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Sunday, June 23, 2024

How purposeful spending contributes to long-term happiness

How purposeful spending contributes to long-term happiness

08.01.2023

Would it surprise you to know that some 30% of Americans have tapped into a savings account or rainy-day fund to fuel their travel plans this summer?

In this period of higher costs where everything from Airpods to airplane tickets are more expensive, consumers are having to prioritize where their money goes more than ever. Surprisingly, more people are choosing experiences over things.

Even with the pinch of high inflation, there’s a way to feel good about your spending. Purposeful spending – like paying for an experience that’s been on your bucket list for a while – can contribute more to long-term happiness than the latest trend or gadget that’s purchased on a whim.

Let’s take a closer look at the science behind spending and see how our savings tools can help you spend your cents smarter.

Short-term versus long-term happiness

While buying things might provide momentary happiness, research from the University of Texas suggests that experiences win out.1

We know what you’re thinking. Of course a $3,000 cruise is going to make someone happier than some $30 fast-fashion items from the mall.

But there’s more to it than that according to University of Texas researchers. The data suggests that even when the cost is the same, experiences still win out over things. That means a $50 trip to your local museum is going to rank ahead of a $50 gadget.

Interestingly, people surveyed felt happier with experiential purchases before, during, and after they made them. Money may not be the key to happiness. But purchasing experiences over things certainly seems to help people feel better about their spending.

While this might be contrary to what electronics manufacturers want you to believe, the science backs it up. The possible reason for this is that experiences last longer in our memories and the value of material goods fades over time.

Experiences foster relationships

Another reason why people are choosing experiences over things is because experiences can deepen the relationships we have with others.

An 80-year Harvard study2 about happiness concludes that quality relationships have the most impact on overall health and happiness. We might have grown up thinking that the latest and greatest exercise equipment will have the biggest impact on our health.

It turns out that the connections we build with families and friends might be just as significant – or even more so!

If relationships predict our health and happiness better than almost any other marker like IQ, genes, or social class, spending money on nurturing those relationships makes a lot of sense.

Deciding what we value most

So does the experiences over things trend means you’re destined to live a life without any iPhone upgrades? Of course not! It’s simply a reminder to make sure that your spending is in line with your values.

Defining what you value can be a tricky exercise, so we’ve got some questions to help you get started:

  • What is something I’ve purchased in the past that I’d happily do again?
  • What has caused “buyer’s remorse” in the past?
  • How do I prefer to spend my time?
  • Where do I imagine myself having fun or feeling relaxed?
  • What excites me and brings me joy?

Jotting down answers to these questions should help you start to home in on what matters most to you. Then, you’re ready to align your money with your values.

Money talks with friends and family

One way to get started is by talking about money. In Empower’s recent Money Talks findings, over 60% of Americans find themselves thinking about their finances regularly. But about the same percentage of people don’t actually talk about money with family or friends.

You don't have to share your bank balance down to the penny, but being honest about what you are saving for and wanting to spend money on can help with accountability. Maybe you’re feeling a lot of pressure to fill up shopping bags on trips with friends. Sharing your dreams of a staycation, second home, or whatever else you’re saving for can make it a lot easier to stick to window shopping. Plus, you might be surprised to learn what goals your friends have when you start to have these conversations.

These casual conversations can and should go even further if you have a partner or a family. You can spend some time daydreaming together about what matters most. Then, you can set up sinking funds to set aside money for those experiences – or things! – each month.

When everyone in your household is clear on your goals, it’s much easier to stay on track with your spending.

Mental swaps to prioritize experiences over things

It’s no secret that consumer culture wants us to want things. That means that learning to spend on what you value – especially if you value experiences – can be a big shift.

Here are a few reminders that can help you adopt an “experiences over things” mindset:

  • Evaluate if the purchase is fulfilling a want or a need.
  • Consider how long this purchase will make you happy.
  • Calculate the true cost of owning the item – taxes, fees, storage space, and so on.
  • Wait 48 hours and see if you are still interested in making the purchase.
  • Determine if it’s something that can be borrowed or purchased used instead.
  • Add up how many hours of work it costs to make the purchase.

All of these mini money exercises should help you get a new perspective on your spending. That way, you can be more intentional with your money, which seems to be the key to long-term happiness when it comes to finances.

Final thoughts on experiences over things

After looking at all the data on spending, I’d say we’re taking the summer trip over the newest tech toy. But the most important thing to do is to align your spending with what you value most.

Maybe you want to travel or spend on a membership to your botanical garden. Perhaps you’ve been thinking of doing a brewery tour with some buddies. Or maybe you really actually do want to save for the next Apple gadget.

No matter what you’ve decided to prioritize, Empower can help you spend more purposefully. With the free budget planner, you can set aside the money you need to say yes to a bucket-list experience without sacrificing your overall financial health.

1 UT News, “Spending on Experiences Versus Possessions Advances More Immediate Happiness,” March 2020.

2 The Harvard Gazette, “Good genes are nice, but joy is better,” April 2017.

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Andy Hill, AFC®

Contributor

Andy Hill, AFC®, is the award-winning family finance coach behind Marriage, Kids, and Money, a platform dedicated to helping young families build wealth and happiness.

Author is not a client of Empower Advisory Group, LLC, and is compensated as a freelance writer.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Compensation for freelance contributions not to exceed $1,250. Third-party data is obtained from sources believed to be reliable; however, Empower cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third-party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Empower of the contents on such third-party websites.

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