I believe that the key to financial security is to live below your means and maximize your savings.
But what should you spend your money on after your basic needs are met?
An extensive amount of research shows that experiences bring people more happiness than material goods. This can be explained by a number of reasons:
- The happiness spike for material items is short-lived, whereas experiences produce joy during the anticipation of the experience, the actual experience itself, and then from the memories afterwards.
- Experiences tend to bring us together with other people, and social connection is a major key to happiness.
- Experiences often lead to better stories and conversations, helping us to relive the experience and bond with others (even if they weren’t there for the actual experience).
- Experiences are more likely to be defining moments in our life, and associated with how we see ourselves or who we want to be.
- Experiences are often more unique and distinctive when compared to material items.
So instead of buying a new shirt or watch, or even a new car, consider these experiential purchases instead:
- A special meal
- Sports or concert tickets
- A trip
- Lessons to learn a new skill (sports, music, language, cooking, etc.)
- Theater, movie, or museum tickets
- A gym membership or exercise classes
- Wine tasting
If you are going to buy a material item, then at least opt for a product that will lead to an experience. Experience-oriented products that help people learn or develop new skills (such as books, sporting goods, or musical instruments) have been shown to increase happiness and well-being.
Another great use of your money is buying time — arguably our most valuable resource. While much attention is given to monetary and material affluence, time affluence is a better predictor of personal happiness.
Buying time is a notion that is endorsed in the book Happy Money by Elizabeth Dunn and Michael Norton. The authors say that “by permitting ourselves to outsource our most dreaded tasks, from scrubbing toilets to cleaning gutters, money can transform the way we spend our time, freeing us to pursue our passions.”
The message is clear — use your money to avoid doing the things you hate doing, and you’ll have more time for doing the things you love.
If you want to truly live well, the smart money is on buying experiences and time, not things.