In my last post, I discussed the part one of the LearnVest Live conference I attended in downtown Manhattan. First to the stage was fitness guru Stacey Griffith who spoke about how personal finance is a lot like diet and exercise. You can read that post here.
Today, I'd like to give our financial morale another boost by discussing the event's second speaker, Harvard professor Michael Norton. While you may not have been at the conference and most likely didn't graduate Harvard, Norton's name may still ring a bell from his Ted Talk, Forbes coverage, NPR interview or work at M.I.T. You know, NBD. Here, I'll share Norton's theory and related research an regarding how, contrary to popular belief, money actually can buy you happiness.
The catch? You just need to spend it correctly.
1. Buy Experiences, Not Material Objects
My mother always says her favorite season is spring because "it holds all the anticipation of summer." Anticipation - that's the key, here. When Norton explained the importance of anticipation in relation to spending money, he encouraged us to think about it in terms of buying a new TV versus buying a vacation. As soon as you purchase something like a TV, you immediately begin thinking along the lines of "when will it be delivered?" and "how quickly can it be set up?" The longer you wait and the closer it comes to delivery day, the more impatient you become. Then, as soon as that TV arrives - literally, the moment it is hoisted up and installed - it begins to lose its value. On top of it, Norton reminded us that we often spend time watching TV alone, staring at a wall. Kind of ridiculous when you think about it, right?
A vacation, on the other hand, is something we love planning for and dreaming about - it perfectly captures the meaning of anticipation! In fact, research shows that the days and weeks leading up to our vacation are some of the happiest of the entire experience. We often have the opportunity to emotionally and mentally unwind, enjoy a new culture, and most importantly, spend time with the people we love. Now, that sounds like money well spent.
Buy experiences, not material objects…unless the material object saves you time! One of my favorite quotes sums this up perfectly in saying that "true wealth is control over your time and how you spend it." Doesn't that make sense? I mean, how many people would trade a raise for more vacation time or work flexibility? Probably a lot.
Again, Norton explained this well. He took us through a typical scenario where people remember being incredibly happy when they lived in a shoebox-sized apartment in the city where they worked. Then, they decided they need a bigger place, so they moved outside of the city. At this point, they've given up 1-2 hours a day to commuting, a.k.a. one of the least enjoyable human experiences. So, what do they do next? They buy a car! May as well enjoy all that miserable time spent commuting in a fancy car, right? Unfortunately, a house + a car = the two things Americans spend the most money on. And guess what? Neither equates to happiness.
So what should you purchase? Think along the lines of the Roomba (you remember: that vacuum that moves along and cleans the floors by itself). Anything that saves you time that you can then spend doing something else more valuable is worth it!
3. Spend it on other people
Norton conducted an experiment in various communities around the world where he or his team gave people an envelop with $10-$20 in it. Each time, he instructed the person to spend the money on either her/his self or someone else. In every situation and in every country they conducted the study, people claimed greater happiness (on a subjective rating scale) when they spent the free money on someone else, rather than on themselves. This is in parallel to how people actually get a lot of personal satisfaction out of volunteering and partaking in charitable activities, which I discussed in this post.
Case in point: I was skimming through Living Social deals recently (for myself) and happened across a little $15 deal for oysters and drinks in Hoboken where my brother (who loves oysters) lives. I decided to surprise him out of the blue with it and e-mailed him the deal. He was so taken aback and happy that just receiving an excited text of thanks from him was all I needed to know I had spent my money the right way!
Do you agree or disagree? Comment below!