We’re all familiar with the old trope that money doesn’t buy happiness. But recent research shows that’s not entirely true. Here, Laura Vanderkam, author of the new book All The Money In The World, discusses the relationship between money and happiness, why you should invest in travel, and maybe even gives you permission to splurge on that pricey purse you’ve had your eye on.
Q: What’s the relationship between money and happiness?
A: Money is just a means of exchange. So it can make us happy when we use it to obtain other things that make us happy: leisure time, enjoyable experiences, time with family and friends. It can also make us happy when we use it to solve problems that make us very unhappy: a broken car, for instance, or a leaky roof.
Q: What are our biggest misconceptions about money and happiness?
A: We tend to overspend on items that can be compared with other people’s possessions: houses, cars and jewelry in some cases (like engagement rings). We spend big on these things because we’re social creatures, and to some extent we measure our lives according to where we land in the heap. But the problem is that we get used to most possessions, and eventually they no longer make us happy as they once did. Spending less on these items creates space in our budgets for little indulgences that will make us happy every time: dinner out with friends, a babysitter so a busy parent can get some free time, weekend trips away.
Q: Is it the having of money or the spending of money that has the biggest impact?
A: Having assets buys you freedom – the ability to do things because you want to, not because you have to. Feeling in control of your life is a big part of happiness. That said, money is eventually there to be used, so how you spend it isn’t irrelevant to the question either.
Q: When we splurge on a $800 purse – something that has implied social status – does it actually make us any happier?
A: It depends. If the purse is something you’ve had your eye on for a while, and you’ve saved up for it, and then you consciously choose to remind yourself how beautiful and useful it is when you carry it every day, then an expensive purse can make you happy. If you just bought it mindlessly, though, and have three others in the closet, or if buying it means you can’t pay your rent, then it probably won’t.
Q: What’s the best way to use our money to maximize happiness?
A: I tell people to use money in three ways. First, buy yourself experiences. Travel is almost always a great use of money. You anticipate the experience beforehand, you enjoy the adventure as it’s happening, and then you savor the memory afterwards. That’s like a triple happiness bang for your buck. Second, buy yourself time. People like to relax, to spend time on hobbies. If getting your groceries delivered can buy you an extra hour to play with your kids, that’s a good use of money. Finally, spend to nurture your social network. Because we are social creatures, we derive a great deal of happiness from having tight social ties. Using money to get together with family, to host parties, or to give generously to your place of worship is almost guaranteed to buy you happiness.
Q: Is there anything we can do on a daily or weekly basis that might make a difference?
A: On a daily basis, don’t feel guilty about some small indulgence that you look forward to. If you like your lattes, buy a latte. From a happiness perspective, you’re probably better off buying your daily latte but spending less on big ticket items: furniture, housing, car payments. On a weekly basis, it’s hard to think of something more enjoyable than meeting a friend for lunch. It doesn’t have to be an expensive restaurant, but getting outside the usual routine and nurturing a relationship tends to be a good use of cash.