Inflation is at a high and prices on gas to your favorite restaurant and everything in between has gone up. As a result, you have to spend more money just to buy the same things you bought in 2021.
But if you’re spending more money than last year, then you may not have as much leftover to invest or payoff debt. Those two money decisions build your wealth.
Now it’s more important than ever to spend smarter. That means spending in a way that makes you happier now and your future self happier too.
If you want to spend smarter without sacrificing your happiness, here are 3 psychology backed ways to spend smarter.
Avoid the hedonic treadmill
Have you ever felt like a hamster trapped on a wheel? Like no matter how hard or fast you worked you couldn’t get ahead.
Then you might be on the hedonic treadmill.
It starts out innocent. Let’s use Haley as an example. She decided to treat herself with a brand new pair of Louboutin’s that took half her paycheck.
She was so happy for the first month she had them! Then another month of hard work went by and she decided it was time for this pair of shoes to have a friend. So she bought another.
And she loved that pair so much! Until she got the next one.
Now she has a whole closet full of shoes. When do you think she felt the happiest?
- Now, with a full closet of shoes
- When she bought the first pair of shoes
- Somewhere in between shoe 2 and the full closet
If you said 2, that’s right! If you said 1 or 3, that’s an answer society conditions us to think. More stuff = more happiness, right?
This is where the hedonic treadmill comes in. It’s similar to taking an elicit drug. The first time you buy something, you get a huge dopamine rush.
Your brain is wired to seek things that bring such joy. So in an attempt to feel that happy again, you buy another. Except you were expecting to feel the same way you did the first time, but the novelty has worn off. You get a smaller dopamine spike than the first time, which leaves you wanting more.
Now you’re on the treadmill where you keep buying more and faster, but it’s not satisfying the way you intended. The cycle keeps repeating.
So what can you do about it? Well you’ve already taken the first step, becoming aware. Now that you’re aware of it, see if you can identify any spending habits in your own life that mimic this treadmill.
Then you can slow down the treadmill by slowing down the spending. Then, you’ll regain control and recognize you don’t have to stay on the hamster wheel if you don’t want to.
Thinking critically about your spending helps you buy things that make your life better. It helps you avoid purchasing things that make you feel like a frantic hamster trapped on a wheel.
You can learn more about the hedonic treadmill from the Corporate Finance Institute here.
Discover your unique spending preferences
For our friend Haley earlier, shoes kept her on that hamster wheel. How do you know if there’s anything you’re spending money on that’s not adding value into your life?
Adding value means bringing you joy/happiness, convenience, security, safety, etc. These are things that truly make your life better.
There are a couple of ways to figure this out.
- As you were reading about Haley’s shoe addiction, did anything from your own life come to mind? If so, those are your shoes.
- Maybe there’s not one thing like shoes that stand out to you. Ask yourself, “Overall, am I happy with the way I currently spend my money?” “Would future me 10 years from now be happy with the way I invest my money?”
- If you answered yes to both of these questions, it’s likely you already have a good grip on spending. If you answered no, it seems like there’s an opportunity for you to optimize your spending.
If you want to spend more on the things that add value without making sacrifices, the Spend Smarter Spreadsheet is for you.
Each month it tracks your spending and if it added value or not. At the end of each month, you will have a summary of your spending. Additionally you will see what added the most value and what added the least value. Then, the spending that didn’t add value serves as a starting point for how to spend smarter next month.
It’s a great way to see how to spend more intentionally without sacrificing your happiness.
You can download the Spend Smarter Spreadsheet here or get more deets about the sheets here.
Experiences, not things, yield more happiness
Experiences typically result in more happiness than buying things. There are a few reasons for this.
- You pay before the experience occurs.
- Then you have the happiness from looking forward to the event.
- Then you can enjoy every moment of the experience without thoughts about money.
- You’ll have memories to look back on and they won’t be diminished by having to pay for the experience afterwards.
The value of an experience has a longer lifetime than material items. It’s because you anticipate the experience and have memories afterwards.
Conclusion
Spending intentionally is all about getting the most value out of your money. Here are three ways you can spend more intentionally:
- Slow down the hedonic treadmill. Curb shopping addictions where the items don’t bring you any value.
- Spending money on experiences over things typically leads to greater happiness.
- Use a spending tracker to discover what spending brings you the most value.
What will you try first?
