“MAKE MONEY, CUT YOUR EXPENSES, SAVE, SAVE, SAVE. THIS IS THE KEY TO FINANCIAL FREEDOM!!!”
No doubt we’ve all encountered people who exemplify this rhetoric before. They’re the people who cut coupons, buy food for the entire year, and pinch every penny possible. They also usually shame you for not doing the same: “Pfft. You know that burger is going to cost you $10,000 in 20 years right?”
After being bombarded by these statements, you might think to yourself “ah crap, well I guess the only choice I have is between choosing happiness now vs happiness later.” And I’m here to say that spending money on happiness is JUST as important as saving for your future.
Don’t get me wrong. This doesn’t mean to go to the mall and max out your credit cards. But it DOES mean that if you’re finding it hard to spend money (for fear of the future), you can relax a bit and spend some money on things you know will make you happy. In this post I’ll cover the impact of saving money (vs spending it) and my own experience investing in happiness. Hopefully by the end, you’ll feel more comfortable not tucking away every penny for the future. Let’s jump right in.
What’s the Point of Saving Money?
Now, before I start this section, I want to clarify that when I say “what’s the point of saving money?” I’m not saying “saving money is pointless.” Far from it. I’m literally posing the question to you: “What is the point of saving money?” Or more specifically “what does saving money mean to you?”
I can’t speak for everyone because everyone is different but personally, I love saving money because it’s my way to buy freedom. Freedom from a 9-5 grind for 40 years, freedom to do what I want on my own terms, and freedom to spend time with loved ones. If I save enough money and make smart enough investments, I can build up passive income streams to cover my expenses. Once I can cover all my expenses passively, I’m free! Ultimately though, freedom is the thing that will give me happiness. So really, I’m saving/investing money for happiness in the future.
Even though your reason to save money may be different, I imagine the end goal is that it will make you happy (otherwise why would you do it?) That being said, here’s the crucial logic behind this post:
- You’re saving money for happiness
- This is fine and good if the money you saved away doesn’t affect your happiness now
- BUT if you’re forcing yourself to not enjoy life in order to save money, you’re detracting from happiness now
- If you’re detracting happiness now and adding it back in the future, the net happiness effect is zero
Obviously, this isn’t to say “spend all your money NOW!” But it is to say that if your purpose of saving is happiness, by suppressing yourself from making certain happiness investments today, you may be working against your own intentions.
The Impact of Pinching Pennies
You might say “oh but Jeff, all these financial gurus keep on talking about how money compounds and grows and how 10 dollars today is gonna be worth…”
Well, today we’re going to putting that theory to the test with a scenario.
Let’s say I make 75k a year from my job and have no other income streams. My goal is to ultimately retire early and I think that I can do that once I hit $2 million in net worth. So I aggressively live below my means and save a ton of money. 75k a year is around 6k a month, so let’s say I save around $2500 of that and toss it into an index fund.
Using a compound interest calculator and assuming 7% returns in the stock market, we can figure out that it’d take around 25 years for me to retire. That’s pretty good and I’m pretty happy when I finally retire and am financially free!
What Happens When You Invest in Happiness
BUT, let’s say I also LOVE to eat out. All this time, because I’m listening to those financial gurus, I resist the urge to eat out and watch as my friends eat out once a week at my favourite restaurant. “NO, Jeff, you can’t let yourself eat out because your goals are so much BIGGER than your friends. You’re going to be financially free!”
Well, let’s calculate the impact that eating out would’ve had on my financial freedom. Let’s say it’s a pricey meal so I spend $30 extra every week. That translates to roughly $140 every month, or a reduced saving rate of $2360. How much longer would it take for me to retire because of that choice?
Take your guesses. 10 years? Nope. 7 years? Guess again. 5 years? Wrong, wrong, and wrong.
If I had saved $2360 every month instead of $2500 every month, it would’ve only taken me ONE YEAR longer to hit my retirement goals. Crazy right?
Now let’s go back to that first scenario. Was it really worth it for me to suppress my desire to go eat out with my friends every week for 25 years, just to retire one year earlier? If you’re like most people, I’ll bet the answer is no.
Happiness Case Study: Simba
What’s important about investing in happiness is that money gets invested in experiences. Studies have shown that when people buy THINGS, they are way less happy than if they bought EXPERIENCES. Not only do experiences create more joy, but the happiness from them also tends to last longer.
For me, investing in happiness manifested itself in the form of a kitten. More specifically, our family kitten Simba.
Simba is a sweet white-haired, blue-eyed Scottish fold who brings our family tons of love every single day. We all love his presence and he is a huge booster to everyone’s mood. Needless to say, he brings immense happiness to our family.
We’ve only had Simba for 3 months, yet I’m very sure that he will continue to bring us happiness for a long time. Now to do a cost analysis.
Simba cost around $2500. Once you throw in all of the toys and food and litter, his total cost comes out to around $3000. And also, every month he will cost us some money in the form of food and new litter: probably around $50. Let’s say that instead of Simba, we had invested the money into the stock market with 7% returns for 18 years (around the lifespan of a cat).
What would it be worth? $29,495.74. That’s how much money we are essentially “giving up” for Simba. Yet, just based on the happiness he’s brought in the first three months he’s been with us, it’s already worth more than that amount.
As you can see, my family didn’t buy extravagant items or splurge on luxury brands. Personally, I’m still aggressively saving money and investing it. BUT, we’ve decided collectively to invest in our happiness by buying Simba. And it’s a purchase I’m sure we’ll be happy with for a long time.
To all of you out there who are still not quite convinced on the case for spending money on happiness, that’s okay.
The purpose of this post isn’t to force you to spend money. In fact, it’s not even to say that one way of living is better than another. I’m merely trying to propose the question to each and every one of you: “What’s your end goal for saving money, and what are you willing to sacrifice to pursue it?”
You may ask yourself this question and go “hmm, interesting thought experiment but I’m going to go right back to cutting coupons and buying food for all of 2021 and walking to work every day.” and that’s fine. But it’s ALSO fine if you realize “hey, I’m OKAY with realizing my financial goals a little later if it means that I get to experience certain happiness’s now.”
I wrote this post to let you know that you CAN choose. That the impact of scrapping up a few dollars might not be as profound as you thought. That it’s not mandatory to live like a hermit in order to achieve financial freedom. That it’s ok to spend money on happiness sometimes. All things considered, it really doesn’t matter what you choose as everyone is different, but just know that you HAVE that choice.
Happy wealth-building everyone 🙂
Thanks for reading through this post about spending money on happiness and thank you for following along! If you’re a Canadian Student, check out the Ultimate Canadian Student’s Guide to Personal Finance! If you ARE deciding to spend on happiness, check out this cool Barbados resort review (who knows, maybe that’s what’ll make you happy). To learn more about me, head over to this link here. If you want to get exclusive updates and tips, drop your email in the “get updates” box (might have to scroll up a bit.) Let me know your thoughts and suggestions in the comments!
Jeff is a Harvard 2025 student passionate about making smart financial decisions both in school and in the workplace so that he can spend more time doing what he loves (like playing golf, spending time with family, and travelling). He has experience working in the financial industry and enjoys sharing all things personal finance, academic, and golf-related. Outside of blogging, he loves to cook, read, and golf in his spare time.