Buying happiness

Vanguard, which maintains my retirement fund, sends me regular newsletters. Most of it is the same old song: save more, invest more, retire better. But the most recent newsletter had a nice, simple article that talks about spending better, not just spending less. Turns out, money can buy you happiness... if you do it right. Read on for some sound advice. My favorite line:

"Spend to buy yourself experiences. Looking back on your life, you’ll be happier having spent a week in California touring vineyards than spending more on chairs for your living room."

Be happier living on less

01/18/2013

Buy fewer things. Spend less on what you do buy. Save as much as possible for retirement.

All sound pieces of advice.

But are there alternative ways to improve our finances and still lead enjoyable lives?

To find out, we talked with Laura Vanderkam, author of the personal finance book All the Money in the World: What the Happiest People Know About Getting and Spending.

Here are some thoughts Ms. Vanderkam, who also blogs* about personal financial issues, shared with us.

Question: You don’t think people are getting reasonable advice about how to save money, right?

Ms. Vanderkam: A lot of people writing financial literature focus on small things because they can be quickly changed. It isn’t a huge lifestyle change to clip coupons or eat at home instead of going out. 

The problem is that the savings from those strategies are very small. Some also take time, and time is a valuable resource.

Finally, they sometimes require sacrifices in happiness that are not worth the money you save.

If it makes your job more enjoyable to go out with a friend for lunch once a week, that may not be the first thing you should cut just because it costs you extra money.

Question: What changes in the way we manage our financial lives would be better?

Ms. Vanderkam: If you want to make big financial changes, you should look at the big things you can do.

In the long run, for example, you want to be in a house that does not consume all your income.

If [for example] you spend 20% of your income on housing instead of 35%, you can bank 10% and still have 5% to spend on fun stuff.

Question: But you do think it’s o.k. to spend money on fun?

Ms. Vanderkam: Many of us don’t actually spend that much on the things that truly make us happy.

There is a lot of room in our financial lives to be happier than we are and to make financial changes that can drastically boost happiness.

Question: Such as?

Ms. Vanderkam: We don’t think of $5,000 as a huge amount to spend on an engagement ring these days.

But as I mention in my book, you could spend $1,000 on the ring and spend the other $4,000 over several years for date nights, buying flowers for your spouse, even paying for a cleaning service. In other words, on all the things that can reduce friction in a marriage.

Question: What can you do to improve your finances if you think you’re saving about as much as you can?

Ms. Vanderkam: I think that many of us could make more money if we tried. But we are not used to thinking about it that way.

If you are a small business owner, or a freelancer, you may be able to find more money by working more hours, by finding new clients, and telling old clients that your rates have gone up.

Question: What can you do if you have a regular job?

Ms. Vanderkam: It’s less obvious how to increase income if you have a W-2 job.

However, you could position yourself for promotions and raises by volunteering for overtime.

If none of this is feasible, you can also look at starting a side business.

In the past, working a second job conjured up visions of having to do the night shift someplace after working at your first job. These days, you can do things like tutor online, which is less exhausting.

Question: What do you suggest about saving for retirement?

Ms. Vanderkam: It’s very important to save and invest for retirement, and the easiest way to do that is to live within your means.

There are two approaches to doing that.

You can cut your spending, or you can increase your earnings and keep your living expenses constant so that you have extra money that can be saved. I tend to think the latter choice is more pleasant, because humans don’t do well with deprivation long-term.

Question: What other lessons about money and happiness might we learn?

Ms. Vanderkam: I’ve realized that money is most likely to buy us happiness when we spend it in three ways.

First, spend to buy yourself experiences. Looking back on your life, you’ll be happier having spent a week in California touring vineyards than spending more on chairs for your living room.

Second, spend to nurture your social network. I mean your real one, not the Facebook kind.

Humans are social creatures, and strong relationships are closely tied to happiness.

Money spent getting together with friends and family is seldom wasted. Curiously, giving also fits in this category. Giving to your place of worship, for instance, creates a strong community that you become part of.

Finally, spend to buy yourself time. People tend to enjoy relaxing or socializing far more than running errands, so pay for shipping fees and get things delivered. It will be money well spent.