Pay Now, Consume Later:
Think of it as happiness lay-away. In today’s society, we are more apt to do the reverse, thanks to the abundance of credit cards. When consummation is delayed, from something as simple as eating candy or attending an event, the enjoyment is increased. Again, it is in the anticipation that we derive our peak happiness. As an added benefit, when something has already been paid for and enough time passes, it almost seems "free" to us when it is actually consumed; this is certainly the case when compared to the alternative of getting an offensive credit card bill a month after a big purchase or when you get home from your family vacation.
Invest In Others:
Anyone that has ever bought a child an ice cream cone knows that giving can truly be the most gratifying of experiences. Happy Money touches on how donating or spending money on others feels better than buying things for oneself. The authors describe how certain corporations, such as Crate & Barrel, in conjunction with DonorChoose or Better World Books, will leverage this concept to create win-win scenarios for consumers (and charities): we, the consumers, buy goods and services that we need and, in return, certain charities of our choosing get to benefit. We feel great about spending money! Even though these are relatively small amounts, they are individually significant enough to have an impact in our happiness and collectively significant to the charity or cause they fund. The authors also share findings about studies that have proven that people that make gifts of money live longer and generally healthier than those that don’t.
So, if giving is one of the most enjoyable experiences and it has additional health benefits, why is that most of us don’t spend more time, effort, and resources giving of ourselves? Well, we need to be asked (or prompted), but in a way that doesn’t make us feel forced to comply. It turns out that giving isn’t an instinctive or impulsive behavior; we need a little help. Okay, some of us need a lot of help. But what remains constant is that we, as donors, need to be asked, we need to have a choice, we need to have a connection, and we need to know it is going to have a measurable impact*. Those are the keys to having a successful and satisfactory giving experience.
As I think about the legacy I wish to leave behind while keeping these five principles in mind, I immediately anchor to two of these concepts: “Buy/Create Experiences” and “Invest in Others”. On a personal level, I have always been put off by the idea of leaving a large block of un-used assets behind only to have them squandered or ill-spent by the receiving party; but armed with these new concepts, I can see myself creating a fund that can be tapped to fund family reunions and vacations, awards for good grades, opportunities for travel abroad, such as Voluntourism. These are things I can take an active part in, while I’m still alive, and share in those experiences and moments with my loved ones and people I care about. Also, by becoming a more active participant in charities and causes that address the issues that I’m passionate about (thinking in terms of time rather than money), wouldn’t I naturally become more willing to support these charities financially?
Perhaps, when it comes to money, it’s not so much about changing our mindset to create new behaviors; rather, it is changing our behaviors that enable us to achieve a new mindset. Now that’s money in the bank!
*For more an example of measurable impact, check out http://mulagofoundation.org/ideas/resources.