Easiest way to make the most of the money you have today

In the shop or watching advertisements on TV, we always get reminded of the myriad of things we could spend our money on. In the course of a single day, we make a lot of choices that affect our finances, many of which we aren’t even aware of. A similar type of decision illustrates just how automatic many of our choices can be: In his research, Brian Wansink wanted to see how many food-related decisions people made in a day. Before the study, Wansink asked his participants to guess how many decisions they made about food every day. On average, people guessed that they made 14.4 choices. But Wansink wasn’t satisfied with a guess, so he asked participants to carry a notebook with them and carefully track their decisions. When doing so, people reported making as many as 226.7 choices! Like food, we make perhaps even more decisions in a given day about our finances. With this enormous amount of choice, how can we make sure to make the most of our money?

The answer to this question probably has a different answer for every person you ask. Some might emphasize the details of different investment and saving opportunities, while others emphasize the happiness we derive from different ways of spending money. In this article, we will focus on the latter.

  • Optimize your daily routine

While observing goslings, the naturalist Konrad Lorenz discovered that they become attached to the first moving object they encounter after hatching out of their eggs. The goslings not only made a decision based on what was in their environment, they faithfully stuck with that decision for a long time. In this respect, humans have a lot in common with goslings: We are influenced by our environment, and our previous decisions can have a lasting effect on how we behave in the future. Take your daily lunch routine for example: If you buy a latte and a bagel for $10 every weekday, that is 250 days in a year. A small purchase then turns into a $2500 a year habit.

Like Wansink’s decisions about food, many of the automatic everyday choices we make about spending depend on a conscious choice we made in the past. What can we do if seemingly arbitrary decisions turned out not to be so great in the long run? In his book “Predictably Irrational”, Dan Ariely suggests that we train ourselves to question our repeated behaviors. How did an expensive habit begin? Is the pleasure you are getting from it worth it? Is it possible to cut back and spend the money on something else? Being aware of our habits and the effect even a single choice can have on similar choices down the road helps us optimize our daily routine. Examining whether spending money on one thing is really worthwhile helps us make the changes we need and spend in a way that makes us happier and more financially healthy in the long run.

  • Money can only buy happiness up to a certain point

In 2010, Daniel Kahneman and Angus Deaton published a landmark study showing that money does in fact improve our happiness, but only up to a certain point. To be precise, more money improves happiness until your household income reaches $75 000 per year. Another way to interpret these results is that not having enough money is associated with more stress and emotional pain. When we don’t have financial stability, it has a big impact on our happiness, but when we do other things become more important. The point about financial stability is important: Even if our household income is above or below $75 000, how we spend our money is still what determines whether we are financially secure.

  • Spending money on others make us happy and healthy

Research has shown that when we spend money on others, we actually experience greater well-being than if we were to spend that money on ourselves. In fact, spending money on others may even be good for our health! In two recent studies, researchers looked at the relationship between spending money on others and blood pressure and found that prosocial spending had almost as big an effect on blood pressure as a healthy diet or exercise. When we have the ability to share with others and do so freely, we feel socially connected. Spending on others helps us foster strong relationships and increase our resilience to stress.

  • Several small treats give us more happiness than one big splurge

Many consumers rely on the simple rule that “Stopping a good experience is bad, and stopping a bad experience is good”. As a result, we often decide to break a bad experience up into parts and not good ones. While many of the rules of thumb that guide our decisions are helpful, this particular rule probably does not help us maximize enjoyment nor minimize suffering. Imagine, for example, whether you would enjoy a continuous 30-minute massage more than two 15-minute massages with a break between them. In research by UC Berkeley psychologist Leif Nelson and his colleagues, participants were given several scenarios like the massage question. The studies all found that we tend to get more happiness when our good experiences are broken up into several smaller experiences rather than one big experience. The explanation for this is not as curious as it may seem: When we experience something for a longer period of time or with increased frequency, we adapt to it and get less pleasure or pain from it.

So what does this mean for us? When you can, it’s a good idea to opt for several smaller purchases instead of one big one. Overall, it helps us avoid the downsides of adaptation and gives us more of a “happiness bang” for our buck.

  • We are happier with our purchase when it fits our personality

The ways our personalities influence our spending and how happy we are with our purchases can be quite complex. However, a new study from researchers at Cambridge University looking at introverts and extraverts is shedding some light on the matter. Participants were given a £7 ($10) voucher to spend in either a bookstore or a bar. When there was a fit between personality and spending (when introverts went to a bookstore or extraverts to a bar), happiness levels went up. However, when there was a mismatch, introverts fared worse: Their happiness decreased if they spent the money in the bar. Extraverts, however, seemed equally happy with either purchase. The next time you make a purchase, then, consider if you want to get out of your comfort zone or spend your money in a way that aligns with your personality.

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