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The Smart Way to Spend Money

Photo by Eduardo Izquierdo

Money doesn’t buy happiness.” Who among us hasn’t heard this phrase?

Well, most of us disagree, at least a little. This is because money can seem to make us happy.

But it can also drain our life of all meaning, as we work long hours at a job we don’t like only to come home too tired to enjoy our few remaining waking hours.

Several years ago, my husband and I found a way to approach money that had a positive effect on our happiness. Now, three years later, we have become quite good at it – so I would like to share with you what has worked for us.

Allow me to begin with an example. Long before I changed my perspective, I went to purchase an electric piano. I was very excited about it. I planned to spend what I thought was a considerable, but reasonable amount on this purchase.

I walked into the store, and went straight to a piano within the predetermined price range. I tried it, and I liked it.

But then something happened. Looking around, I saw other pianos. I decided to try some of them, with slightly higher price tags. And then a little higher and a little higher.

And, not surprisingly, I found a notably more expensive piano that I liked better. I bought it.

I now have a large, fancy acoustic-looking electric piano at home, which costs about half the price today as it did back then.

Was using the extra money really so bad? Did it not make me happier to have a nicer piano? Well, yes, I was a little happier with the better piano.

But the more important question is how did this affect my overall happiness? Would I have, for example, been happier with the cheaper piano and, say, several months of cleaning service instead of the more expensive one?

In my case, the answer is a resounding “Yes.” It seems so obvious to me now, but I didn’t even think about that option back then. My only thought was on the superiority of the more expensive piano.

Smart Money: Thinking Holistically

This brings me to my main idea: locally versus globally optimal choices.

When making a purchase, a locally optimal choice is one that only takes into account the immediate problem at hand. In my case, I wanted to buy the best possible piano that I could afford.

However, if we consider my purchase in the grand scheme of things, buying the more expensive piano made little sense, given my very own priorities.

The more expensive piano only increased my happiness by a little, whereas I would have been much happier had I purchased the cheaper piano and spent the remaining money on a cleaning service.

A globally optimal choice is a holistic approach that includes considering other ways we can use our money, as well as the time that we spend making it.

But before we talk about time, I should note that it really is difficult, when buying a piano, or a car, or a house, to settle for less than we can afford.

More expensive houses generally look nicer. More expensive cars typically ride more smoothly and feel more comfortable. More expensive pianos sound better.

But, the sky in the limit, as there is a product for every price. The key is to consider the big picture, and make choices that make the greatest impact on our overall happiness.

If we only make locally optimal decisions, a very simple thing will happen. When we go house hunting, we end up spending the full amount for which our mortgage was pre-approved. When we buy a car, we buy the nicest one we can possibly afford.

We have a beautiful big house, a nice expensive car (or cars), and many other high quality merchandise, and no money or time to spend on making ourselves happy.

People of vastly different income levels all manage to use up all of their money and many of us go into debt. But worst of all, so many of us don’t even like the jobs we do to support this expensive lifestyle.

Asking Questions Re: Money

A globally optimal choice is one that considers our life as a whole. It starts with how we make our income. Ask yourself, “Do I love my job?” If you do, that’s great.

But if you do not; if you work only for your paycheck; now is perhaps a good time to pause and reconsider our way of life.

How would you like to spend your days? How much money could you make doing what you love? Maybe only half of what you make now. Could you survive on that amount?

Would the happiness you derive from enjoying your job be worth moving into a smaller house, or selling your boat? What about settling for a less expensive car?

Only you know the answer for yourself, I merely suggest that it may be worthwhile to ask these questions.

Maybe you would prefer to stay at home and raise your children, or work part-time to spend more time at home. Would this choice ultimately make you happier, even if it entails making some lifestyle changes?

When you start looking at your life as a whole, and concentrate on what makes you happy, your priorities will be in line and it will become easier to let go of many locally optimal choices in order to increase your overall happiness.

However, even when you love what you do, it is important to strive for globally optimal choices.

Maybe you always wanted to learn to surf, or play the guitar, or see the Great Wall of China. Whatever it may be, you should be using your income in way that will maximize your overall happiness.

In doing this, there will be no sense of deprivation, because you know that if you really want it, you will let yourself have it.

When you ask yourself, “Will having the more expensive tiles in my kitchen make me happier?” and you know that this is a local, and not a global optimum, it becomes easier to go for the affordable choice.

But it isn’t necessarily about saving for the big stuff. Perhaps you would like to be able to go out for dinner more often, or see a show whenever you feel like it, but can’t because your car and mortgage payments drain just about all of your income.

So many of us are “mortgage broke,” working long hours only just to keep up with the monthly payments. I have known some people who could not even afford to furnish the large homes that they worked so hard to own, much less afford family vacations or any entertainment.

Parting Words

Only you know what makes you happy, and only you have the power to affect change in your life. But as we all know, it is not always easy to tell what makes us happy.

