How to use money to buy more happiness

There’s no guarantee that having money will make us happier but as someone who has been through periods where I was broke and others were I was a financially stable, I certainly prefer the later. Although having money doesn’t guarantee us happiness, Jonathan Clements’ book How to Think About Money teaches us that there are certain ways we can use the money we have to increase our happiness.

1. Spend money on others. I know this seems odd, but numerous studies in his book show that we get more happiness and lasting enjoyment when we spend money on other people instead of buying things for ourselves. Most of us have a few people in our lives that we care about. Using our money on those people in a way that brings them joy can make us even happier than we anticipate. Using our money towards a social cause we are passionate about or helping a group of people who is less fortunate can give us the sense that we are promoting goodness in the world which can provide a lasting feeling of happiness and self-contentment.

2. Focus on experiences rather than possessions. If we have money and would like to purchase something for ourself, his book states that we get more gratification when we spend money on experiences instead of possessions. In other words, we can get more satisfaction and lasting joy when we forgo buying “things” and choose instead to create memories and lasting experiences. So instead of buying the latest iphone, designer clothes, or new shoes, we would get more “bang for our buck” if we instead used our money to travel to another place, go to a fun concert, or participate in an exciting activity.”

When we use our money on experiences we get 3 sources of happiness. The first source of happiness is anticipation of doing the fun thing (knowing you have an experience planned brings us happiness from the day we decide to do the activity until the time the activity begins). We get another source of happiness by actually “doing” the activity (we have fun during the experience). Lastly, we get happiness from memories of the experience (even after it ends, the memory of that experience brings us happiness). Moral of the story: spending money on experiences and good times can make us extremely happy and that happiness has a lasting effect

3. Delay purchases (to build anticipation) If we do decide that we want to spend money on ourselves and buy some “thing” instead of an experience, there is a way to do this so that we get maximal happiness from the purchase. We should first: delay the purchase to build anticipation. I know this sounds counterintuitive in our age of impatience and desire for instant gratification, but it works. According to Clements’ book, we adapt to both good and bad things in our life relatively quickly.

For example, we get a new phone and are happy but after a couple weeks, it no longer makes us smile inside when we pull it out to text. We get assigned to a different division at work and at first it seems challenging but before we know it, we adjust to the demands and it no longer seems as difficult as it once was. The same thing happens with purchases. Because we adjust to things in our lives relatively easily it behooves us to delay this adjustment and build anticipation, since as we learned in the previous section, the mere thought of knowing we are going to get or experience something enjoyable actually makes us happy. We can put a timeline in place and tell ourself that we’ll buy that thing in a week or during our next pay period and the anticipation of being able to get that thing during the allotted time will actually bring us more lasting happiness than if we were to just buy it as soon as possible.

4. Opt for frequent small purchases instead of infrequent larger ones. Along the lines of delaying purchases to gain additional happiness from the anticipation of something, Clements’ book teaches us another thing we can do to gain more happiness from the things we purchase: Opt for frequent smaller purchases instead of infrequent larger ones. As stated above, we adjust to things in life relatively quickly. In order to gain more happiness from our purchases we may need to make more purchases overall. Since it isn’t feasible or financially responsible to buy expensive things all the time, it is better to choose to buy smaller things more often instead of one large big thing every blue moon. For example, instead of buying 4 things on Amazon at one time when you get paid, purchase 1 item a week.

My point? There are a milieu of hidden gems in Clements’ book How to Think About Money, but I loved these 4 tips on ways to spend money that could increase our happiness. What do you think? Which tips might you use?

5 ways to ensure you’re financially protected against the unexpected

As we continue to advance in our careers, we must ensure that we have protected ourselves financially. If unexpected expenses, life events, or pandemics, come our way, we must make sure we have the financial means to cover our bills and take care of our families without worry. Here are 5 ways to protect yourself financially:

1. Keep your fixed expenses low. One of the first things you can do as you are getting your finances in order is keep your fixed expenses low. Fixed expenses are regular expenses (like your monthly rent or mortgage payment) that don’t vary much in price and occur each week or each month. Keeping these expenses low allows you to save and invest more money towards your future goals. It also gives you a cushion financially in case something unexpected arises. If you have the unfortunate luck of losing your job, undergoing financial hardship, or simply living through this current pandemic that has wrecked the economy and lowered your salary, it is much easier to adjust to the changes and make any necessary spending cuts if your fixed expenses are low. If your fixed expenses are high it is much harder to weather the storm and cover your bills during times of hardship. Keep your fixed expenses low.

2. Reduce (and eliminate) your debt. Along with decreasing your fixed expenses, you should also work to eliminate your debt. The sooner you pay off your credit card bills, car loans, and student loans the sooner you’ll be debt free and have less money from your paycheck going to these expenses. It’s much easier to adjust to a reduction in income or a financial hardship when you have fewer bills and expenses to cover. Plus, paying off your debt leaves more money in your pocket each month that you can use to save or invest for the future.

3. Insure yourself against catastrophe. As we’ve all seen during this pandemic, you can’t always predict when financial hardship will occur or how long it will last. Aside from keeping your expenses low and paying off your debts so that you are better able to handle any income changes or unexpected expenses, you should also make sure you’re insured. We can’t always predict when large expenses will occur and may need some assistance if they do occur. Just like all people need health insurance, all working people should also have disability insurance. You need disability insurance so that if you are injured, sick, or unable to work at your full capacity for a prolonged period of time, you can get money each month to cover your bills. People with a spouse, kids, or family members who depend on their income should also have life insurance so that if they pass away unexpectedly, their family members are covered.

4. Save money for unexpected emergencies. Although you can’t always predict when unexpected things will occur, you should prepare for this possibility so that you are ready if it does occur. Part of protecting yourself financially means having an emergency fund with enough cash to cover 3-6 months of expenses. It may take some time to save up this amount of money, but putting a certain percentage of each paycheck into a separate bank account for emergencies will ensure that you are protected financially. Many people who had emergency funds before the Coronavirus pandemic found themselves in a much better position to handle the economic impacts than those who did not have an emergency fund.

5. Make sure your retirement is funded and diversified. Another thing you can do to protect yourself financially is make sure that you have invested money for retirement in a way that increases your profits and decreases your risk. Many people who were not investing money toward retirement when they were young have fewer years to let compound interest work in their favor and may have to work even longer and save even more money to be able to retire after several decades in the workforce. Others have invested a great deal of money towards retirement but have done so in a way that makes them extremely vulnerable to changes in the real estate market or stock market. Both groups of people may be even more impacted than others during this current pandemic. The goal is to have your money invested in many different companies across a variety of industries (ideally through index mutual funds) so that you are in a good position to gain interest on your money overtime but better protected in an economic downturn.

My point? While none of us have a crystal ball to predict when unexpected things will occur, we can do the things above to protect ourselves if and when hardship arises.