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Use Your Money to Improve Your Life

Money and happiness are concepts that have been linked for years. But the latest research suggests that more money doesn't necessarily equal more happiness — or at least, it isn't a one—to—one correlation. In general, every extra dollar of income makes you reasonably happier — until you hit about $80,000. Any additional income above that makes you only a little bit happier, and the size of the happiness boost continues to decrease as you earn more. In other words, according to the research, people making $500,000 are only slightly happier than people making $100,000. The big bucks don't make as much of a difference as you'd think.

Some researchers suggest that what matters more is how you spend your time, and if you spend money on things that improve your time, you can use your money to improve your life. A variety of studies have also found that people who spend money on experiences are happier than those who spend on material things, since the memories linger and allow us to connect to other people in talking about them. In fact, even the anticipation of an experiential purchase is more enjoyable than anticipating buying a material good, according to a study published in Psychological Science.

It doesn't matter how much money you have, it matters how you spend your time. Michael Norton

We spoke with Michael Norton, Harold M. Brierley Professor of Business Administration at the Harvard Business School, member of Harvard's Behavioral Insights group, and author of Happy Money: The Science of Smarter Spending about the concept of how to spend money wisely to make your life better. Here's what we found:

Can money buy you happiness?

Michael Norton: One of the things that we and others have found when we look at the relationship between income and happiness is that it's not that having more money makes you unhappy, but it doesn't seem to really pay off in a big happiness difference. Maybe the problem is with what people do with the money when they make more. That led us to [the idea that] it doesn't matter how much money you have, it matters how you spend your time.

So what's the connection between money and time?

Your happiness is determined by how you spend your day, and if you're not using money to do things that make you happier with your time during your days, then there's no reason to think you'd be happier overall. That led us into all of these interventions which are thinking of the ways we often use our money, and what interventions we can try that change the way people use their money and change the way they spend their time.

Why do we spend money on things that are mundane and don't seem to matter? Michael Norton

What kind of interventions will help people make better decisions about how to spend money wisely?

In our day–to–day lives, we have this money–comes–in, money–goes–out kind of attitude. An exercise I do when I give talks is I ask people, 'If you found $20 in the street today, how would you spend it to make yourself the happiest?' People from all income ranges can get excited about finding $20 in the street. And then you ask, 'How did you spend the last $20 you spent?' And it's almost always on something boring and stupid. That's the fundamental question: Why do we spend money on things that are mundane and don't seem to matter?

Which would make you happier? Daily morning coffees — or — a monthly house cleaner?

Give us another example of the trade-offs that could help people make better spending decisions.

We asked middle income people who had enough flexible room in their budgets if they would hire someone to clean their house once a month, and they said, 'No, I don't have enough money, that's a luxury.' Another group of people, we said, 'Do you drink coffee?' And they said 'Yes,' and we said 'How often do you drink coffee?' And they said, 'A couple of times a day.' Some people spent $1,000 or $2,000 a year on coffee. And then we asked those people, 'Could you afford to have someone clean your house once a month for $100?' And they said, 'Yes, I would just drink less coffee.' We can shift around how they spend that money so they might spend it in ways that make them happier.

So should we spend money on things that free up time?

It's freeing up time, but it's also committing to spend time on things that are good for you as opposed to bad for you. What we have found is that for tasks, that's often a weekend day that people could have spent with their family or pursuing something they enjoy. We want them to think broadly across their weeks and their months and their years. Are they allocating their money in ways that give them more days that really are meaningful?

Which would make you happier? A few take–out dinners — or — tickets to a game?

So should we be outsourcing as much as we can?

We have been doing research on outsourcing, and it actually looks like outsourcing is good to a certain point. A lot of those tasks are things that are very concrete that we can accomplish. So it's not fun to clean your toilet, but at the end of the day, you feel this sense of accomplishment. Oddly enough, if you outsource too many things, you lose the connection to accomplishing things in your daily life. In general, using your money to outsource tasks you really dislike can be good, but if you use it as a blanket thing you're taking some easy wins away from yourself. So there's a bit of a balance.

Which would make you happier? A week's worth of cab rides — or — a day at the spa?

How can people do this in a day-to-day or month-to-month manner?

Think about doing a monthly audit of your spending. Imagine that you said, 'I want to spend more money this month on experiences,' or you could say, 'I want to spend eight percent of my budget on experiences.' Then every month you could actually go through your statements and check off how many things met your goal. It's a little bit time consuming, but it's not like we want people to spend hours creating spreadsheets. We just want people to pick a couple of goals that they want to use more money for, and monitor that over time.

For more on spending mindfully, check out Does Your Spending Bring You Joy?

Kate Ashford
Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, and Parents, among others.


We get it. Money is complicated. And like any relationship, your relationship with money can be difficult. So how can you make it better? It all begins with a little more engagement—and a little less avoiding. At Citi, we're here to help. So let's get started.

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