The most frequent responses we hear when we advocate spending less and saving more are shockingly consistent and usually go like this…
- ‘Spending money makes me happy.’
- ‘The things I buy make me happy.’
- ‘It will make me happy and I can afford it, so why shouldn’t I buy it?’
- ‘I worked hard and earned my money, I deserve to spend it on the things that I want.’
These arguments are all pretty similar but have their own unique points to be addressed. At the risk of giving the impression that we’re knocking down the straw man, please believe that these are extremely realistic variations of the things people tend to initially say when they hear suggestions to live below their means. Can money buy happiness? At best, it depends.
Spending money makes you happy?
We’ll admit this one is a bit of a strawman argument. Though people respond with these actual words or some variation of them, they really don’t mean what they say. Nonetheless, here’s our brief counter-argument.
The actual act of spending money shouldn’t make you happy. When you spend money, you pay something called opportunity cost. Meaning, you forgo the value of another option whenever you choose a given thing. When you spend $5.75/week on a lottery ticket, as we showed in this article, you pay the opportunity cost of the $200,000 you could earn by investing that money for a period of fifty years. It’s a dramatic example, but you get the picture.
Spending money, for the majority of the mindless consumers out there, involves paying an enormous opportunity cost and thus should bring a healthy helping of guilt and regret, not happiness. In a
country world where most members of the privileged middle class are in a 100% hopeless long-term financial situation, spending should be a source of stress more than anything else.
Furthermore, do you want to be the kind of person who’s happiness comes from shelling out your hard-earned cash on passing whims and fleeting pleasures?
The things you buy make you happy?
This is a response with a bit more substance. Spending money doesn’t make you happy, sure, but the things you buy do. The problem with this, in our humble opinion, is the lack of attention to the difference between long-term and short-term happiness, which is also tied to opportunity cost.
A coffee at Starbucks (the ever-present example of evil consumerism here, sorry for the dull consistency) brings you short-term happiness. A meal at a restaurant, drinks with friends, and a ticket to the movie theater all bring short-term happiness boosts. When it comes to long-term happiness boosts, we as a society bear a complete lack of awareness.
Continuing with the example of the $5.75/week that could become $200k if invested for fifty years, or the $10/week that could become $40k if invested for just twenty-five years, we see that small, short-term costs come with the loss of huge, long-term benefits. Continuing to be a mindless consumer comes at the cost of attending a friend’s destination wedding, making the downpayment on the house you fall in love with, quitting your job and pursuing your dream, affording your kid’s pointe shoes or tuition, or (in America) paying for your or a loved one’s healthcare.
And sure, nights out with your closest friends or chats over coffee in a cafe feel wonderful and make you happy, we don’t deny it. But the long-term feelings and healthy relationships that grow from those smaller experiences don’t have to be purchased. Equally heartfelt and memorable conversations and experiences can be had on porches or in backyards, at parks or around the kitchen table.
When you step back and understand the compounding power of short-term decisions, you realize that the ‘happiness’ brought by the things you buy today comes at a heavy price: future discomfort, debt, or distress. And again, do you really want to be a person who is made happy by stuff bought with money, of all things?
Turn your attention to free or inexpensive activities such as cycling, camping, cooking for yourself, serving drinks at home, making your own small repairs, etc. Soon enough, you’ll adjust to a less expensive way of life and, seriously, begin to enjoy the satisfaction that accompanies responsible financial choices, living more efficiently and self-sufficiently, and earning your happiness– not buying it. (You’ll become wealthy in the process– never the sole goal, but not a bad one.)
It makes you happy and you can afford it, so why shouldn’t you buy it?
The phrase, “I can afford it” is so widely misunderstood that it might as well mean nothing.
Take a moment here and think about what ‘I can afford it’ means to you. Does it mean being able to buy it without abandoning something else you planned to buy? Having enough money to swipe your debit card? Having a credit line that can handle swiping your credit card? Being able to pay it off within the next six months? Being able to make monthly payments on it for the next thirty years?
We use a simple definition with a semi-deep explanation: you can afford it if its price is less than or equal to your earnings minus your expenses.
However, we believe that providing for future you is an expense. We believe that paying off your credit card in full each month is a mandatory expense. We believe that making an extra payment toward the principal of your mortgage is required. We don’t consider fancy drinks, restaurant meals, or gas for your oversized car expenses. Those are the things you may or may not be able to afford. So, you can afford it if you’ve got money left over after your expenses.
Answer in your head: If you’re carrying credit card debt, can you afford it? If you haven’t invested money for your future, can you afford it? If you’re making only the minimum monthly payments on your mortgage, can you afford it? If you have a car loan, can you afford it? If you don’t know if you’ll be financially secure sooner, later, or ever, or you worry about paying for tuition, or healthcare, or anything else that will probably come up in the future, can you afford it, whatever it is?
Consider those questions honestly. Think about your values. If you couldn’t handle a sudden $1,000 emergency room bill or a $500 car repair (63% of Americans couldn’t) can you really afford another piece of clothing? Tank of gas? Drink at a bar? Think about what kind of financial security you want to have in five, ten, or twenty-five years and determine whether you can afford the opportunity cost of one more seemingly small item. Remember, the opportunity cost is your long-term happiness. That is, if you get any extra happiness from security, independence, or opportunity.
Whew, long answer. Let’s wrap this up.
You worked hard and earned your money, so you deserve to spend it on the things that you want?
Though probably the most fundamental argument to combat in that initial shock phase of hearing an explanation of financial responsibility, it’s not hard to explain here after all of the writing we’ve already done!
It’s true, you worked hard for your money. It’s yours to spend. We are not here telling you what you must do with your money. But we are reminding you that there are two of you. Present-You wants a Mocha-Creamo-Bingo-Ultra-Half-Caf-Bendy-Turbo-Majestic Latte. Future-You, however, wants financial stability and to afford her kid’s tuition, to travel the world, to quit her nine-to-five and pursue a lifelong dream, among other things.
The problem is not that you are buying the thing that you want. The problem is that you are not buying the things that Future-You wants. You’re underfunding your future and tearing opportunities away from yourself right and left. So, when you read and feel that natural, pessimistic reaction to the things we write on this website, take that point into consideration. Sure, if you want it, buy it. But what do you want most? Which you wants it? What will pay the highest dividends in the form of long-term happiness?
To sum it all up for you, dear reader, (and thanks for reading this far) you should consider what future-you wants and needs at least as much, if not more than you consider what you need in the present. Some purchases pay long-term happiness dividends. Buying the domain name for this site, for instance, gave us a minimum of three years to spend long, happy hours refining our financial philosophy and sharing it with tens of thousands of readers! It was a substantial purchase, but it packs a long-term punch.
The author of this article also owns an expensive guitar- but he plays it every other day, used it to record an album, and enjoys the significant long-term happiness dividends that it pays.
But buying the domain name and the guitar required some months of saving and comparison shopping. Those purchases required politely declining invitations to restaurants, clubs, and movie theaters. Though there was some minor short-term discomfort (almost none, actually) the delayed gratification has been well worth the patient months.
Most simply put, when you spend all of your money, you don’t have any left. And dollars are worth more when they act like little green soldiers, out in the world being fruitful and multiplying to make you wealthier, more secure, and free.