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While the phrase “money doesn’t make you happy” is a generally accepted and popular adage, research shows that how you spend it just might. In a 2011 article in the Journal of Consumer Psychology, researchers Elizabeth Dunn, Daniel Gilbert and Timothy Wilson argued that “if money doesn’t make you happy, then you probably aren’t spending it right.”

In this article (and its follow-up book, “Happy Money” by Dunn and Michael Norton), the authors conducted a review of existing academic studies that resulted in eight evidence-based ways to maximize happiness from your hard-earned dollars. Consider these eight key takeaways as you evaluate your goals and spending plan for 2019:

1. Choose experiences over things. The joy of the experience lasts longer.

2. Helping others makes a difference. Social spending supports stronger social relationships, which affects happiness.

3. Purchase several small things instead of the big-ticket item. We adapt to the large ones too quickly; smaller more frequent purchases or experiences are often unique each time and delay adaptation. For example, we adapt quickly to the new dining room table, but less quickly to the bi-weekly dinner out with friends.

4. Buy the extended warranty only when necessary. Warranties/return policies may be unnecessary for happiness (and can potentially undermine it).

5. Buy things that last. In other words, buy now and consume later. This creates more anticipation and promotes the selection of items that produce longer term benefits.

6. Be mindful of what the purchase will do to your life. New items may require a significant amount of your time and attention to maintain.

7. Purchase what you might enjoy. Over-comparing can hurt happiness and result in buying things we don’t need.

8. Family and friends can influence your enjoyment. Learn from others before spending, especially on big ticket items. Ask and observe how things and experiences have affected others’ lives for the better or worse.

With the above in mind, examine how you have spent your dollars over the past year and how you would like to spend them going forward. Consider if you are allocating your hard-earned dollars in a way that maximizes your wellbeing.

Are you spending money on things that matter to you and align with your values? For example, if it is important to you to develop close relationships with family and friends, consider how you are spending money in ways that help you accomplish that goal.

Does it make sense to forgo a larger purchase for several smaller ones? For example, you could go on a few smaller vacations throughout the year instead of one large single vacation. Reach out to others and/or observe how purchases have affected their life before making a similar one yourself.

Once you have set your goals for the year, it pays – in both dollars and happiness – to pause and consider how you spend money to achieve those goals. For example, do enough comparison shopping to make an informed purchase, but don’t over compare; look for opportunities to buy now and consume later; and consider how you can turn purchases into experiences that involve others.

While more money may not make you happy, a thoughtful spending plan that reflects what matters to you and that involves others can maximize the bang for your buck in both dollars and well-being in 2019.

 

Sarah Asebedo is a Certified Financial Planner and an assistant professor in the Department of Personal Financial Planning at Texas Tech.

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