Four Ways to Smile More When You Think of Your Spending

A young couple smile as they look over their spending paperwork at their dining room table. — (Image credit: Getty Images)

When you think about how much you spend every month, you probably don’t feel much happiness about it. What if you could?

The word “budget” is enough to make us get up from the computer and go do anything else. If you want an easier way to figure out how much you spend, divide two years of total expenses by 24 (most banks make the total debit number easy to find online). And, voilà, you now have a pretty good idea of what your monthly expenses are. That number is probably going to be higher than you thought — and unpleasant.

You might feel something different, though, when you go a few levels deeper to the line items. You might cry as you think about the $2,500 you spent to fix a leaking pipe. You probably can’t remember what you bought for $850 at Costco. But you smile as you remember the family trip for Thanksgiving, despite the outrageous flight prices. The purpose of this article is to help redirect your spending to create more smiles.

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I have distilled down several studies at the intersection of spending and happiness to come up with four strategies to get more return on investment (ROI) on your spending:

1. Spend in alignment with your values.

This one may sound obvious, but ask yourself: Do you know your values? There are several exercises we use with clients to help them define their core values. I think of values as life-long goals. These are mine (which are the same as our firm’s):

Freedom (time and financial)
Relationships
Helping others
Growth

You can see from that list that buying a new flat-screen is unlikely to provide much long-term happiness (for me!). However, I do get excited when I see Travelzoo’s email with its top 20 deals come through every Wednesday. I also know that if I splurge there, I’m going to get a higher happiness ROI.

2. Remember that experiences deliver more happiness than things.

Pretty much every study, including the often-cited Harvard Study of Adult Development (aka, the world's longest study of happiness), agrees on this principle. But why? Most of it boils down to the reality that the joy derived from buying things is short-lived.

The concept of adaptation and the hedonic treadmill help to explain why things bring only short-term joy. Humans tend to revert back to a relative level of happiness once the sugar high delivered by a new possession has subsided. In contrast, the joy associated with experiences lives on through three phases: anticipation, event and memories. Memories become stories.

I recently traveled to Italy with my young children. The 5-year-old got very sick on the plane, and we ended up having to throw away the dress she was wearing. With the rest of her clothes below deck, my wife’s shirt became her new dress. While this was not at all funny in the moment, I am giggling as I write this, illustrating the recurring ROI from experiences.

3. Invest in relationships.

I had two clients move from the Washington, D.C., metro area to Florida during the COVID pandemic, seeking sunshine and a lower tax bill. In doing so, they left their social circles behind. This is one of the biggest mistakes I see retirees make. Both clients moved back.

The Harvard study referenced above goes deep into the benefits of close relationships. Of course, you cannot spend to create these relationships, but you can use money as a tool to deepen them. Here are a few strategies:

Use proximity of relationships as the driver for where you live in retirement. Moving to Florida to avoid income taxes, to Delaware to reduce property taxes or to New Hampshire to skip out on sales tax and income tax is not a good strategy in and of itself. You’re better off spending a bit more (assuming you can) to live closer to friends.
Take that trip … with friends. Spending at the intersection of things you love to do and people you love comes with a large ROI. Often, this comes in the form of group travel.
Give thoughtfully. We can all remember a gift that we went above and beyond for. I remember, as a kid, saving money and then taking a bus to the mall to buy my mom earrings that I had seen in a holiday catalog. I believe they cost $30. In retrospect, I’m pretty sure I got more out of giving that gift than my mom did from receiving it.

4. Replace working with giving.

I am not saying right when you stop earning a paycheck, you should start writing charitable checks, though you could do that. Giving, of both time and financial resources, usually increases happiness and overall well-being.

In a previous column, Will You Have a Happy Retirement (Even With Enough Money)?, I noted the challenges of walking away from work and losing identity, relationships and structure. Giving helps address all three of those. When we get involved in a cause in retirement, it gives us a new identity. We are now philanthropists. Others who donate their time and money to the same cause often become a new pool of people with whom we build relationships. Our ongoing commitments to said cause now give our lives some structure.

I'm not trying to persuade you to delete your Amazon account, but to think of money differently. Money, in its purest form, is just a tool — a tool that can help provide security, flexibility and, ideally, happiness.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.