5 Ways to Improve Your Relationship with Money

Can Money Buy Happiness?Can Money Buy Happiness?

By: Jeremy Shapiro, Ph.D.

Good relationships with money - like good relationships with people - require a balance between fun in the present and security for the future. The key is to respect both priorities and go back and forth between them in an efficient way. To succeed at this balancing act, we must learn how to enjoy ourselves today without creating problems for tomorrow and how to build a secure future without feeling deprived in our day-to-day lives.

There are two types of mistake to avoid - and they are opposites. Spontaneous self-indulgence and impulse buying provide kicks for an afternoon, but if we can't pay the credit card bills that result, the compounding interest will erode our future long after those kicks are forgotten. On the other hand, if we endlessly deprive ourselves of pleasures, our dreary days might grind on endlessly toward a future that never arrives.

How can we identify the sweet spot in the middle of the spectrum between these two extremes? Isn't it totally subjective? Actually, no. Money is an objective reality, and the financial statements we receive every month tell us how we are doing at balancing the priorities of today and tomorrow. At minimum, we had better break even. Once our careers are in gear, we need to save substantial money for emergencies, long-term goals, and retirement.

Recent research on the psychology of money and happiness provides good ideas for balancing the needs of the present and future. Here are five:

1. Buy experiences, not things.

Psychological research shows that, for a given amount of money, people get more happiness from buying experiences than buying material things. Your day at the beach or night at the theater will come to an end, but if you have a really good time, its benefits will last. Good times boost our moods for a while afterward, provide a basis for enjoyable conversations, and generate memories that have no expiration date. In contrast, the initial kick of buying an expensive possession usually doesn't last. People become accustomed to high-end homes, cars, shoes, and jewelry, and it doesn't take long before the thrill is gone-while the resulting debt might go on forever.

2. Make a lot of small purchases, not a few big ones.

Research also shows that a given amount of money produces more enjoyment when it is spent on a large number of small purchases rather than a small number of big buys. We get a surge of pleasure when we treat ourselves to something nice, and it doesn't make much difference how big the treat is, but the frequency of these pleasures does affect our quality of life. If you do the psychological math, this means that five $10 purchases produce more enjoyment than one $50 buy, so you get more bang for each buck by spending money at different times on different things, rather than going for one big-ticket item.

3. Mix it up, don't get in a rut.

Enjoyable experiences usually involve novelty and variety. When pleasures are repeated over and over, we become accustomed to them and the experience becomes routine. (This is one reason why big purchases are inefficient.) If you get a latte every morning or a restaurant meal every day for lunch, you'll run through thousands of dollars a year without ever feeling you're doing something special for yourself. Lattes and restaurant meals bring much more enjoyment when they are treats, not habits. If you establish a frugal baseline like bringing brewed coffee and a packed lunch from home, you'll be able to jazz up your routine with occasional pleasant surprises you can easily afford.

4. Use your head, not just your money.

Overspenders rely on expensive purchases as their sources of pleasure, while happily thrifty people often get enjoyment from activities that are either free or very inexpensive. If "having fun" is synonymous with "spending money" in your mind, it will be hard to maintain financial balance, while being creative and thoughtful in your search for good times can substitute for a considerable amount of money. The good news is that psychological studies have identified a number of inexpensive activities that bring real happiness to people: exercise, gardening, spending time in nature, arts and crafts, music, and religious activities.

5. Spend on others, not just yourself.

Research has found that performing acts of kindness for other people is a particularly effective way of increasing happiness. In one experiment, people were given a small sum of money and told to spend it either on another person or on themselves. A week later, scores on happiness questionnaires showed that it was indeed more blessed to give than to receive. Translating our values into action through generous deeds can build self-esteem and enhance our feeling of connection with other people.

By being strategic in our use of money, we can avoid the twin dangers of crushing debt and miserly self-deprivation. Skillful management of this relationship provides the magic combination - sparks of enjoyment in the present and long-term building for the future - that defines all our best relationships.

Jeremy Shapiro, Ph.D., is a psychologist and adjunct faculty member at Case Western Reserve University. He has written four books and numerous scientific and professional articles on topics related to psychotherapy. He also directs the website, YouCutTheBudget.com.

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