It requires a great deal of self-awareness. Perhaps the greatest source of confusion results from social standards, which are all too eager to inform us of what should make us happy (big house, new car, etc).

But the truth is that each one of us is unique, and what makes us happy is as unique as we are. Finding what makes us happy takes a great deal of introspection and may require some trial and error, but it is well worth the effort.

Then one day, a strange thing may happen. You get a job you love … and several years later your income increases. And you look around your house, wondering why you ever bought all of this junk anyway.

You no longer live paycheck to paycheck, because you can’t even come up with more things to buy that will make you happy. Because you already are.

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About the author

Maya divides her time between research, writing, teaching, and spending time with her family. She is the author of the e-book, The Book of Brilliance: 3 Steps to Awaken Your Inner Genius, which she provides for free on her blog, Great Living Now, with subscription. Maya also shares her insights in personal development articles on money, happiness and love.

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9 thoughts on The Smart Way to Spend Money

  1. Shashi

    I liked it so much . I have adopted some of the points all my life according to her views . Saving money is very important but spending wisely is also important . We learn from friends , relatives and others how to change our life style but no body teaches how to be happy . Happiness lies in ourselves and various things we do for our family gives it , but spending a little time for ourselves gives different happiness . It can be just a little walk outside free of cost , can be a sweet dish which we make only for ourselves , reading a good book or an article which somebody wrote spending hours and shared on public site or face book for which we stole time from family affairs but end result was just happiness . But who cares of our happiness . One day not our own partner cares for it because he thinks different . But that is not the point to be unhappy or depressed as I can make him happy other day with the things he wants . We can walk together in most cases but I can walk little different direction to make myself happy , doing what I want .

  2. Money is important and the sooner we teach our kids this the better. Why is it that some people love to ‘shame’ those who have money? Money is a tool to purchase products and services. Money helps supports charities and families. Donating money to your local PBS ensures that Big Bird and friends will stay on the air. People need to wake up and realize that money isn’t evil or bad. How you use your money is another story.

    Thanks for this thought provoking post.

  3. Excellent post on a topic many people struggle with. I love the idea of a locally optimal choice versus a globally optimal choice.

    My husband and I are blessed with good incomes and just recently we put ourselves on budgets because we realized we weren’t making choices about how we spent our money because we didn’t have to. Now we’re much more self-aware and our savings is growing as well!

    I think I’ll give your perspective a try in regards to the money choices I make. Thanks for the great post!

  4. This post really spoke to me once I got to “Asking Questions: Re: Money”

    This is something I have recently learned in the past few months and it is like waking up for the first time. I used to have this dream. I never knew what it was but I knew it required more money. I tried to keep up with the Jones’s but always wondered what I was doing wrong. I have a great paying job yet I have 15,000 of credit card debt plus two car payments totaling over 40k. I couldn’t afford to do ANYTHING! How was everyone else making it? When it hit me that they too were living well beyond their means thats when it became clear. ENOUGH! That s why your point hits home with me. We don’t make conscious decisions with our money spending habits. We don’t understand the consequences of the choices we make.

    We are all seeking happiness but we are, our own worst enemy…until we wake up!

  5. Hi Brain,

    You make such an excellent point! I fully agree that so many of our financial decisions are made without conscious awareness. We accept without question that a better car and bigger house should, somehow, make us happy.

    After we are done with our house and car payments, there is often so little left. Very often there is something completely different that we want so badly. Maybe it’s a hobby, or a trip, or training for a new career, whatever it may be, there is often something that we really want but have no hope of affording it when all of our money is already spoken for.

    Indeed, it’s amazing how much we can often afford when we align our spending with our personal priorities.

    Thanks so much for the great comment!

  6. Hi Shashi,

    You are absolutely right! So many things that bring happiness are absolutely free.

    Becoming aware of what makes us happy is the important part. Sometimes we sacrifice so much of our time in jobs we dislike only to be able to afford things that don’t even make us happy. In the end of the day, it’s how we use our time that matters most.

    Thanks so much for sharing your insights!

  7. Hi Amandah,

    I couldn’t agree more! Money, if used well, can bring about so much good – both to ourselves and to others.

    If used carefully, money can greatly boost our happiness. For example, studies show that when money is used to buy experiences instead of things it can have substantial influence on our happiness.

    It is also often necessary for pursuing some hobbies, continuing education, or simply seeing loved ones who live far away.

    Thanks so much for your comment!

  8. Hi Rebecca,

    Thanks so much! :-) I am glad you like the article.

    As you point out, it is all about awareness. Greater awareness about our financial decisions allows us to personalize them to our own unique needs, which lets our financial decisions to contribute more directly to our happiness. This also allows us to integrate saving into the equation. Saving often grows when we become more aware of how we spend, why we spend the way that we do, and how we would like things to change.

    Thanks for sharing!

  9. Great information. Lucky me I found your website by accident (stumbleupon).
    I’ve saved it for later!

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