Tips to Spend Money Smarter and Be Happier
Q&A with Michael Norton, Harvard social psychologist and author of Happy Money
Posted May 16, 2013
One frequently-repeated finding from the last few years is that income increases will make people happier--as long as they're earning under $75,000. But once we cross the $75,000 a year mark, you're on your own; more money won't make you happier. (After all, the very wealthy have their own sets of concerns that most of us never need to think about.)
But if you've ever thought about money and happiness for more than two seconds, you know that the maxim "$75,000 is good" can't be the full picture. Are two-week vacations a better happiness investment than a new set of living room furniture? Should we order out, or save money and spend time cooking? Why do I feel guilty about my daily latté and bagel when they are only $6 and so very tasty? Even if you're past that mythical mark, these are the kinds of issues that affect everyone's happiness on a daily basis.
Social psychologists Elizabeth Dunn and Michael Norton have recently published Happy Money: The Science of Smarter Spending, a fun, funny whip-smart read that addresses the big happiness questions as well as practical advice you can put to practice immediately. I couldn't recommend it more. I recently spoke with Michael Norton, associate professor at Harvard Business School.
Isn't it bad form to think that money could influence happiness?
Having more money is never a bad thing, no one’s ever found that having more money makes you horribly unhappy, but there are things in life to focus on other than just getting more money. What we’re trying to do in the book is to say, it’s fine to keep thinking about how much money you have, but you may not be spending it in the best way to make yourself happier.
Why do you think people use money as a benchmark for their well-being?
One of the curses of money is that people really like things that we can count. So if I’m trying to figure out if I’m doing better this year than last year, one of the easiest ways is to count up my money and see if I have more... or count up the square feet in my house. If it’s bigger, than I must be better off than I was before. But some of the things that make us happier are really harder to count, like close relationships with people. And those are the kinds of things that contribute to us being happier.
How have the findings in your book influenced the way you spend money?
When you spend money, think about how it will change your time. I didn’t use to do [that], but I do a lot now. It actually helps me figure out the things I should and shouldn’t buy. The classic story of what not to do is people who drive 300 miles to save five cents on gas, because we’re focusing on the money instead of how we’re spending our time.
What's an example?
If you’re deciding between two TVs that are exactly the same except for one difference, it doesn’t matter. The time that you spend with either TV will be exactly the same in the future. All you really should be thinking about is ‘do I even need a TV?’
Why is it so hard to change our spending habits?
We have to force ourselves to think about what will make me happier in the long run, just as have to do with our health. And it’s not just the problem of ‘I should really save more than I am now,” which is one problem that we all face. It’s to resist the allure of buying things that seem great right now, that in fact now I know don’t lead to much happiness in the long run. And it’s very difficult-because when you’re in the moment, and that TV is in front of you, you really want to buy it.
One of the easiest things to do actually is free: take a break from the things you really like. In the book, we call this idea "Make it a Treat." If you always have a certain thing every single day, give it up for a day. You’ll save money, which is a good thing, but you’re also going to enjoy it way more tomorrow. This is a really hard one for us to deal with, because we always want that amazing coffee. But it is empirically true that if you stop for a few days, the coffee you have on Friday will be way better than the ones you would have had in the meantime.