What Happy People Know About Money

In Laura Vanderkam's new book, All the Money in the World: What the Happiest People Know About Getting and Spending, she argues that many of us need to shift the way we think about money. Instead of focusing on budgets and how we're doing relative to our friends, she suggests thinking of money as a valuable tool. She says that her research reveals people who are "happiest about money" feel like they have enough (even if they aren't wealthy), could get more if they needed it, and that they have full control over how to earn and spend their cash.

[50 Ways to Improve Your Finances in 2012]

We asked Vanderkam more about her insights into money and happiness, including why she decided to start buying more fresh flowers. Excerpts:

Your last book, 168 Hours, focused on time management. Why did you decide to tackle money next?

Time and money are related variables that are always pulling in opposite directions. You can spend money to save time or spend time to save money. Money issues came up frequently when I was writing 168 Hours, so I decided, with All the Money in the World, to do for money what 168 Hours did for time: re-examine some conventional wisdom, look at how people are spending this scarce resource, and see what the research says about how we can spend it better.

As you point out in the book, sometimes we waste money on expensive purchases, such as engagement rings, just because we think we should, and not because it actually improves our happiness. What are some splurge-worthy investments in happiness?

Travel is almost always worth the splurge. You'll anticipate the experience beforehand, live through the adventure, and then savor the memory afterwards. So even if travel is expensive, you get a triple happiness whammy for every dollar spent. Taking a class in a subject that intrigues you is another good use for cash. Challenging our brains is enjoyable, and many of us don't make a habit of learning new things after school. We should.

How did writing this book change your own money habits?

I've learned to sweat the big stuff and splurge on little things. For years I would walk past a flower shop in New York, where I used to live, and I'd want to bring a bouquet home, but I'd never buy one. I felt it was wasting money. In the course of writing the book, I learned to spend more on flowers, and on fun groceries like produce and cheese that looks appealing. But we also moved from New York City to Pennsylvania, in part for the lower cost of living. You can buy a lot of flowers for the difference in tax rates between the two places.

[The Secret to a Long and Happy Life]

You recommend thinking of money as a tool to make us happy. How can we start doing that?

Using money wisely involves being mindful of what makes you happy, and what does not. Look over your bills and receipts, and see which give you pleasure to pay, and which feel like pulling teeth. Over time, can you allocate a higher percentage of your income to things that are pleasurable or meaningful for you and the people you care about?

Another way to get at the idea of what you enjoy is to ask what I call "The $10,000 Question." Say you got a $50,000 windfall. You put the first $40,000 toward savings, retiring any debts, and your usual charitable commitments. Ten thousand dollars is for fun money. The only ground rule is that, looking back on your life, you'd think you spent it in a memorable way. What would you do with it?

Spend some time thinking this through, because there are probably some insights into other things that can become financial goals in your answer. In general, people use money best when they spend on experiences, spend to nurture their social networks, and spend to buy time--a more absolutely limited resource than money. Since I know this, I always make time to meet friends for lunch, and I try to err on the side of having adventures. It's always easier (and cheaper) not to try something new. But afterwards, I'm glad I did.

Twitter: @alphaconsumer



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