The Right Way to Spend Money (If You Want to Be Happier)

 Spend on experiences, not things. In our survey of loan applicants mentioned above, we found that more than 80% of people under 30 reported deriving more happiness from buying experiences — like trips, concerts, or special meals —than from buying material things, such as gadgets or clothes. (Sixty-two percent of respondents were Gen Z or Millennials.)

Nonetheless, it’s easy to get sucked into buying material things, partly because they’re so easy to compare. One of us (Elizabeth) was perfectly content with her iPhone 8, until she received a text message offering her a shiny new iPhone 11. (No money down!) She caught herself increasingly leaving the rapidly aging iPhone 8 on the edge of tables, nightstands, and sinks, unconsciously waiting for its demise. This behavior is not uncommon. Research shows that when a desirable upgrade becomes available, people often become careless with their existing products.

The fact that material things are so easy to compare helps explain why they are often unsatisfying. After all, even the iPhone 11 might not look so great next to the iPhone 11 Max Pro. In contrast, experiences aren’t so easy to compare.

 It can be hard to find time to enjoy special experiences, especially for those of us juggling lots of responsibilities. But the gig economy has made it easier and more affordable for many of us to buy free time. Beyond well-known time-saving services like DoorDash, Dunzo, and TaskRabbit, consumers are turning to creative companies like Hello Alfred, a kind of modern butler service that claims to have saved its members a combined total of more than 50 years through its array of services.

Spending money on time-saving services might seem indulgent given the current economic climate. But when we surveyed 15,000 Americans in the midst of the Covid-19 pandemic, people who reported buying time (like saving travel time by purchasing more expensive groceries from a closer grocery store), exhibited 10% higher life satisfaction compared to those who didn’t. Remarkably, this relationship held up even for people making under $40,000 per year.

Indeed, buying time appears to cause happiness levels to rise. As part of a study published in 2017, 60 working adults received $40 to spend on a time-saving purchase one weekend. On another weekend, those same individuals got another $40 to spend on a material thing. Compared to buying a material thing, buying time led people to experience more positive moods and reduced their feelings of time pressure. Yet, when other working adults were asked how they would spend a $40 windfall, only 2% planned to make a time-saving purchase.

Invest in others. Try this experiment on yourself: Grab a $10 or a $20 bill and use it to benefit someone else today. You could send a small gift to a friend, help out a stranger who’s short on cash at the grocery store, or make a donation to a charity that’s important to you. Although it might be tempting to spend this money on yourself, a decade of research shows that you’re more likely to derive happiness from spending it on someone else. In fact, even people who are struggling to meet their own basic needs exhibit this “warm glow” from giving to others.

But that doesn’t mean that giving always makes everyone happy. Instead, it matters how and why you give. It’s important that you feel like your decision to give is made freely — that it is something you choose to do, not something you feel forced to do by a pushy co-worker asking for yet another donation to their pet cause. Look for giving opportunities that will enable you to see how your generosity is making a difference for a person or cause you genuinely care about. And you can start small. Research shows that giving even a few dollars can boost your mood.

It’s important to note that some of this research has its limitations, as spending choices that promote happiness can also be dependent on our unique personalities. (For instance, in one experiment, 79 participants received a voucher to make a purchase at either a bar or a bookstore. Although both types of purchases provided extroverts with a small boost in happiness, introverts felt much happier after hitting the bookstore rather than the bar.) But this small study is just the beginning of the next chapter of research on spending and happiness.