A Spending Portfolio: Manage Your Expenses for Greater Happiness

But it’s also important to devise a portfolio around your spending. By paying attention to how you allocate your expenses, you can achieve a return that’s just as important (if not more): a return on your overall life satisfaction and well-being.

The most basic financial plans focus on cash flow or the ‘what’ area of spending – that is, what is coming in versus what is going out. To state the obvious, plans are successful when cash flow is healthy and you’re spending within your means.

The best laid plans, however, go one step further and consider not only the what, but the why behind your spending. In addition to making sure your expenses are aligned with your values, the latest studies on happiness can also help inform how spending on some things versus others can make a difference on your mood and positive outlook.

Can money buy happiness?

We’ve all heard that money can’t buy happiness, but is that always true? Not necessarily. Although earlier studies indicate that happiness begins to plateau once someone reaches an income of $75,000, recent research suggests that life satisfaction continues to improve the higher income you earn, at incomes well beyond $200,000. ^[1]

This is not only because baseline needs are being met. Contrary to popular belief, spending money on material items beyond life’s basic necessities positively impacts well-being. Short-term, it provides an immediate hit of dopamine, the neurotransmitter that lights up the “reward center” in your brain and produces feelings such as joy, pleasure, gratitude, etc.

With some purchases, such as those that reinforce one’s values, evoke memories, or have other symbolic meaning, there can also be a long-term effect. Consider, for example, a keepsake purchased on a family trip, an expensive watch you decided to splurge on as a retirement gift for yourself, or even something as simple as a bouquet of flowers placed on your kitchen table that boosts your mood each time you pass by.

Where this can go awry is when a person uses spending as a proxy to fill a void in another area of their life or becomes too dependent on instant gratification and starts to crave that feeling continuously. Referred to as “the hedonic treadmill,” this tendency can create a cycle of perpetual dissatisfaction which no amount of spending can fill. In these situations, one can turn to mindfulness tools to become more aware of one’s purchasing patterns or financial therapy if spending behaviors become addictive.

The Components of Well-Being

While spending money on “things” has its place, happiness researchers seem to agree that spending money on “experiences” provides many more emotional benefits. But are there some experiences that are more rewarding than others?

According to positive psychology (the field of psychology that focuses on what makes people flourish), there are five components that contribute to one’s overall well-being. They are:

• Positive emotions, or experiencing feelings like gratitude and pleasure
• Engagement, or achieving “flow” with enjoyable activities and hobbies
• Relationships, or forming social connections with others
• Meaning, or finding a purpose in life larger than you
• Accomplishments, or goals and successes

When it comes to happiness, the more we can incorporate activities into our daily lives that fall under one of these categories, the greater chance we will have to lead what positive psychologists refer to as “the good life.” Often, this doesn’t even mean that we need to change our spending habits because many of these things don’t require much wealth to begin with. Reaching out to loved ones or taking a walk outside can do wonders for our well-being, as would volunteering in the community or mastering a new task that produces feelings of achievement or engagement. These things are basically free and only cost time and attention.

That said, it’s worthwhile to review your expenses and ask yourself if life would feel more purposeful or joyful if you were to invest more in certain areas. Is there a hobby you love, passion project that puts you in a state of “flow”, or a class that would take your professional or personal goals to another level? What about directing more spending toward charitable giving that fills you with a sense of deeper meaning or adds to your lifelong legacy? Or perhaps now’s the time for that dream vacation or second home that would allow you to spend quality time with loved ones, nurturing those relationships in your life that are near and dear to you?

Our Greatest Resource: Time

Finally, while not a formal pillar of positive psychology research, the optimal spending portfolio should also incorporate expenditures that can buy you time.

What would you gain if you allocated some of your cash flow toward services and technology that would reduce the time you spend on tasks that you simply don’t enjoy. Perhaps it’s a cleaning service, regular meal or grocery deliveries, or direct flights vs. connecting ones. After all, more so than monetary wealth, time is our greatest resource.

The relationship between wealth and happiness is a complicated one. Wealth alone cannot buy happiness but, when allocated intentionally, it can be a wonderful tool for optimizing well-being and supporting the people, values, and activities that are most important to you.

For additional resources on the topics of wealth and happiness, check out:

The Good Life: Lessons from the World’s Longest Scientific Study of Happiness by Robert Waldinger and Marc Schulz

The Psychology of Money by Morgan Housel

Die with Zero by Bill Perkins

Happy Money: The Science of Smarter Spending by Elizabeth Dunn and Michael Norton

Flow: The Psychology of Optimal Experience