Money and Happiness: How to spend for optimal benefits


Not all the best things in life are free.

I was on holiday in Queenstown, New Zealand, back in 2016 and was amazed at how beautiful the scenery was. I was also amazed by how many experiences were on offer for people visiting or living there.

On my first day in Queenstown, I walked into the town. I immediately saw brochures for the speedboats, canyon swings, skydiving, mountain biking, snowboarding and heli-skiing in several shop windows.

I began hiking up a mountain, and suddenly someone whirred by me through the trees on a zip line travelling at 70km/h. It looked scary but also exhilarating.

Further up the hill, I came across a luge track where families and friends were roaring down the mountain in their carts, smiling and laughing and generally having a great time while taking in the breathtaking views. I saw people bungee jumping from a platform off the side of the mountain, and just above that were people paragliding down to the valley floor.

I don’t recall seeing many unhappy faces that day. On the contrary, most people fully engaged others or what they were doing. This is crucial for optimal well-being.

However, apart from hiking and taking in the scenery, all of these activities did come at a considerable cost, including the several days of skiing that I did afterwards at the surrounding Alpine Resorts.

If I had taken more money with me on that trip to New Zealand, I would have been able to experience a more extensive array of potentially fun activities. As long as I enjoyed these activities, I believe that they would have contributed to a higher level of happiness. But…

Can money ever buy us happiness?

Anyone who says that money can’t buy us happiness is looking at it too simplistically. I’ve seen too many financially stressed clients know that a significant gift of money would be a massive assistance to them in their time of need. It would reduce their stress and hopefully increase their level of financial security, happiness and overall well-being. Right?

By looking at past lottery winners, we can see that winning a large sum of money immediately increases happiness. However, 12 months later, the lottery winner has already typically returned to their pre-win levels of joy and are sometimes feeling even worse.

Furthermore, even people who have up to 10 million dollars of net worth often don’t feel financially secure and still believe that if they had more money, they would feel more secure, happier, and more able to buy all of the things they wanted.

It seems that it almost doesn’t matter how much money we have. As a result, most people will continue to feel financially insecure and typically strive to make more money than they have currently. But is this the best way?

Another interesting study found that beyond a certain amount of money (approximately $70,000 annually), an increase in salary does not typically lead to greater overall emotional or physical well-being. On the other hand, it seems that we do need to have enough money to look after our basic needs (food, shelter, water, safety etc.) and have a little bit of leisure or fun. However, making more money doesn’t seem to hold the answer to happiness, especially if we spend it in the ways that most people do…

Why does more money not equal more happiness?

I believe that the traps of Materialism and Capitalism are to blame, especially in Western culture. We are taught that working hard, making lots of money, and buying lots of stuff is the secret to happiness and success. This equation is just a myth, however, and it is required for consumerism to flourish. Consumerism prioritises short-term and societal growth above individual functioning or what is best over a long-term basis. It drives us to believe that we need stuff to be happy, and this is often at the expense of things that we really need in our lives to flourish.

So what can we do about it?

In the excellent book “Stuffocation” by James Wallman, he makes the case that we are now inundated with too much stuff due to our consumer lifestyle. It is complicating our lives and stressing us out. This stress is now offsetting any of the benefits that come from the stuff that we buy. So should we throw everything out?

Wallman does explore Minimalism as a possible solution to our Stuffocation but doesn’t believe that it is the antidote because it is purely defined by what materialism isn’t — real freedom can only come from doing what is right for us, not doing the opposite of what is wrong — it is too confining.

We could all just quit our jobs too, and stop making money, but the financial debt would catch up to us pretty quickly unless we somehow learned to become entirely self-sufficient and live off the land. Some people and communities can do this, but it’s definitely not for everyone.

Working less may definitely help, and Sweden has recently led the way with this by shortening their workdays down to 6 hours. Many people complain about being time-poor, and reducing how much time we spend at work would increase the amount of time available for people to use in whichever way they find most meaningful. This could be time with family, friends, engaging in exercise or hobbies, or taking some more time out to reflect and relax. We could cut down through improving productivity or efficiency (books like the ‘7 Habits of Highly Effective People’ by Stephen Covey or ‘Getting Things Done’ by David Allen could help) or cut down our commitments. Our productivity does decline dramatically if we are doing more than 9 hours of work per day or more than 48 hours per week, so this should be a useful guide for the maximum amount of hours that we should work for optimal happiness.

