“Wealth is not his that has it, but his that enjoys it.” – Benjamin Franklin
Contrary to the popular saying, money can buy happiness, but only if you spend it in the right way. Behavioral economists and social psychologists have studied this topic – the intersection between money and happiness – quite a bit in recent years, and we can all benefit from their findings.
As you might expect, up to a certain income level, money helps to eliminate anxiety and increase the feeling of security. For example, having more money may mean you worry less about grocery shopping, going out to eat, or paying your mortgage. Nobel Prize-winning research shows that increasing one’s annual income from less than $25,000 to $50,000 can make you more than twice as happy. However, once you have the income to meet basic human needs, it seems additional income doesn’t provide much in the way of additional happiness. A more recent study reveals that the payoff in happiness level for income increases over $95,000 is slight.
So, if you consider yourself relatively affluent and lucky when it comes to material wealth, how do you maximize your assets to bring greater happiness?
Let’s talk first about what doesn’t work. If you are looking for lasting happiness, you will want to avoid buying more “stuff.” That’s because although we might think a new sports car will make us happy, what we are imagining is the first day we own that car, when it is bright, shiny, new and exciting. As we grow used to owning the car, it no longer offers the same thrill and our happiness returns to the status-quo, pre-new-car level.
There are, however, ways to spend money that have been shown to provide a greater level of contentment and joy. One, for instance, is to spend money on others. In one experiment, 46 students were given $20 to spend. The students who were told to spend the money on others – treating a friend to lunch or donating to charity – were happier at the end of the day than those who had been instructed to spend the money on themselves. Shopping for and purchasing the perfect gift, and then seeing the joy on another’s face when they open that gift, provides much more lasting contentment than buying something for yourself.
Giving to charitable causes that are important to you also tends to produce a high level of contentment. Using your money to do good in the world, and seeing the impact of those efforts, results in a feeling of well-being not found in material goods.
Another category of spending to consider involves experiences. When researchers interviewed study participants about their recent purchases, they found that money spent on activities such as plays, concerts or dinners out brought far more pleasure than material purchases.
Think about your last vacation. What do you remember? What really sticks? Those memories that bring a smile to your face are in fact an ongoing source of contentment and joy. To further extend the joy from your next trip, try to savor the time you spend planning and looking forward to the journey, and take lots of photos while you are there so that you can review and revisit them when you get home.
Our options for experiences may be limited due to concerns over and the effects of the COVID-19 pandemic. This might be a good time to explore experiences you can enjoy from home. Ever wanted to learn to paint, become a better cook, or speak French? Classes in these and many other topics abound online. Perhaps you could team up with a child or grandchild to take a class together, even though you might not be together in person.
An often underappreciated way to spend your money is on saving yourself time. There are many tasks that you may not enjoy, for example, doing the laundry, house cleaning or yard work. Consider spending money to eliminate these tasks that do not bring you joy so you can use the time on something that does.
Interested in examining your own spending habits? Track your purchases for a month and categorize each purchase as either an experience, material good or gift for others. At the end of the month, look back over the list and think about the pleasure each purchase brought you, and for how long. Do you notice a pattern?
Money may not be the only key to happiness, and likely not the most important one. However, thinking about how you spend your money, and choosing wisely, can go a long way in bringing joy to your life.
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The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Partners. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
Susan Strasbaugh, CFP®, EA, AIF®, 6/3/2020
© 2020 Buckingham Strategic Partners
We want to take a moment to focus on and celebrate this Thanksgiving season with you. We know it has been a tough year, but we also know that Thanksgiving is a time to count our blessings and express our gratitude.
With that being said, we want to extend our deepest appreciation for being entrusted as your wealth advisors throughout the pandemic, and beyond. It is our honor to be able to advise you and yours during such challenging times.
In good times and bad, being able to help others maintain their financial well-being adds meaning to our lives. For that, we are eternally grateful.
We wish you and your families all the best this Thanksgiving holiday.
Yours in gratitude,
Matt, Tim, and Eric
Planning for Uncertain Times
With this week’s election and ongoing health and economic concerns related to COVID-19, uncertainty remains high, as it has for most of 2020. Unfortunately, this is likely to continue well into 2021 on health, financial and societal fronts. As investors, it’s never enjoyable to navigate periods like this, so we wanted to step back and reinforce our perspective on financial markets as we head into the close of 2020 (and if you are anything like me, it can’t come quickly enough). We’ll do this by reiterating three principles.
1. Financial uncertainty is the source of expected long-term gain.
Over time, it’s been well established that stock markets in virtually all countries have achieved higher long-term returns than safer investments. Without doubt, the primary reason this is true is because markets can go through stretches where they fall precipitously because of economic and political events or lengthy periods where stock markets underperform safer investments. Investors collectively understand this and price stock markets to provide expected returns above those of high-quality fixed income markets.
While it’s always tempting to believe that you can participate in these expected rewards without experiencing all the risk, the evidence is clear this is extremely difficult to do. As a result, as challenging as it can sometimes be, we believe the correct approach is to stick with your long-term plan 1) if you have been comfortable with it up to now, and 2) it is expected to achieve your long-term financial goals with high likelihood. This second part is key because the rigorous planning processes we employ incorporate the likelihood of poor market results occurring at one or more points during your lifetime.
2. Global markets have gone through periods of substantial uncertainty before and will in the future.
We have reliable records of the performance of the U.S. stock market going back to 1900. Here is a brief list of some of the most notable events that the U.S. market has navigated:
- Financial panic of 1907
- Establishment of the Federal Reserve central banking system
- World War I
- Spanish flu
- Great Depression
- Collapse of the gold standard
- World War II
- Cold War
- Korean War
- Vietnam War
- Inflationary pressures of the 70s and 80s
- Tech bubble of the late 90s
- Contested Bush-Gore election of 2000
- Great Financial Crisis of 2007–2009
This is not, of course, to say that the U.S. market can’t go through an extended period of poor performance, as this has actually happened on three different occasions (late 1920s through early 1940s, late 1960s through early 1980s, and the late 1990s through early 2010s), but it does show the long-term resilience of financial markets, illustrating the point that markets have generally done a good job of pricing the risk it exposes investors to.
3. Diversification remains as important as ever.
While one can never ensure taking more risk will lead to higher returns, we can reduce uncompensated risks through diversification. For most of the investors we work with, one of the most important steps to take is diversifying stock market risk across individual companies, countries and industries. I’ll focus here on diversification across countries.
We have been through a period of dominant performance of the U.S. market relative to all other countries. This has tempted some investors to question whether it might make more sense to increase their allocation to the U.S. market relative to other countries. Yet, in the stretch we’re currently going through, it’s clear there are a multitude of scenarios related to the election and coronavirus that could conceivably impact U.S. markets more negatively than other markets. The way to reduce this risk is diversification across countries. This same way of thinking can be applied to any number of other investing examples and — without the benefit of hindsight — the correct answer is most always diversification.
Remember, your financial plan is designed to help you weather turbulence, and these aren’t the first events to spur investor uncertainty, nor will they be the last. As your partner, we’ll continue to see you through stretches of uncertainty, making sure that your investment and financial planning strategies help position you to achieve your long-term goals.
© 2020 Buckingham Strategic Partners
As Chief Investment Officer and chair of the firm’s Investment Policy Committee, Jared evaluates findings from academic research and applies that learning to architect the firm’s investment strategy.