This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com. In today’s article, she tackles a topic I’ve been meaning to write about, but haven’t made the time.

Contrary to popular belief, money can buy you happiness — if you spend it on the right things. That’s the skinny from the New York Times Business section, which last week took a close look at spending habits and happiness. Stephanie Rosenbloom writes that increased spending on leisure, travel, and hobbies tends to make people more satisfied with their lives, but buying Stuff does not.

You don’t have to spend a lot to be happy. In fact, simple living often leads to a richer life. The article opens and closes with a profile of Tammy Strobel from Rowdy Kittens, who gave up a solid professional life with all the cars, furniture, and Stuff her boring-but-lucrative job could buy. She’s a freelance writer now, living simply with her husband in Portland, Oregon.

Like a lot of people who’ve shifted away from a consumer lifestyle, Tammy now has more money to spend on what she loves because her needs are small. She’s not buying Stuff or keeping up a big apartment. She and her husband swapped their cars (and car payments) for bicycles.

Experiences, not Stuff
More and more people are moving away from conspicuous consumption towards a life of conscious consumption and saving. A recent spate of research is looking at how to squeeze the most happiness from your dollar. What they’re finding won’t surprise many Get Rich Slowly readers:

  • Spending money on experiences brings you more lasting happiness than spending money on Stuff. For example, a vacation will make your life better, over time, than a new couch.
  • It’s okay to think small. Spending on several small treats — like a massage, a good book, or dinner at your favorite restaurant — will bring you more happiness than one big-ticket item like a sports car.
  • Leisure activities like games, sports, hobbies, and entertainment have more happiness value than material goods.

What really makes people happy is connection. When we’re engaged in a leisure activity, we’re more likely to be socializing with others, forming and strengthening our relationships. It’s these strong relationships, not the Stuff we accumulate, that bring us lasting joy throughout our lives.

Experiences also pay off better than Stuff because we tend to color our memories happy. Let’s say you spring for that new couch. The day you bring it home, it’s perfect. The exact shade, texture, and firmness you wanted. You’re in your bliss, sitting on it for the first time.

Fast forward ten years. Now the couch is tattered and stained, and the cushions have gotten lumpy. Remembering how perfect it was doesn’t make you happier now; it makes you sad that you’re sitting on a bumpy relic of your couch’s former greatness.

Let’s say instead you’d put that money into an experience. A vacation where you were bitten by mosquitoes, almost missed your flight, and lost your hiking boots at the resort. Ten years later, your mosquito bites are gone, the shoes are long forgotten, and the photographs of the beautiful waterfall you visited still hang on your bedroom wall. The vacation actually gets better with time, as you hold on to the happy memories and forget the hassles.

Finally, experiences pay off on the happiness meter because of their novelty. We grow bored with Stuff and then want more! newer! bigger! better! Stuff. But it’s not the Stuff we want more of, really. We’re looking to replace the happiness kick we got from the Stuff when it was new. This is why so many of us can be staring at a closet full of expensive clothes and think we have nothing to wear, or restlessly scroll through thousands of songs in our iPods finding nothing we want to hear.

The psychology of spending
The fancy psychological term for this is “hedonic adaptation”. We adapt to Stuff faster than we adapt to new experiences. A vacation, a cooking class, seeing a good play — these experiences are all complex. They take time to digest, mentally and emotionally. When we do them with friends or loved ones, they become part of our relationships with those people, adding yet more layers to the experience and the memories that come out of it.

Frugal happiness seekers can use these principles to their advantage. It doesn’t take a lot of money to seek out new experiences. Just going for a walk down the beach with a friend can provide plenty of happiness, with no price tag attached.

Remember that idea of stringing small luxuries together, that I mentioned above? Splurging on a series of small indulgences is worth more happiness than one large splurge.

That kind of spending on frivolous luxuries pushes against the grain of my own non-consumer heart, but it’s another way to thwart hedonic adaptation. Buying one large item gives you a burst of happiness that quickly dissipates. While over time you’ll also adapt to the flavors at that restaurant you love or the joy of having flowers on your desk at work, a variety of small indulgences will give you many little happy moments.

On the other hand, we can get more happiness out of large purchases by saving for them in advance, rather than buying them on credit. It’s not simply that being debt-free is a happy way to be; you’ll also get pleasure from anticipating the purchase while you’re saving up for it. Once you have your new couch or dream vacation, you’ll enjoy it more knowing it’s the fruit of your hard work as a saver.

Ultimately, it’s our experiences in life that make us happy, and the relationships we have with those who share our journey. Money can be a great tool for getting the most out of our adventures and our time with loved ones, if we know how to spend it right. That means putting our money where our hearts are: spending on the activities and people we love, not the Stuff we’re told we have to have.

J.D.’s note: For more on this subject, see the first chapter of my book, Your Money: The Missing Manual. (You can download that chapter for free as an 889kb PDF.) Later today, I’ll post a semi-related anecdote about Stuff.

This article is about News, Psychology, Relationships