5 basic truths about Money and Happiness:

Jonathan Clements in his book How to Think about Money mentions 5 truths about money and happiness that I found particularly enlightening:

“Money can buy happiness, but not nearly as much as we imagine”

When I was in medical school living off of student loans, I didn’t have lots of money. I barely had enough to make ends meet and although I was relatively happy with lots of close friends and family support, I always believed that I’d be even happier if I had more money. Clements, in his book How to Think about Money provides some insight on this idea. He attests that although we can use money to increase our happiness, we can only do so up to a certain extent. A certain level of money will allow us to live more comfortably. We won’t have to worry about paying our bills. We can live in a nicer area, afford meaningful trips with our loved ones, and can purchase more of the things we like. However, that increase in happiness only goes so far. Although our happiness can increase with more money, it usually doesn’t increase to the level that we anticipate.

“We place too much value on possessions and not enough value on experiences”

Many of us have, at some point in our lives, thought that if we had more money we could afford the thing(s) we want. While that may be a true statement, Clements, warns us against this type of thinking. Many of us overestimate how happy we will be when we purchase certain things. Unfortunately, any increase in happiness we get from purchasing a material possession is usually short-lived. To find more lasting happiness, Clements’ suggests that we focus more on experiences. Whenever we spend money on an experience, like a trip overseas, a visit to family, or a getaway vacation with our friends, we have much more happiness and it tends to last longer. We have joy in anticipation of the experience, happiness during the experience itself, and also have fond memories after the experience has ended that tend to get better with time. This is why Clements suggests that if we have extra money, we should forgo buying material things and instead opt for more experiences.

“Spending money on others can deliver greater happiness than spending it on ourselves”

Ironically enough, when we use our money on our ourselves, we get less happiness than if we were to use the money on others. It sounds odd, but many people find that they have lasting joy when they do things for other people. It’s as if knowing we have helped someone else makes us think more positively about ourselves and the kind of person we are. The idea of being a kind and doing something to enhance someone else’s life brings us joy that lasts a lot longer than the temporary happiness we may get from buying ourselves something. Giving is one of the key ways to achieve lasting happiness.

“We adapt quickly to both good and bad developments in our lives.”

This quote may seem a bit odd but has a lot of truth. As humans, we are great at learning how to adapt. Life circumstances may change but we change and adjust accordingly. Although our mood may sway from time to time, the majority of us, have a natural inclination to adapt. Our flexibility is good for survival but can really make us scratch us our heads in regards to money. If we are living in poverty, living with less may bother us initially but we quickly learn to adjust to our life circumstances and find some sort of happiness, even while working harder to improve our finances. In contrast, if we find ourselves in a position where we are upper class, making more money than average, we adjust to that as well. Clements’ point is that our life circumstances, and “becoming rich” won’t give us the long-lasting happiness we may expect. The key, he states, is to focus on intangible sources of happiness like family, experiences, and giving to others.

“Happiness depends on how we stand relative to others and we each have genetic ‘set points’”

Another truth in Clements’ book is that our happiness is shaped by our comparisons. If we are doing the same as, or better than, people around us, we tend to feel much happier about ourselves. However, if we are doing worse than those with whom we compare ourselves, we tend to be less happy. Our baselines degree of happiness or “set point’ is based on genetics and how we were raised. If we come from an optimistic happy family, we tend to be happier at baseline than others. The point is to be mindful of your happiness set point and increase your happiness by refusing to compare yourself to others, especially to those you perceive may be doing better than you.

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?