Is a house full of stuff going to make you happy? According to a number of studies, it probably won’t. Instead, if you want to be happy with your life and your spending decisions, research indicates that you should focus on experiences.
Are Material Items REALLY of Greater Value?
One of the ways that we get in our own way as humans is that we buy material things, believing that they are of greater value, even though these things won’t make us happy.
According to a study published in the Journal of Positive Psychology, we associate economic value with stuff, and that starts to trip us up a bit. Here is what the Huffington Post reports on the results of the study:
Before making the purchase, the participants said that they were aware that a life experience would bring them more happiness, but that it would make more sense financially to buy the material item.
But their opinions changed after making the purchase, researchers found. The participants said post-purchase that not only would happiness be greater with a life experience, but that the life experience was also a better value than the material item.
Because things are tangible, it’s easy to attach more value to them before really thinking through the purchase. The truth, though, is that value isn’t so easy to pin down. Monetary value isn’t everything. On top of that, most of the things that you spend money on, thinking that there is some sort of long-term financial gain attached to them, actually depreciate.
Over time, your memories — even of a “bad” experience — improve and build up value. The things you buy, for the most part, lose monetary value. As you progress through life, and you realize this, having all that stuff can bring you down, and make you less satisfied with your financial situation, even if you have “enough” money. Change the way you spend money, and you might improve the way you feel about your life.
As our guest, Martin Dasko from Studenomics, points out, you might be surprised at the monetary value of things as your life progresses. Before you buy something, consider how much you could get for it if you had to sell it at a yard sale. When you think in those terms, you realize that the so-called “economic value” of things might not be as high as you thought.
Of course, buying something doesn’t alway have to be a waste. If you can make a purchase that provides you with regular experiences, it might be worth it. A hot tub might not add substantially to the value of your home, but it can enhance your life. If you can have people over to grill and enjoy the hot tub with you, that’s really an experience that you can purchase to improve your life. But it’s probably not a true financial “investment.”
Think about the utility value of the things you buy. If you really will get use out of it, and it will enhance your life, the purchase is probably worth it, even if it offers a small amount of lifestyle inflation. Evaluate how you feel about the item or experience in terms of your overall lifestyle goals, and how much interest it adds to your life.
Is that Experience Worth It?
Even when you’re spending money on an experience, though, you’re still spending money. Matt, from the Listen Money Matters podcast, asked a very poignant question in our episode about experiences or things. How do you decide which experiences to spend money on?
It’s important to pick and choose which experiences are going to provide you with the most benefit — and remember that those benefits aren’t likely going to be entirely financial.
In the book Happy Money: The Science of Smarter Spending, Elizabeth Dunn and Michael Norton report on research about what type of spending makes us happy as humans. There are five key principles mentioned by the two in the book:
- Buy Experiences: We’ve established that a life experience is going to be more satisfying long-term. The following points emphasize how you can make these experiences more worthwhile as you proceed.
- Make it a Treat: The extraordinary becomes ordinary if you do it too often. You can appreciate your experiences more if they come fewer and farther between. Look for ways to treat yourself, and keep those experiences fresh.
- Buy Time: Think about how you are using your time with whatever you are buying. In many cases, just having that extra time to relax or spend with others is worth the cost.
- Consume Later: You can increase your anticipation by paying now, and then consuming later. Going into debt for an experience is rarely worth it. When the experience is over, you could end up with buyer’s remorse as you pay for it for the next few years. (Although I’d rather go into debt for a weekend getaway than for a big-screen TV. But you shouldn’t go into debt for either of those things.)
- Invest in Others: Research indicates that spending money on others makes us happier than spending it on ourselves. If your experience involves others — especially people that you love — they can be even more worthwhile.
Ultimately, though, deciding which experiences are most worth your time and money, depends on your own values and goals. Before spending money on a thing or an experience, ask yourself this simple question: WHY?
Much of our dissatisfaction with life and finances comes from mindless spending. Be honest with yourself, and ask yourself why you are spending the money. Clarify the benefit you will get from it — and perhaps emphasize the non-material benefits, since the financial benefits will fade quickly over time (think of how quickly a car depreciates when you drive it off the lot). You’ll likely find that experiences are preferable to things.
Take the Experiences vs. Things Challenge
Martin issued a challenge during the show. He suggested that you take some money and spend it on things and experiences this week. Figure out which amount of money makes sense for you, and spend the same amount. So, if you spend $50 on things this week, spend another $50 on experiences. And these experiences don’t have to be huge. Take a friend out for drinks, or your kids out for ice cream.
Take the challenge, and come back in a week and leave a comment about how it turned out. And watch our show: