Happy Money: The 5 Principles of Smarter Spending

“Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness.  Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”  – Wilkins Micawber in the book David Copperfield by Charles Dickens

 

I have a confession to make.  The Micawber Principle, as stated above and from which this blog gets its name, is not entirely true.  At the heart of it is some great advice to live by but when you look at the details there is a definite problem. 

While spending more than you earn is a sure recipe for misery spending less than you earn is a necessary, but not sufficient, condition for happiness.  The Micawber Principle promises more than it can deliver and makes attaining happiness seem far easier than it is

We can forgive poor Wilkins Micawber for his exaggeration.  After all, he was completely unable to live the principle that now bears his name and was miserable because of it.  Deeply in debt and constantly hounded by his creditors Wilkins knew what was causing his misery.  He naturally assumed that replacing his deficit with a surplus would replace his misery with happiness.

We now have far more information on the topic than Wilkins Micawber did.  Indeed, University of British Columbia psychology professor Elizabeth Dunn reports that there are about 17,000 academic articles on the relationship between money and happiness and the evidence in these articles points to the conclusion that “additional income provides surprisingly little additional happiness.”

This lead Dunn to ask some fascinating questions.  Does money fail to make us happy because it can’t make us happy, or because we are not using it properly?  If we spent differently could money make us happy? 

Dunn recruited her friend, Michael Norton, a marketing professor at Harvard Business School, to help her answer these questions.  The result is the excellent book Happy Money: The Science of Smarter Spending, in which Dunn and Norton present compelling evidence that following five simple principles will help us to get more happiness out of our money.  The five principles are:

  • Buy Experiences
  • Make it a Treat
  • Buy Time
  • Pay Now, Consume Later
  • Invest in Others

Wilkins Micawber believed all that was necessary for happiness was spending less than you earned.  Dunn and Norton teach us that how we spend our money is just as important as not spending too much. 

I am going to devote a separate post to each of the 5 principles of smarter spending.  I will share ideas from the book and from other sources, as well as some of my own thoughts on each principle.  When we are done you will have the knowledge you need to squeeze as much happiness as possible out of your money, no matter how much you make.   

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