Once you have the extra time, it’s still about making sure that you spend your money in ways that will give you the biggest bang for your buck…

How to spend money in ways that can increase happiness

(1) buy more experiences and less material objects — Wallman believes that Experientialism is the true antidote to Materialism and Consumerism. We need to invest money in experiences and not on stuff. We need to be able to engage in these experiences. They also need to be accessible or that we can afford to do regularly if it is going to have a large impact on our overall well-being. If you have to invest in stuff, buy stuff that will make life easier for you to have more of the experiences that you would like and less of the experiences that you don’t.

(2) make sure that you are buying things for the right reason — A car or even a ride on lawnmower can be a way to make things easier or to have an enjoyable experience, or it can just be more stuff. We need to determine why we want to buy something, and if it is about impressing others (showing our status) rather than for our own enjoyment, it probably won’t lead to long-lasting happiness.

(3) buy more frequent and smaller pleasures, rather than less frequent and larger ones — People are relatively insensitive to the price of an object. If we buy less expensive things, we get a similar pay-off or reward (in happiness terms) for a much smaller cost. The less expensive things we buy, the less we need to work and save, and the less credit card debt we’ll have. With the Australian Securities and Investment Commission stating that Australians owe nearly $32 billion in credit card debt, or over $4,300 each, this is advice that a lot of us could take on.

(4) avoid credit card debt and overpriced insurance — Have you ever noticed that all of the big buildings in cities tend to belong to either banks or insurance companies. There is a reason for this. They prey on our cognitive biases and utilise effective marketing strategies to get us to buy things now and pay them later. The average Australian pays over $725 of interest annually on the $4,300 that they owe on their credit card at an interest rate between 15 and 20%. Suppose we pay only the minimum repayments, whether a credit card or a home loan. It will take a long time to actually pay it off and cost you a lot more money in interest. So spending more to reduce our interest or getting a debit card rather than a credit card will help us to not waste money for nothing in return except for immediate gratification. With extended warranties and no excess insurance, we will have to pay a premium for “peace of mind”, so it’s important to work out if that peace is worth the extra cost for you. Insurance works like the lottery — we always think, “what if it happened to me?” and forget about the actual probability of these events occurring.

(5) delay gratification by booking ahead — With more expensive experiences, the longer we can plan these the better it is for us. Not only do we get the experience, but also the anticipation and excitement leading up to it. So the next time you want to be spontaneous and book a concert ticket or holiday, book it for 6 months in advance and thank me for the increased happiness later.

(6) use your money to give to or help out others — There was a study where they gave individuals $20, and half of them were asked to spend it on themselves, and the other half were asked to give it away. They then tracked the happiness of these groups over a period of time. Whilst the happiness levels were similar between the two groups immediately after the event, the group who gave the money away were significantly higher only two weeks later. So giving to others really does make a difference, both to them as well as to you. This is a nice message to keep in mind with Christmas around the corner.

If you are interested in other ways to increase happiness through spending, please check out the fascinating article titled ‘If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right’ by Elizabeth Dunn, Daniel Gilbert and Timothy Wilson.

Dr Damon Ashworth

Clinical Psychologist

Published by Dr Damon Ashworth

I am a Clinical Psychologist. I completed a Doctoral degree in Clinical Psychology at Monash University and a Bachelor of Behavioural Sciences and a Bachelor of Psychological Sciences with Honours at La Trobe University. I am passionate about the field of Psychology, and apply the latest empirical findings to best help individuals meet their psychological and emotional needs.

6 thoughts on “Money and Happiness: How to spend for optimal benefits

  1. Nice post, certainly money can bring us happiness but then to have more happiness we should not just chase money. A calm and modest life is the best way to be happy.

  2. Wealthy enough to live without fear of homelessness, hunger or health-collapse while being allowed to pursue my modest passions. That is all the wealth I would care for.Were a donation to arrive to get me to this point, that would indeed make me happy for a long, long time.So, yes, $ can buy the possibility of happiness.
    Of course happiness is not a thing one pursues — it is an awareness one discovers when anxiety is low and self-fulfillment is high. Seeking happiness is counter productive.

  3. I think like most things, it’s subjective. Happiness to me personally is in the little things (because the big things are few and far between) highs are delightful but a come down is always imminent, unless your happiness ‘is’ each step on the way up an down. Also, I do think simplicity is the way to go, at least when trying to find the right staircase

  4. Great post! Love the idea of booking things in advance, giving money to others and the little and often instead of rarely and big.

    I have done all of them but don’t do any consistently and I know from my own experiences that they all have made me happier. I just needed to read this to realise it 👍

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